Earnings call: Titan Machinery reports a 1Q record revenue of $629 million

Titan Machinery Inc. (NASDAQ:TITN) faced a tough market environment in the first quarter of fiscal 2025, with a slower start due to decreased demand and an excess supply of inventory. Despite these challenges, the company achieved a record first quarter revenue of $629 million.

Management is taking aggressive steps to manage inventory levels and minimize Floorplan interest expense, while adjusting full-year revenue assumptions and focusing on growth in recurring parts and service businesses. The updated earnings per share (EPS) range for fiscal 2025 is now set at $2.25 to $2.75, as the company navigates through market headwinds and prepares for inventory levels to peak in the second quarter.

Key Takeaways

• Titan Machinery reported a record first quarter revenue of $629 million despite a challenging market.
• The company is aggressively managing inventory and reducing revenue assumptions for fiscal 2025.
• Agriculture segment sales increased by 5.8%, while construction segment sales declined by 0.7%.
• Europe segment sales decreased by 12.5%, and the Australia segment reported a pre-tax loss.
• The company expects inventory levels to peak in Q2 and decrease throughout fiscal year 2026.
• Updated EPS guidance for fiscal 2025 is between $2.25 and $2.75.

Company Outlook

• Titan Machinery is adjusting full-year modeling assumptions to reflect a more cautious market outlook.
• The company is prioritizing growth in recurring parts and service businesses despite lowering overall revenue assumptions.
• Inventory levels are anticipated to peak in the second quarter of fiscal 2025 and decline throughout fiscal year 2026.

Bearish Highlights

• The agriculture segment is experiencing reduced demand influenced by factors such as lower expected net farm income and higher interest rates.
• Construction segment sales have been impacted by a late start to the season and softening demand.
• The Europe segment is facing a softening of new equipment demand, leading to lower sales.
• The Australia segment is struggling with slow recovery in certain product categories, leading to a pre-tax loss.

Bullish Highlights

• Despite market challenges, underlying industry fundamentals in the construction segment remain stable, with healthy expected activity.
• The agriculture segment achieved a 5.8% increase in sales.
• Year-over-year growth in sales was reported in the Australia segment.

Misses

• The company's pre-tax income in the agriculture segment fell to $13 million from $24.2 million in the same quarter of the previous year.
• Construction segment's pre-tax income decreased to $0.3 million from $4.5 million year-over-year.
• Europe segment's pre-tax income dropped to $1.4 million from $6.4 million in the same quarter of the previous year.

Q&A Highlights

• Management discussed the impact of a lack of snow in the upper Midwest on operations and construction project delays.
• The company is offering incentives such as price cuts, interest buy-downs, and extended warranties to stimulate equipment sales.
• Titan Machinery's leadership team is experienced in managing downturns and is actively focused on addressing the current market conditions.

Titan Machinery is working to navigate through a challenging fiscal year with strategic adjustments and a focus on parts and service businesses. The company is set to manage inventory peaks and optimize operations while facing headwinds in the agriculture and construction segments. With a revised EPS guidance and a focus on long-term growth, Titan Machinery is taking a proactive approach to maintain its market position.

InvestingPro Insights

As Titan Machinery Inc. (TITN) adapts to a difficult market environment, the InvestingPro platform provides additional context for investors considering the company's financial health and stock performance.

InvestingPro Data highlights include:

• A market capitalization of $443.81 million, indicating the company's size and market value.

• A low P/E ratio of 3.92, which suggests that TITN's stock might be undervalued relative to its earnings.

• Revenue growth in the last twelve months as of Q4 2024 stands at 24.86%, a robust figure that showcases the company's ability to increase sales over the year.

InvestingPro Tips for TITN indicate that the company is trading at a low earnings multiple and is expected to be profitable this year, which aligns with the company's reported record first quarter revenue despite challenging market conditions. However, it is important to note that the company is also quickly burning through cash and operates with a significant debt burden, factors that could affect its future performance and financial stability.

