Titan Machinery Q2 2026 Earnings Call Transcript

Quartr
Provided by Quartr
August 28, 2025

Key Takeaways

  • Positive Sentiment: Confidence to exceed $100,000,000 inventory reduction target for FY26, positioning Titan for a stronger fiscal 2027.
  • Negative Sentiment: Full-year equipment margin guidance cut by ~100 bps to ~6.6% with domestic ag margins now expected at ~3.8%, contributing to narrowed adjusted EPS loss guidance of $1.50–$2.00.
  • Positive Sentiment: Parts and service generated over half of gross profit despite representing just a quarter of revenue, providing stability amid the equipment downturn.
  • Negative Sentiment: Domestic Agriculture sales fell 18.7% in Q2 with a $12.3 million pretax loss, and outlook hinges on $20–30 billion in uncertain government aid to growers.
  • Positive Sentiment: Europe segment posted ~38% same-store revenue growth ex-FX and $5.1 million pretax income, driven by Romanian demand under EU stimulus programs.
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Earnings Conference Call
Titan Machinery Q2 2026
00:00 / 00:00

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Operator

Greetings, and welcome to the Titan Machinery Incorporated Second Quarter Fiscal twenty twenty six Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeff Sonik with ICR. Thank you, sir. You may begin.

Jeff Sonnek
Managing Director at ICR

Thank you. Welcome to Titan Machinery's second quarter fiscal twenty twenty six earnings conference call. On the call today from the company are Brian Knutson, President and CEO and Bo Larson, CFO. By now, everyone should have access to the earnings release for the second quarter ended 07/31/2025, which is also available on Titan's Investor Relations website at ir.titanmachinery.com. In addition, we're providing a supplemental presentation to accompany today's prepared remarks along with webcast and replay information, which can also be found on Titan's Investor Relations website within the Events and Presentations section.

Jeff Sonnek
Managing Director at ICR

We would like to remind everyone that the prepared remarks contain forward looking statements and management may make additional forward looking statements in response to your questions. Statements do not guarantee future performance and therefore undue reliance should not be placed upon them. These forward looking statements are based on management's current expectations and involve inherent risks and uncertainties, including those identified in the forward looking statements section of today's earnings release and the company's filings with the SEC, including the Risk Factors section of Titan's most recently filed annual report on Form 10 ks and quarterly reports on Form 10 Q. These risks and uncertainties could cause actual results to differ materially from those projected in any forward looking statements. Except as may be required by applicable law, Titan assumes no obligation to update any forward looking statements that may be made in today's release or call.

Jeff Sonnek
Managing Director at ICR

Please note that during today's call, we may discuss non GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan's ongoing financial performance, particularly comparing underlying results from period to period. We've included reconciliations of these non GAAP financial measures to their most directly comparable GAAP financial measures in today's release and supplemental presentation. At the conclusion of our prepared remarks, we'll open the call to take your questions. And with that, I'd now like to introduce the company's President and Chief Executive Officer, Brian Knutson. Brian, please go ahead.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

Thank you, Jeff, and good morning to everyone on the call. I'll start today by covering our performance for the quarter, followed by an update on our operational initiatives and focus points for the remainder of the year. I'll then discuss the current market environment and its impact on each of our operating segments before turning the call over to Bo for his financial review and comments on our fiscal twenty twenty six modeling assumptions. Our second quarter results reflect the execution of our operational plan in what remains a challenging market environment. Six months into fiscal twenty twenty six, I'm pleased with the progress we've made.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

As we transition into the second half of the year, we're entering the next phase of our inventory reduction initiative with a heightened focus on optimizing our used equipment portfolio to ensure we're well positioned heading into next year. Consistent with our previously communicated expectations, our equipment inventory levels have remained relatively flat through the first half of the year, albeit we experienced a modest increase in inventory during the second quarter. The quarterly increase was largely due to the timing of OEM shipments ahead of deliveries to our end customers in the second half of this fiscal year. Not only do we remain confident that we will achieve our previously communicated inventory reduction target of $100,000,000 for the full year, we are positioned to exceed it, with the majority of that progress still expected toward the end of this fiscal year. As we continue down this path, we now expect our equipment margins to remain subdued through the rest of fiscal twenty twenty six, which is the primary variable that underpins the narrowed EPS guidance that we've updated today.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

This disciplined approach is fundamental to our plan of emerging from this cycle stronger and better positioned for fiscal twenty twenty seven. Although we've been spending a lot of our time with you over the past several quarters talking about the cycle and its influences on inventory, I do not want to lose sight of our long term effort to enhance the customer experience. Our customer care initiative continues to demonstrate its critical value during this equipment downturn. We focused on how to best leverage our scale and service capacity across our footprint, which is helping us maintain strong customer engagement even as equipment sales face cyclical pressure. Notably, our parts and service businesses together are generating well over half of our gross profit dollars through the first half of the year, while representing about a quarter of our revenue mix, providing valuable stability during the trough in this equipment cycle.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

Turning to our segments. In our domestic agriculture segment, performance tracked within our expected range, though farmer sentiment remains very cautious given the low commodity prices our customers are facing. Exactly where net income comes in for the year remains heavily dependent on government support programs as the additional $20,000,000,000 to $30,000,000,000 in potential aid remains uncertain and will be important in determining the near term trajectory of whole good equipment demand. However, we've seen some encouraging developments with timely moisture across much of our footprint, which has improved crop health and yield outlook for the current growing season. Additionally, the reinstatement of 100% bonus depreciation is also a positive as it provides an offset opportunity for those growers who do find themselves in a taxable income position at the end of the year.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

All of that said, without an additional catalyst, we continue to expect industry volumes for large ag equipment to be at levels slightly lower than the trough of the prior down cycle. However, we remain very engaged with our customers and are poised to capture opportunities that may arise as the year progresses. Our construction segment experienced weaker demand in the second quarter as customers took a more cautious approach to capital expenditures given the broader economic uncertainty. That said, infrastructure projects continue to provide a base level of demand that supports relative stability in this segment. Our European segment remains a bright spot with Romania continuing to drive strong performance as customers capitalize on EU stimulus programs before the September deadline.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

Absent this catalyst, the underlying demand would be much weaker, albeit more stable than we are experiencing domestically. Our Australia segment continues to track similarly to our North American ag business with industry volumes somewhat below prior trough levels. However, the primary reason for our year over year decline in the second quarter was driven by the normalization of sprayer deliveries in fiscal twenty twenty six after having caught up on a multiyear backlog of deliveries during fiscal twenty twenty five. Positively, we've seen some encouraging developments brought about by rainfall across much of our footprint, which has improved crop health and yield outlook for the current growing season. In closing, we're making solid progress on our inventory optimization initiatives, which will put us in a significantly stronger position as we enter fiscal twenty twenty seven.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