For investors seeking a comprehensive analysis of Titan Machinery Inc., there are 11 additional InvestingPro Tips available, which can provide deeper insights into the company's financial and operational outlook. To access these insights and make informed investment decisions, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at Investing.com.

By considering both the real-time data and InvestingPro Tips, investors can gain a more nuanced understanding of Titan Machinery's current situation and future prospects.

Full transcript - Titan Machinery I (TITN) Q1 2025:

Operator: Greetings. Welcome to Titan Machinery's First Quarter Fiscal 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, today's conference is being recorded. I'll now turn the call over to Jeff Sonnek with ICR. Jeff, you may now begin.

Jeff Sonnek: Thank you. Welcome to Titan Machinery's first quarter fiscal 2025 earnings conference call. On the call today from the company are Bryan Knutson, President and Chief Executive Officer, and Bo Larson, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal first quarter ended April 30, 2024. If you've not received the release, it's available on the Investor Relations tab of Titan's website at ir.titanmachinery.com. This call is being webcast and a replay will be available on the company's website as well. In addition, we're providing a presentation to accompany today's prepared remarks, which can be found on Titan's website again at ir.titanmachinery.com. The presentation is directly below the webcast information in the middle of the page. We'd like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. Statements do not guarantee future performance and therefore undue reliance should not be placed upon them. These forward-looking statements are based on current expectations of management and involve inherent risks and uncertainties including those identified in the Risk Factors section of Titan's most recently filed annual report on Form 10-K. These risk factors contain a more detailed discussion of the factors that could cause actual results to differ materially from those projected in any forward-looking statements. Except as may be required by applicable law, Titan assumes no obligation to update any forward-looking statements that may be made in today's release or call. Please note that during today's call, we may discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan's ongoing financial performance, particularly when comparing underlying results from period to period. We've included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP measures in today's release. At the conclusion of our prepared remarks, we will open the call to take your questions. With that, I'd now like to introduce the company's President and CEO, Mr. Bryan Knutson. Bryan, please go ahead.