I want to express my sincere gratitude to our entire team for their tremendous effort and disciplined execution over the past year, where we reduced inventory by approximately $365,000,000 which was no easy task. Their ability to maintain exceptional customer service while executing our strategic and operational initiatives continues to be a key differentiator for us, and we remain confident in emerging from this cycle as a stronger company. With that, I will turn the call over to Bo for his financial review.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Thanks, Brian, and good morning, everyone. Starting with our consolidated results for the fiscal twenty twenty six second quarter, total revenue was $546,400,000 compared to $633,700,000 in the prior year period, reflecting a 14% decrease in same store sales driven by the factors that Brian discussed earlier. Gross profit for the second quarter was $93,600,000 compared to $112,400,000 in the prior year period, and gross profit margin was 17.1% as compared to 17.7% in the prior year. These decreases were driven by lower equipment margins, particularly in our domestic ag segment, resulting from softer retail demand and our continued efforts to manage inventory to targeted levels.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Operating expenses were $92,700,000 for the 2026 compared to $95,200,000 in the prior year period. The year over year decrease of 2.6% was led by lower variable expenses associated with the year over year decline in revenue as well as our expense reduction efforts. Floorplan and other interest expense was $11,500,000 as compared to $13,000,000 in the prior year period, reflecting our continued efforts to reduce interest bearing inventory over the past year. In the 2026, net loss was $6,000,000 with loss per diluted share of $0.26 compared to adjusted net income of $4,000,000 or adjusted diluted earnings per share of $0.17 for the same period last year. Now turning to a brief overview of our segment results for the second quarter.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Our Domestic Agriculture segment realized a same store sales decrease of 18.7% to $345,800,000 Segment pretax loss was $12,300,000 compared to adjusted pretax income of $6,700,000 in the second quarter of the prior year, reflecting softer margins due to weak retail demand while continuing our efforts to manage inventory to targeted levels. In our Construction segment, same store sales decreased 10.2% to $72,000,000 which was driven by lower equipment sales. Pretax loss was 1,200,000 compared to adjusted pretax income of $200,000 in the second quarter of the prior year. In our Europe segment, same store sales increased 44% to $98,100,000 which includes a $4,100,000 positive foreign currency impact. Net of the effects of these foreign currency fluctuations, revenue increased 38.1%, which was primarily driven by Romania, which was bolstered by EU stimulus programs.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Pretax income for the segment increased to $5,100,000 compared to pretax loss of $2,300,000 in the second quarter of last year. In our Australia segment, same store sales decreased 50.1% to $30,600,000 which included a 1.4% negative foreign currency impact. As Brian mentioned, this decrease was driven entirely by the normalization of sprayer deliveries in fiscal twenty twenty six. Industry volumes were already at trough type levels in Australia last year. So in this segment, we are seeing generally flattish sales excluding this normalization of sprayer deliveries.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Pretax loss was $2,100,000 compared to pretax income of 1,400,000 in the second quarter of last year. Now on to our balance sheet and inventory position. We had cash of $33,000,000 and an adjusted debt to tangible net worth ratio of 1.8 as of 07/31/2025, which is well below our bank covenant of 3.5 times. Regarding equipment inventory, as Brian mentioned, we experienced a modest increase during the second quarter to $954,000,000 bringing our six month inventory levels to essentially flat compared to fiscal twenty twenty five year end. Our cumulative equipment inventory reduction from peak levels in Q2 of the prior year stands at $365,000,000 Given the progress we have made on our inventory initiatives and the programs we have in place to continue to drive sales in the back half of the year, we have increased confidence in our ability to exceed the $100,000,000 inventory reduction target we set at the beginning of the fiscal year.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

I'm pleased with the full team effort we have had on this important initiative and what it should mean in terms of improved inventory profile, increased equipment margins and lower floorplan interest expense next fiscal year. We are seeing that our proactive approach to optimizing inventory is helping drive equipment sales amid a weak demand backdrop. That is giving us confidence in achieving our inventory reduction targets and is also reflected in our improved revenue outlook, which I'll cover by segment in a minute. However, further progress during this challenging environment requires the continuation of pricing concessions, and we believe this will hold equipment margins at lower levels through the balance of the year. As such, from a margin perspective, our fiscal twenty twenty six assumptions for consolidated full year equipment margin are now approximately 6.6%, down about 100 basis points from our previous expectation.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Turning to the domestic ag segment specifically, equipment margins for the 2026 came in at 3.1%, and we now expect full year domestic Ag segment equipment margins to be approximately 3.8%. This implies less of an improvement in the back half of the year than previously expected, but reflects our commitment to achieving our inventory optimization goals as we exit the year. Taking a step back, historic domestic ag segment equipment margins have averaged nearly 10%, with a normal range from approximately 8% on the low end to 12% on the high end, depending on where we are at in the cycle with equipment demand and where we and the industry are at in terms of inventory health. Our goal is to work back toward that range as quickly as possible, and we like the progress we are making, which should put us in an improved position heading into next fiscal year. Based on our year to date performance, we are refining our segment revenue expectations for the year.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

We are raising our assumptions for each of the Domestic Agriculture, Construction and Europe segments, while keeping Australia consistent. So we are now expecting domestic agriculture to be down 15% to 20%, construction down 3% to 8%, and Europe to be up 30% to 40%, while our expectation for Australia remains down 20% to 25%. Consistent with our prior expectations, operating expenses are expected to decrease year over year on an absolute basis, and with the revised revenue guidance translates to approximately 16 of sales. Floorplan and other interest expense is expected to continue to decline as we make additional progress on inventory reduction and mix optimization, building toward a more meaningful decrease in floor plan interest expense as we progress into fiscal twenty twenty seven. Factoring in the modified assumptions that I just walked through, we are narrowing our adjusted diluted loss per share guidance to a range of $1.5 to $2 Given the challenging agriculture industry backdrop, we are pleased with the progress we have made at the midway point of the year.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

We'll stay focused on our initiatives and look forward to providing another update on our progress in November. This concludes our prepared remarks. Operator, we are now ready for the question and answer session of our call.

Operator

Thank you. We will now conduct a question and answer session. You. Our first press question comes from Ben Klave with Lake Street Capital. Please proceed with your question.

Ben Klieve
Senior Equity Research Analyst at Lake Street Capital Markets

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

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Yes. I'll touch on those building blocks here in a minute. And first, just a little bit more perspective on that. As I look at the past decade plus specifically, and we're talking about domestic ag equipment margins here, the only periods of time where we've seen that equipment margin below that 8% was FY 2016 and FY 2017, which was really the meat of the prior cycle and then of course FY 2025 and then the current fiscal year. Outside of that, everything had kind of been in that range that we were describing.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

What needs to happen in order for us to get back up in that range really? Mean there's some key building blocks for our margin recovery. First and foremost, I'd start with mix optimization. That's really completing our $100,000,000 inventory reduction, really breaking the back on that aging profile and getting that mix correct. That one, we do feel good about exceeding by the end of the year, as we mentioned in our prepared comments.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Pricing discipline, what that really means both for us and the industry. Again, as inventory levels get healthier, we'll kind of pull off of the gas in terms of that aggressive pricing posture back to kind of a more normal environment and really pricing to that environment. So that will come as inventory gets healthier. Used stability and used equipment values, there's been a significant decline in used equipment values over the last eighteen months. Certainly if you go back to the beginning of calendar 2025 where they were to where they are today with rapid declines throughout last fiscal year and more stability this year.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

So we characterize while certainly lower than we'd want them to be, used values are relatively stable as opposed to where they were. And so that's also helpful as you think about how we need to forecast where used values are going to be. So I'd say the stability there is going to start being helpful should, as long as it remains more stable, help us improve that margin profile. Geographic optimization, what I'm talking about there within domestic ag, right, is we have 92 rooftops across our U. S.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Primarily Midwest footprint. And it's making sure that we're shifting around used comp, maybe we have too many used combines here, but we don't have any down there, right. So we've really done a better job and we'll continue to really focus on spreading that equipment around so that the equipment is where the demand is going to be and there's not excess equipment in any given area. So that's something that we feel really good about. OEM partnerships, working with our partners on targeted programs for specific categories, again to make sure that everybody across the channel is in a healthier position.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

And then our cost structure, not specific to margin, but clearly, as we improve the aging profile, lower floor plan interest is also going to provide a lot of meaningful P and L benefit. So we have a lot of confidence to your point, right, sub-four percent equipment margins today and what's implied in the back half of the year is kind of that 4% to 4.5% equipment margin across Q3 and Q4. I would expect significant improvement as we progress through FY 2027. We'd be getting ahead of ourselves if we'd be providing specific guidance for FY 2027, but certainly working back up toward that and I would say sequential improvement as we work through next year as well as long as we're achieving all those items I just laid out. And much of that we do feel good about.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

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

Ben Klieve
Senior Equity Research Analyst at Lake Street Capital Markets

Got it.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

Got Ben, is BJ. I would just add that besides your you you alluded to the fact that besides the obvious of net farm income, but I I wanna stress that in addition to everything both said, you know, that is the biggest driver. So in net farm income, just as a reminder, be a derivative of yield and price and a bit of government payment as well. So farmers, of course, don't like to be relying on government payments. We'll see how those come in the rest of the year.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

Crop is looking, you know, pretty robust out there. So that looks good. But I'm I'm continuing to implore everybody that we just gotta continue to find more uses for our crop and really promote the benefits of ethanol and sustainable aviation fuel and biodiesel and and just how much, you know, how efficient our our growers have gotten and and how that allows us to be, you know, productive and and how it's just better to grow stuff on the earth versus mining it out of the earth.