Bryan Knutson: Thank you, Jeff. Good morning, everyone. I'll begin today's call by providing a brief summary of the current market environment, then I will offer some thoughts on our results and updated fiscal 2025 outlook before passing the call to Bo for his financial review and incremental thoughts on our modeling assumptions. Our first quarter results reflect an industry transition to a more challenging market environment. We have rapidly moved out of a period characterized by restricted supply and high demand into one that reflects lower demand and excess supply of inventory in many product categories. This shift is mainly a product of two influencing factors. First, manufacturing delivery times have rapidly returned to normal following multiple years of supply chain constraints that significantly limited their production volumes. Second, we are seeing a softening of demand across our geographic footprint as ag fundamentals weaken. The combination of suppressed net farm incomes, extended duration of higher interest rates and broader macroeconomic uncertainty is impacting farmer sentiment and in some cases delaying equipment purchasing decisions. As a result of these incremental headwinds, we experienced a slower than expected start to fiscal 2025, which contrasts with the strong demand for equipment purchases that persisted throughout fiscal 2024. So while the normalization of supply chains and production schedules among our suppliers has enabled us to convert sales from our backlog, which in some cases have been delayed by more than a year, we are sensitive to the increase of new equipment inventory available for sale as well as used equipment stemming from trade-ins. Therefore, we are adopting more aggressive tactics to manage our inventories down to healthier levels, more aligned with softening industry demand. Big picture and longer term, we are laser focused on managing to healthy inventory levels, which correspond with whole good inventory turns in the 2.2 to 3.2 times range and minimizing our Floorplan interest expense. As we described on our Q4 FY'24 earnings call, we believe the path to achieve targeted inventory levels will likely carry through into our fiscal year 2026, but we have a direct line of sight into what we need to do and I will reiterate one more time, it is currently our highest priority and will remain so until we execute to these desired levels. Turning to some comments on our Q1 results. Although the first quarter performance was below our expectations, we were pleased to deliver positive same-store sales growth in our agriculture segment and despite demand being incrementally softer than we anticipated heading into the year, we were able to generate first quarter revenue growth of over 10% to $629 million, a record number for the first quarter even when excluding the contribution from the O'Connors acquisition. We also experienced some margin compression due to our efforts to proactively manage inventory levels through this transition period. Although this was anticipated when combined with higher operating expenses, higher Floorplan interest expense and lower sales demand, the combination resulted in an earnings and pre-tax margin performance below the levels we achieved over the last two years, albeit still significantly better than compared to the last down cycle. That said, I want to emphasize that we are very cognizant of the impact that this cycle shift is having on our business and we are scrutinizing all expenses while prioritizing our growth initiatives. For example, in the near term, we are being vigilant in the hiring of non-revenue generating positions while making sure that we are supporting those areas of the business that are strategically important over the long-term, such as our ongoing focus on bolstering our capacity of our service departments. Attracting and retaining skilled technicians is of critical importance given the industry-wide shortages and our desire to grow this reoccurring revenue aspect of our business. Nonetheless, throughout the duration of the cycle, we will continue to look for ways we can maximize operating leverage against the realities of the lower gross profit levels. In response to the softer than anticipated market environment, we felt it was prudent to adjust our full year modeling assumptions. Bo will cover this in greater detail, but in summary, we are lowering our revenue assumptions modestly while adopting a more aggressive stance than we previously had with respect to equipment margins to further ensure success in managing inventory levels. Our rationale here is straightforward. Staying ahead of the demand curve puts us in a position to be efficient regardless of what happens to industry volumes in FY'26. Given the sluggishness in equipment, we continue to lean into our customer care strategy to fuel our reoccurring parts and service businesses and this is an area where we believe we can continue to drive growth this year and create sustainable growth longer-term. In terms of seasonal farming activity at this stage in the year, planting progress among corn and soybeans is still in full swing. While some of our southern markets got off to a strong start with the early spring, recent precipitation slowed progress over the past few weeks. Within our European markets, both winter and spring crops look very healthy due to optimal moisture levels and in Australia, while subsoil moisture levels are supportive of the growing season, recent precipitation has been sparse and as such rainfall is still needed in the near term to foster seed germination. Overall, on a global level, our farmer customers remain in pretty good shape, both in terms of growing conditions as well as from a balance sheet perspective. Although net farm income is expected to decline this year, farmers' financial health remains strong with favorable land values further supporting grower balance sheets. In closing, as the cycle progresses, our entire team remains focused on advancing our customer care strategy to ensure we meet our customers' needs and continue to grow our more stable reoccurring parts, service and precision businesses while controlling the aspects of the business that we can, such as our fixed overhead and managing our inventory to align with demand. We believe that the combination of these levers will allow us to generate significantly improved financial results versus the prior down cycle demonstrating the numerous strategic improvements we've made to our business over the past several years. Before turning the call over to Bo, I want to sincerely thank our entire team who remain focused on serving our customers and operating the business with discipline as we face these shifting cycle dynamics. Additionally, our thoughts are with our employees and communities that we operate in that have recently been impacted by tornadoes and flooding. Safety and health for all of them and their families is our priority as they recover from these recent weather events. I said all of you keep them in your thoughts as well. With that I will turn the call over to Bo for his financial review.