Ben Klieve
Senior Equity Research Analyst at Lake Street Capital Markets

I I wholly take your point there, BJ, and and I completely agree. Well, I I I appreciate the comments from both of you on this. Got to a couple of other questions I had. So I'm in good shape for now. We'll leave it there.

Ben Klieve
Senior Equity Research Analyst at Lake Street Capital Markets

Congratulations again on a good quarter and I'll get back in queue.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

Thanks, Ben.

Operator

The next question comes from Mig Dobre with Baird. Please proceed.

Mircea Dobre
Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co

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

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Yes. I appreciate the opportunity to clarify. So we are talking about consolidated total equipment margins. So yes, directly with total global equipment, that's the 6.6%. Separate from that, I drilled down on specifically domestic ag equipment margins.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

And that's where I said in the first half of the year it was 3.1 and for the full year 3.8. So that domestic ag 3.8 is part of what makes up the total global consolidated 6.6.

Mircea Dobre
Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co

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

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Well, I mean, you look at the first half of the year, right, revenue had been stronger than we had prescribed, and we're expecting that to continue. And it's largely focused on the used equipment side of the which is helping us ultimately then with the confidence in exceeding that $100,000,000 target. So it's really just a continuation of what we've seen in the first half of the year.

Mircea Dobre
Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co

Right. Because I guess my interpretation would have been just based on how I read your press release that you're using pricing as tool to accelerate your inventory destocking, which translates into maybe better revenues than you initially forecasted, but that should have, you know, a a negative effect on margin. And I guess this is where my confusion lies, that I'm not really seeing that embedded in your equipment margin outlook for the back half. Unless of course you are expecting better margins than what you're currently guided to?

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

No, no. So breaking it down a little bit, it's really I think just the mix that's a little bit more difficult for you, right? So from a total equipment margin perspective, we have pulled our expectation down about 100 basis points. Domestic ag specifically, we've actually pulled down more than that, right? But you see our mix shifting as we're now suggesting that Europe is going to grow 30% to 40%, Europe having pretty strong equipment margins and not seeing nearly the compression that we're seeing domestically.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

So overall, equipment margins are going down 100 basis points. U. S. Ag going down more than that, somewhat being masked by the strength in Europe and specifically Romania, right? So we are again, it holds together there.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

We have pulled it down some. You got more revenue. We're ending in a similar perspective, although we're tightening that range a bit and pulling out the quarter on the upside of everything.

Mircea Dobre
Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co

I see. Okay, that's helpful. When you sort of think about your your inventory reduction goals and you are clear about the fact that you're confident that you'll be able to exceed that 100,000,000 target, I guess, I'd be curious by by how much do you think you're gonna be able to exceed it. Is it just modestly? Is it is it maybe more meaningful?

Mircea Dobre
Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co

And then as you think about 2020 figure fiscal twenty seven, if indeed your inventory is normalized to your target, you know, what's the right way to think about your your margin structure? And I guess this goes to the previous question that was asked in terms of the path to margin normalization. If we're done destocking, can we start thinking that your margins are going to be normalized gross margins on equipment?

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

Yes. Hey, Mig, this is Brian. Tackle the first half and then turn it over to Bo for the second half. As far as how much we look to exceed the $100,000,000 by, of course, $100,000,000 is what we're maintaining publicly as our goal internally. Can tell you, Bo and myself and the team, our goals are a lot higher than that.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

But, you know, there's a lot of variables here for the rest of the year. And so how those variables play out, you know, will largely determine where that comes in. But, you know, at at this point, that's essentially what I can say is internally our goals are are significantly higher than that.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

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

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Even if you look at like in FY 2018, which was clearly not a mid cycle type environment because we had gotten work done in 2016 and 2017, we had seen that equipment margin recover kind of those normal ranges. So I would expect that we're approaching that normal range certainly as we work through next year. And again, logically to me, based on what we're seeing and still what we have ahead of us, I would see that it's going to kind of sequentially improve as we work through the year to that toward that normalized range.

Mircea Dobre
Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co

Understood. Last question for me. As we think about calendar year 2026, maybe your fiscal 'twenty seven, the OEMs are dealing with cost pressures, right, tariffs and such. And I'm I'm curious for model year 2026, what are you seeing from a pricing standpoint from the OEM? And in terms of the orders that you're taking for calendar 2026, are you able to pass through those OEM price increases? Or is this something that you have to accommodate for with either discounts or essentially items that impact your margin as a dealer instead? You.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

Meg, I know you were down at Farm Progress Show and visit with the OEMs. And generally speaking, I think they're talking about the 2% to 4% increase and and from a lot of our suppliers, we're seeing the same thing. But, you know, then it many different incentive packages that can come together off of that to, you know, to try to depending on the deal and and to get something to work for the grower. We're we're working hand in hand with our suppliers on on every deal, and it's a it's a very targeted approach right now. I know as they commented too, we're very early on in in some of the 26 presale programs.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

So it's quite early to tell with results. Again, we'll see what happens with interest rates here with with commodity prices, what happens with the crop if they get this big crop in. Obviously, it's a big shot in the arm with the bonus depreciation coming back, so we're very excited about that. And and so, yeah, I I think you do see, you know, reflected in our margins is is largely the aggressiveness we're going on the inventory reduction, inventory optimization. But it it certainly can have some impact on our margins for sure and our ability to pass that all through or not.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

And same with the OEMs, of course. And again, that's where we're really partnering together to take a very prescriptive approach on each one of these deals.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Yes.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

And maybe just really tangent to that and stating the obvious. With weak commodity prices where we're at today and pressuring farmer profitability, further cost increases are going to be really challenging and ultimately probably lead to some level of demand destruction, right? So what we're trying to do in terms of new deals as we think about presales is maintain discipline in terms of what kind of margin we need to expect so that we can get back towards normalization. And if that means that there's not as much demand for equipment, then that's going to put pressure on the volume that's out there. And that's our stance and that's kind of our view on things.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

So we're partnering with the OEMs and clearly going to need to work hard to see what can shape up for the first half of next year.

Mircea Dobre
Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co

All right. Appreciate the color. Good luck, guys.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Thank you, Mig.

Operator

The next question comes from Ted Jackson with Northland Securities. Please proceed.

Ted Jackson
MD & Senior Research Analyst at Northland Securities, Inc

Thanks. And again, congratulations on the quarter.

Ben Klieve
Senior Equity Research Analyst at Lake Street Capital Markets

Thanks, Ted.

Ted Jackson
MD & Senior Research Analyst at Northland Securities, Inc

My first question is just jumping into inventories. Can you give a little color with regards to I mean, I know it'll be in the queue, but what was the mix on inventories between new and used equipment? And then within the bucket of used equipment, could you kind of give a discussion with regards to the mix there between newer used equipment and older used equipment?

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Yes. So one thing I would say about that and obviously inventory being pretty relevant and pertinent, we have a couple of charts and specifically on page 15 of the earnings deck. It kind of breaks out the new, used, the turns. It also shows noninterest bearing, interest bearing, equity and inventory. A couple of interesting things there are that the amount of interest bearing has really been flat.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

The last couple of quarters, I've talked about for a couple of quarters now believing that we break the back on in terms of absolute dollar value of total aged inventory. That kind of peaking, plateauing in the third quarter and then we really start to see that downward trajectory, which then reflects in lower floor plan interest expense. Our used equipment did decrease about $50,000,000 in the quarter. And then sorry, that's for the first half of the year. Used has gone down about $50,000,000 New has gone up about $75,000,000 And the new is a reflection of the timing of receiving equipment and of course and then some FX internationally.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

So we've seen the total value of used equipment go down. We've seen sort of the flattish amount of interest bearing inventory, which will start to go down, I believe as we progress through the next quarter and kind of finally see that absolute dollar value start to trend downward. So things are progressing as we've expected. The tone that we described in the comments and then the color here is that we're getting increased confidence in exactly what we're going to achieve there. But, yeah, for those interested, you know, just trying to point out all of these things for you and represent it there in that slide on the earnings deck.

Ted Jackson
MD & Senior Research Analyst at Northland Securities, Inc

One of the OEMs at the farm show made a comment that they were seeing, know, obviously, a more challenged environment on newer used equipment and more demand on older used equipment. So, you know, newer being, you know, two to three years old and newer being eight plus years old. And that they were putting incentives in place to their dealer network to incentivize people with that older equipment to trade in for the newer used equipment because it was easier for them to make that swap and to get rid of the older equipment. I mean, is that something that you're seeing within your own world? Is that something that you guys are trying to do itself?