Bo Larsen: Thanks, Bryan. Good morning, everyone. Starting with our consolidated results for the fiscal 2025 first quarter. Total revenue was $628.7 million, an increase of 10.4% compared to the prior year period. Growth was driven by contribution from our O'Connors and other acquisitions with the balance reflecting a 1.1% increase in same-store sales, which was driven by our agriculture segment. Our equipment revenue increased 9%, parts revenue increased 12%, service revenue increased 29%, and rental and other revenue was down 16.1% all versus the prior year period. Gross profit for the first quarter was $122 million and as expected, gross profit margin contracted by 140 basis points year-over-year to 19.4% driven primarily by lower equipment margins. Operating expenses were $99.2 million for the first quarter of fiscal 2025 compared to $81.3 million in the prior year period. The year-over-year increase of 21.9% was led by acquisitions that we've executed in the last 12 months, but also reflects an increase in areas like salaries and benefits due to merit increases in incremental headcount as we continue to focus on increasing service capacity in support of our customer care strategy. Floorplan and other interest expense was $9.5 million as compared to $2.5 million for the first quarter of fiscal 2024 with the increase led by a higher level of interest-bearing inventory, including the usage of existing Floorplan capacity to finance the O'Connors acquisition. Net income for the first quarter of fiscal 2025 was $9.4 million or $0.41 per diluted share and compared to last year's first quarter net income of $27 million or $1.19 per diluted share. Now turning to our segment results for the first quarter. In our agriculture segment, sales increased 5.8% to $447.7 million. Growth was driven by same-store sales increase of 4.3%, which was further supported by contributions from the acquisition of Scott Supply in January 2024. Growth was constrained by softening of demand for equipment purchases due to the expected decline of net farm income this growing season as well as the influence of other macroeconomic variables, including higher interest rates, which are weighing on farmer sentiment. However, underlying fundamentals remain sound, including efficiency gains from precision technology, elevated fleet age and strong farmer balance sheets. Agriculture segment pre-tax income was $13 million and compared to $24.2 million in the first quarter of the prior year. In our construction segment, same-store sales declined 0.7% to $71.5 million. The slight decrease was a product of modest growth in equipment sales offset by lower parts sales. With lower snowfall this past winter, we saw a decrease in seasonal demand for snow removal equipment and parts. However, underlying industry fundamentals remain stable and as we look to the rest of the year, construction activity is expected to remain at healthy levels supported by infrastructure projects, energy, livestock and commercial construction. Pre-tax income for the segment was $0.3 million, which compares to $4.5 million in the first quarter of the prior year. In our Europe segment, sales decreased 12.5% to $65.1 million, which reflects a 1.3% favorable foreign currency impact. Net of the effect of these foreign currency fluctuations, revenue decreased 13.4% reflecting a softening of new equipment demand, which was partially offset by growth in parts and service revenue. Year-over-year comparables are expected to be more favorable in the back half of the year as last year's second half saw a slowdown in demand, which was driven by drought conditions in Romania and Bulgaria. Pre-tax income for the segment was $1.4 million, which compares to $6.4 million in the first quarter of fiscal 2024. In our Australia segment, sales were $44.4 million and a pre-tax loss of $0.5 million. This revenue was in line with expectations and represents year-over-year growth versus the same period in the prior year, which was pre-acquisition. As a reminder, our Australia business seasonal trends are fairly similar to our domestic ag business with about 45% of revenue coming in the first half of the fiscal year and 55% coming in the second half of our fiscal year. Now on to our balance sheet and inventory position. We had cash of $36 million and an adjusted debt to tangible net worth ratio of 1.6 times as of April 30th, 2024, which is well below our bank covenant of 3.5 times. Equipment inventory increased $132.5 million to $1.2 billion in the first quarter, in line with expectations we set on our last earnings call. Going into the year, we forecasted that the rapid normalization of lead times from our OEM partners would result in a significant portion of our outstanding orders to arrive in the first half of the fiscal year while our seasonality generally has the back half of our fiscal year being our highest sales quarters. We continue to expect inventory levels to peak around the end of the second quarter with modest decreases through the back half of the year and more substantial decreases as we work through fiscal year 2026. With that, I'll finish by reviewing our fiscal 2025 full year guidance, which we are updating today to account for our year-to-date performance as well as the Industry's latest expectations of demand. In consideration of the incrementally softer demand than we initially anticipated when we provided our fiscal 2025 outlook, we are modestly reducing our revenue assumptions across each of our segments and modifying our underlying assumptions for equipment margin, variable operating expenses and Floorplan interest expense. For agriculture, we have updated our revenue assumption to be in the range of down 2.5% to up 2.5%, which also includes the full year contribution from our Scott Supply acquisition, which closed in January of 2024. As we've discussed, we remain focused on those areas that we can control while investing in our parts, service and precision businesses, which all remain key priorities. For the full year, we expect this will translate to growth in the mid to high-single-digit range for this portion of our business. For the construction segment, our updated assumption is for revenue to be flat to up 5% in line with the expectation of sustained demand levels in my previous comments. For the Europe segment, our updated assumption is for revenue to be down 5% to flat. This revision is due to the softening of industry demand we have been discussing today. For the Australia segment, we now expect fiscal 2025 revenue to be in the range of $240 million to $260 million with the change in assumption also incorporating the shifting farmer sentiment. Now for some broader commentary. From a gross margin perspective, we remain committed to improving our inventory position and as such we are building in additional equipment margin compression of about 80 basis points compared to our prior expectation. We believe this is prudent given the excess supply of dealer inventory in the channel coupled with the industry's latest expectations for softer equipment demand. The number one objective here is to manage the targeted inventory levels to match industry demand and achieve targeted KPI's that Bryan talked through earlier on the call. Looking at operating expenses, we are focused on implementing cost controls where we can, optimizing resources and being vigilant with any new headcount. Taking into account the full year operating expense contribution from acquisition activity that has occurred over the last year, our guidance implies operating expenses as a percentage of sales to be about 40 basis points higher than was realized in fiscal 2024 across the company as a whole consistent with our initial modeling assumptions that we laid out in March. Moving to interest expense. We are factoring in the reduced likelihood for interest rate cuts in the back half of the year to align with the market's latest expectations. However, we do continue to expect improvement of interest free terms, which should benefit interest expense in the back half of the year relative to the first half. Taken together with our revised revenue expectations and the resulting impact on inventory that we are working to improve, we anticipate higher Floorplan interest expense this year versus what was in our previous guidance. So rolling all this up, we are updating our fiscal 2025 EPS range to $2.25 to $2.75, which reflects the more aggressive strategy we are employing to improve our inventory levels as efficiently as possible to ensure we are well positioned moving forward. This concludes our prepared comments. Operator, we are now ready for the question-and-answer session of our call.