Ted Jackson
MD & Senior Research Analyst at Northland Securities, Inc

Is that, you know, is a part of what you're trying your your programs are in place to to try to bring down that equipment. So that's kind of where I was going to with that. And then I'll I'll step back. I have another question I wanna ask, but I mean, I'll leave that one alone and let you get to that first.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

Sure, Ted. Yeah. Absolutely. That's a piece or an ingredient in our recipe that we use all the time as well. We've used that on the last couple downturns as well.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

So it's it's certainly something we're we're doing. You know, every time there's a downturn, the late model used is is always the biggest problem area. It's always the glut. And so to work that stuff through and work it down is is kind of a historical lever that that we and and, you know, our fellow dealers have traditionally pulled. So we're we've certainly had a focus on that and been having quite a bit of success in doing that.

Ted Jackson
MD & Senior Research Analyst at Northland Securities, Inc

And then I'll ask one more and then I'll get out of line. Going back into inventories and such is another comment that came out of those meetings was that there were instances where dealers were actually not willing to do trade ins because they didn't wanna bring the used equipment into their yards. And that was leading to an opportunity to pick up market share by this particular OEM's channel, you know, being a little more aggressive. And so I guess my question would be sort of on two fronts. I mean, one front is, is there ever instances where you guys actually don't take a sale because you don't want the used equipment?

Ted Jackson
MD & Senior Research Analyst at Northland Securities, Inc

And then if I think about that from another perspective, if you do take the sale, is there an opportunity for you to pick up market share, if you would, in your regions by taking these deals where the dealer dealers from a competing OEM perhaps were not willing to do the trade ins. So it's sort of a two part question. And that's my last thing.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

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

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

We we never walk away from a deal. It's it's math. It's a it's a numbers game. You it's very important that you gotta know your numbers. But every deal makes sense at some point.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

And and so that the trade in value might be a lot lower than the customer wishes. The the trade difference might be a lot higher than the customer wishes or the annual payments might be a lot higher. But they're we have such a professional back office team here in our evaluations and and how they follow the used market. And so in the predictive analytics that we're we're using along with current data. And and so that's really the most important thing is you you gotta get the amount of money right that it could take to recondition the trade properly to get it turned in a timely fashion and you gotta get it on on market to to where the market's going.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

And and then beyond there, like, you can make the deals make sense. So the only time the deals don't work is if a dealer since we're all human screw, what are those factors up every now and then? Or lose discipline, you know, and and stray from what the numbers say it should be. So so we've we've certainly picked up some of those deals. We've we've had we've seen some customers that have done some switching, but again, just I would I would put the asterisk on it that there's a lot that growers consider when they when they make the switch and and look at the support.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

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

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

So I part of that math that he's describing is, of course, factoring in how many months supply you have. Right? So that that's what goes into it. It's where is the market? Where's the market going?

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

But also how many months supply do you have? What kind turns are you trying to achieve? The higher months supply, the lower that we're gonna be able and and willing to pay for a trade. You quote the deal, and then it either works or it doesn't. And that that's that's been our consistent approach.

Ted Jackson
MD & Senior Research Analyst at Northland Securities, Inc

Okay. That makes sense. Thanks for answering my questions.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

Thank you, Ted.

Operator

The next question comes from Laura Marr with B. Riley. Please proceed.

Laura Maher
Equity Research Associate - Diversified Industrials at B.Riley Securities

Hi, thanks for taking the question. My question is just with different OEMs having varying exposure to tariffs based on their supply chain. How is this affecting your floor planning arrangements and allocation strategy?

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

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

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

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

Laura Maher
Equity Research Associate - Diversified Industrials at B.Riley Securities

Okay. Thanks.

Operator

The next question comes from Steve Dyer with Craig Hallum. Please proceed.