Operator: Thank you. We will now be conducting the question-and-answer session. [Operator Instructions] Now our first question is from the line of Ben Klieve with Lake Street Capital. Please proceed with your questions.

Ben Klieve: All right. Thanks for taking my questions. Plenty to talk about. I'll just leave it with a couple here. First of all, Bo, you lined out expectations for inventory decreases starting in the second half of this year with more substantial decreases, I think is how you framed it in fiscal '26. I'm wondering if you can first of all help us frame your expectations for inventory levels ending this fiscal year and maybe more notably ending fiscal '26.

Bo Larsen: Yeah. So in terms of how we see inventory continuing to progress and probably not inconsistent with what we talked about on our earnings call in March, we see inventory levels exiting the year similar to where we started the year. So again, it will climb in the first two quarters as we saw in Q1 and then kind of take back some of those increases, get back to about where we started. And then in terms of FY'26, the reason for the more substantial decreases, right, is just the timing of inventory ordering and then when things are coming in. So going back to a year ago now, even before that, kind of anticipating and turning down the dial in terms of order activity and then it was a matter of playing it out, right? So orders are coming in through the first half of this year pretty rapidly as lead times have compressed. Then we start to see that slowdown in the back half of the year. And then based on our order activity from here forward that really dictates how much is coming in next year. And with really good visibility to where we think demand is and where we want to see targeted inventory levels go, we're going to be able to see those levels decreasing faster again through FY'26. In terms of the exact dollar figure, that's going to be dependent, right, on our view on where industry demand is going because ultimately the targets that we're looking for are exactly what Bryan laid out a little bit earlier, right? So one of the -- number one things is you want to make sure that you're not incurring Floorplan interest expenses that's not a value added activity. But from an inventory turns perspective that range of 2.2 to 3.2, clearly, we want to be in the middle to the higher end of the range, but certainly the lower end of the range is reflecting transitionary periods that are slower and which you need to adjust inventory levels. So as we work through '26, get a good feel on what industry demand is at that point, that's the kind of target that we're looking to hit exiting that year.

Ben Klieve: Okay. That's helpful. And then one other one for me, I'll get back in line regarding Australia. Understood all the various macro dynamics facing the entire industry broadly in Australia specifically. Can you comment on the performance of Australia in this quarter versus your expectations and in particular if seasonality in this business is maybe more pronounced than you were maybe expecting?

Bo Larsen: Well, I would say that from a seasonality perspective, the expectation is and historically it has been the 45%, 55% split, perhaps a bit more pronounced in terms of the difference between Q1 and Q2 and then the difference between Q3 and Q4. So Q2 and Q4 being kind of outsized quarters and Q1 and Q3 being a little bit slower quarters there. But overall, the first quarter came very much in line with expectations. Entering the year, they had a significant amount of backlog and pre-sold equipment that was either on the ground or continuing to be delivered. So there's some good comfort in terms of a level of revenue that's going to be progressing through the year and that's a matter of PDI-ing that equipment and getting it in customers' hands. So thus far in line with expectations, loving the leadership team, excited about the branding launch this summer and just moving forward to be on that, talking about longer synergies with 24/7 service call centers and the like.

Bryan Knutson: Yeah. Ben, Bo covered it well. I would just add, we talked last call here and the call before about very recently in the back half of last year and especially in the final quarter of last year is when deliveries finally started catching up and really started rapidly increasing and we've talked about how we'll see that continue through the especially the first half of this year. Well, in Australia, there are still a couple product categories that have been the slowest to recover and then you add in the transportation time as well. So as Bo pointed out, we do have some -- a good amount of order backlog there and good pre-sales that have just been delayed a little bit, and then also the time to get those through the shop as they're coming a bit delayed. So that will all bode well for us for our Australia segment the rest of the year.

Ben Klieve: Very good. I appreciate that context. All right. Very good. I'll get back in line. Best of luck here in coming quarters.

Bryan Knutson: Thanks.

Operator: Our next question is from the line of Mig Dobre with Baird. Please proceed with your questions.

Mircea Dobre: Yes, good morning. I got a couple of questions on ag and some on construction as well. I guess, I'm looking to clarify first and foremost your comments around equipment gross margin. Can you be maybe a little more specific in terms of how you're -- what's embedded in the guidance for the full year?

Bo Larsen: Yeah, absolutely. Specific to ag, our equipment gross margins embedded in the guidance are about 9%, which is a step back year-over-year of about 320 basis points. If you look at that historically in the broader context taking the past decade into consideration, that's really moving our assumed margins to the low end of what we've experienced over the last decade with the exception of FY'16 and FY'17. Those particular years, we were in a significantly different inventory health position. Specifically, at that point in time, we had inventory that was aged greater than 12 months at 50%. So half of our inventory was sitting on the lot for more than 12 months, whereas today that's 9%, right? So a significantly different health of inventory, and that's why those two are a bit more of an outlier. But taking that into context and again looking at the past decade, we're really moving our margins. So the low end of the range of what we've experienced, all in the name of driving the top line and getting to a healthier inventory position. I mean, could you theoretically maintain higher equipment margins and a little bit lower sales and perhaps end up in the same spot from an earnings perspective? Probably. But in terms of what's best for the company going forward, it's really getting that inventory level to targeted levels as quickly as possible. That's why we're embedding this in the guidance, that's why we're wanting to get a bit more aggressive. One more data point for the first quarter and this is for the company as a whole, equipment margins were down about 230 basis points. While our guidance implies for the rest of the year that equipment margins will be down 330 basis points. So incrementally about 100 basis points the rest of the year. And again, that's reflective of the incremental softness on what we've seen on demand, but even more specifically the actions that we want to drive to achieve our inventory outcomes.

Mircea Dobre: Understood. I guess, what I'm personally struggling with a little bit though is if we're taking the gross margin on ag down to near decade lows, this is happening though as you're still not fully destocking in fiscal '25. I mean, you're basically saying that the destock is going to be a fiscal '26 event. So the margins are coming down while inventories are still going to be relatively elevated. I guess, how do you think about that, right? Like what's the incremental risk here to margin going forward as you truly go into destock mode? Should we maybe expect another move lower as we contemplate fiscal '26 or not?