Matthew Raab
Equity Research Analyst at Craig-Hallum Capital Group LLC

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

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

Yes. No, I appreciate the opportunity to do that. First of all, when it comes to incentives relative to presale activity for the back half of the year, that stuff's really already all out there. I mean, clearly, we're all still working together to get deals done, but I would say pretty clear on what that looks like and reflected in our guidance. Now to do some comparisons to the prior year, well, first, I'll start with Q3 to Q4.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

So overall, total revenue, Q3 to Q4, we are assuming that it's going to actually look pretty consistent. However, there is a mix change. And what I mean there is that last year, we saw parts and service in Q4 decline sequentially 30% versus Q3. And we would expect something similar happening as well, right? So what I'm saying is if you think about that, then Q3 is going to show more gross margin and profitability than Q4 because Q4, the time and attention from our shops is focused on getting a lot of those presales delivered before year end.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

So that directs a lot of our energy to delivering equipment, less of it on that parts and service side. You see that mix change, the profitability change. The other thing, the anomaly the other anomaly that I would point out this year is Europe and specifically Romania with those subpension funds kind of expiring at the September. So we saw significant growth in Europe in the second quarter. Third quarter itself, we're assuming we'll see about a doubling, about 100% year over year growth in Europe in the third quarter.

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

And then actually when you get to the fourth quarter and those funds going back, we're actually expecting like a 20% year over year pullback in Europe. So those are some underlying dynamics, albeit on a segment that's a smaller portion of our business. But then again, overall, Q3, Q4 total revenue is similar, pretty significant mix change. So you're profitability outlooks in those periods.

Matthew Raab
Equity Research Analyst at Craig-Hallum Capital Group LLC

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

Bo Larsen
Bo Larsen
CFO & Treasurer at Titan Machinery

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

Matthew Raab
Equity Research Analyst at Craig-Hallum Capital Group LLC

Okay. That's great. Thanks guys.

Operator

Thank you. The last question comes from Ted Jackson with Northland Securities. Please proceed.

Ted Jackson
MD & Senior Research Analyst at Northland Securities, Inc

Thanks. I just wanted to ask with regards to the pending farm bill and, you the kinds of farmer support. Just a little color of what you are hearing is gonna be included in there and, you know, just maybe just a little you know what I'm saying? Just a just a little paint the paint the picture of that in terms of what looks like is gonna happen with that bill VA that's gonna come to the farmer. Thanks.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

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

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

So we certainly like that but, you know, a permanent farm bill has been close to getting across the finish line here several times now. So that's what we're certainly lobbying for is just to see that done once and for all. And then, you know, just something lately that I've been talking about that I mentioned at the beginning of the call on a personal level with growers is really just that that price support and, you know, coming more in the form of organically as I mentioned. Just when you look at the stocks to use ratios or supply and demand and and just continuing to find more uses for crops. You know, there was a recent study that just came out of Nebraska that showed on more recent vehicles, the the mileage was almost the same with one mile per gallon less with e 15 vehicles or usage.

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

And actually on on the slightly older vehicles, it was one mile per gallon better. And so the state of Nebraska did a test with a 100 of their own vehicles. And and and so, you know, we gotta get that word out better. You know, there's so much opportunity here for, you know, increased independence and diversity, you know, of our resources by leveraging ethanol better and by leveraging soybeans better and just so many more products out there that we can make with soybeans as just one example. So, you know, funding for research in those areas, you know, is also less talked about previously, but it's certainly an area that I can tell you we're pushing for on our end.

Ted Jackson
MD & Senior Research Analyst at Northland Securities, Inc

Thanks.

Operator

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

Bryan Knutson
Bryan Knutson
President, CEO & Director at Titan Machinery

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

Operator

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

Executives
    • Bryan Knutson
      Bryan Knutson
      President, CEO & Director
    • Bo Larsen
      Bo Larsen
      CFO & Treasurer
Analysts
    • Jeff Sonnek
      Managing Director at ICR
    • Ben Klieve
      Senior Equity Research Analyst at Lake Street Capital Markets
    • Mircea Dobre
      Associate Director - Research & Senior Research Analyst at Robert W. Baird & Co
    • Ted Jackson
      MD & Senior Research Analyst at Northland Securities, Inc
    • Laura Maher
      Equity Research Associate - Diversified Industrials at B.Riley Securities
    • Matthew Raab
      Equity Research Analyst at Craig-Hallum Capital Group LLC
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