Bo Larsen: Well, the difference here I think that maybe you didn't quite articulate there, right, is the order volume coming in year-over-year. So the significant amount of order volume as lead times collapsed from 18 to 24 months down to the normal four to six month timeframe is bringing in more than a year's worth of orders in a two or three quarter period of time. So now as we drastically change the order flow, next year is more of playing that through and seeing a significantly less inflow. And then the outflow will be what it is based on demand to get you to your objectives. This year what we're saying is that we want to take those more aggressive actions at the expense of margin to get to the best endpoint that we possibly can, right? So more of that hit is this year to absorb all of those orders that again is more than a year's worth of order activity in a shorter period of time.

Mircea Dobre: Okay. Then, I guess, moving on to construction, there is on a slide where you're kind of talking about market conditions in the outlook. You mentioned in there that you're taking an aggressive stance to lower inventories, maybe you can comment a little bit on that. I also thought it was quite interesting that the rental fleet utilization has been down -- has been lower, significantly lower, actually 500 basis points. So maybe a little bit of context as to what's going on there as well.

Bo Larsen: Yeah. So certainly, there's different extents across our segments, but from a CE perspective and then the industry in general, right, I mean, we are at similar thematics in terms of moving past supply chain constraints and then equipment availability increasing significantly and the compression of lead times. So the same story applies a different extent. So that's where we're just saying. Similarly, we want to make sure that we get to the targeted inventory levels that we want for CE in similar fashion. From a rental utilization perspective, maybe Bryan you want to add some comments.

Bryan Knutson: Yes, Mig. Just up in our footprint combination of as Bo talked about the lack of snow obviously up here in the upper Midwest, snow is a big part of what we do. And so that impacted the utilization. The lack of snow cover created some deep frost and cold temperatures we had throughout the winter, which caused a delay to a lot of the spring start to the construction season that's now well underway in full swing. And then just add in there some of the things around uncertainty around residential interest rates, some of the softening in commercial and the like. And so a little bit of softening there is also impacting, but -- so a combination of a late start. So we expect a good uptick here in our rental as we go forward now, but also it is overall a little softer environment than the last two years.

Mircea Dobre: Understood. Final question, maybe another clarification on the action that you're taking here. When -- we're seeing the impact on margin reflecting the guidance discussion. So I understand that, but I'm sort of curious as to what the actions per se are. I mean, does that mean that you're essentially cutting price or are there some incentives that are being offered in both construction and ag? How does that dynamic work on your end? What do you have to do to get this equipment moving off the lot? Thank you.

Bryan Knutson: Yeah, Mig, all the above. That's what's embedded in a lot of different tools. As you know, I've been doing this a long time and been through downturns before and I personally sold a lot of iron. We've got an extremely good team that we've put together now, our leadership team and our entire team that's experienced and been through this. It's a very scripted approach. You're going to pull different levers depending on what product category, what customers, what their needs are. But yeah, some of those examples would be some things you mentioned, whether it's interest buy down, interest waiver, a split rate program, whether it's an extended warranty or sometimes just straight up price. But every one of those is going to ultimately map back in the accounting to the margins. And so that's what we've got embedded in. And it's just -- what is it that for the grower contractor works for them and their banker and makes their operation better by updating that piece of equipment and again a simple example can be moving from a current rate contract of a 4% fixed or something into an interest free contract or being out of warranty and moving into a machine that now has warranty or technology advancements making them more efficient, et cetera, et cetera. So we're very cognizant of arming our team with those tools, communicating those tools and being very aggressive here. And as I mentioned in my prepared remarks, it is our single biggest initiative right now.

Mircea Dobre: Thank you.

Operator: Thank you. Our next question is from the line of Ted Jackson with Northland Securities. Please proceed with your questions.

Edward Jackson: All my questions have been asked and answered. Thanks very much.

Operator: Thank you. At this time, I will now turn the floor back to management for closing remarks.

Bryan Knutson: Okay. Thank you for your time today, everyone, and we look forward to talking to you all again in our Q2 call.

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

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