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Titan Machinery (NASDAQ: TITN) Third Quarter 2022 Earnings Conference Call, November 23, 2021, 8:30 AM Eastern Time

Hello, and welcome to the third quarter 2022 earnings conference call of Titan Machinery. [Operator Instructions] As a reminder, this meeting is being recorded. I now want to hand over today's meeting to your host, Mr. Jeff Sonnek of ICR.

thank you. You can start.

Jeff Sonnek - Investor Relations

thank you. Good morning, ladies and gentlemen, and welcome to the third quarter financial report conference call of Titan Machinery for the 2022 fiscal year. The company’s chairman and chief executive officer David Meyer received a call today; Chief Financial Officer Mark Calvoda; and Chief Operating Officer Bryan Knutson. By now, everyone should be able to see the earnings release for the third fiscal quarter ending October 31, 2021, which was released at approximately 6:45 this morning Eastern Time.

If you have not received the release, you can find it on the investor relations page of the Titan website ir.titanmachinery.com. The conference call is being broadcast live on the web, and a replay will also be available on the company's website. In addition, we will provide a presentation to accompany the comments prepared today. You can now access the presentation by visiting the Titan website ir.titanmachinery.com.

The presentation can be found directly below the webcast information in the middle of the page. You will see our safe harbor statement on slide 2 of the presentation. We would like to remind everyone that prepared comments contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance, therefore, they should not be overly relied on.

These forward-looking statements are based on management’s current expectations and involve inherent risks and uncertainties, including those identified in the risk factors section of Titan’s most recent annual report on Form 10-K, and the updated quarterly report on Form 10-Q. These risk factors include a more detailed discussion of factors that may cause actual results to differ materially from those predicted in any forward-looking statements. Unless required by applicable law, Titan assumes no obligation to update any forward-looking statements that may be made during today’s release or conference call. Please note that in today’s conference call, we will discuss non-GAAP financial measures, including adjusted results.

We believe that these adjusted financial indicators can promote a more complete analysis and greater transparency of Titan's continued financial performance, especially comparing the basic results of different periods. In today’s release, we include the reconciliation of these non-GAAP financial measures with their most comparable direct GAAP financial measures. The call will last approximately 45 minutes. At the end of our prepared comments, we will open the phone to answer your questions.

Now I would like to introduce Mr. David Meyer, Chairman and CEO of the company. Go ahead, David.

David Meyer-Chairman and CEO

Thank you, Jeff. Good morning everybody. Welcome to our third quarter earnings conference call for fiscal year 2022. In today's conference call, I will summarize our performance, and then our COO Bryan Knutson will give an overview of each of our business units.

Then, our Chief Financial Officer Mark Kalvoda will review the financial results for the third quarter of fiscal year 2022 and update our full-year modeling assumptions. If you go to slide 3, you will see an overview of our financial performance for the third quarter. The continued strength of the broader agricultural sector continues to drive demand for equipment throughout our business and drives our consolidated revenue to grow by 26% to $454 million in the third quarter of fiscal year 2022. Our larger revenue base, healthy inventory conditions, and lean infrastructure will provide strong operating leverage and drive pre-tax revenue growth of 109% this quarter.

At the departmental level, this operating leverage is particularly evident in our agricultural department, thanks to better-than-expected crop yields across our entire footprint, and a pre-tax profit margin of 7%, which is a record quarterly high for the department Water mark. Our construction and international divisions have also produced strong growth in profitability, each division has created another solid quarter and built on the progress made in the fiscal year to date. The contribution of all our businesses allowed us to drive a record third-quarter adjusted diluted earnings per share of US$0.96, an increase of 81% compared to the same period last year. Although the supply chain still faces challenges, we are collaborating through our store network to utilize factory shipments and utilize our parts and equipment inventory.

This allows us to take care of our customers during critical seasonal periods, allowing us to continue to achieve strong revenue growth. We are happy to conclude this fiscal year with strong momentum after the harvest and construction season is successful. Our updated modeling assumptions reflect our expectation that our momentum will continue into the important year-end technology sales season. We look forward to completing the previously announced Jaycox three-store acquisition of Case IH in December. We still believe that we will be able to maintain a growing sales momentum and continue to achieve higher levels of profitability. We believe that this will enable us to achieve record-breaking Annual earnings per share.

Now I will forward the call to Bryan Knutson.

Brian Knudsen-Chief Operating Officer

Thank you, David. Good morning everyone and good afternoon. I will first provide the latest situation of our domestic agricultural department, and then make some supplements to our construction and international business departments. Slide 4 is an overview of our domestic agricultural sector.

As commodity prices continue to rise and crop yields are better than expected, demand for new and used agricultural equipment remains strong. Further boosting demand, our Section 179 tax incentives, and the increased productivity that farmers see through the sophisticated technology in today’s newer equipment. Demand continues to exceed OEM production. At this point, most production tanks for the 2022 model are now full.

Faced with increasing input costs for farmers such as crop protection products, fertilizers, seeds, and fuel, more and more growers are locking in the prices of next year's crops. We are currently completing the harvest and autumn soil preparation in the last area of ​​our footprint. In general, the harvest is very good and the drying tasks are minimal. Our growers can complete the autumn field work in time and receive the much-needed supplementary autumn rainfall, which will further improve the planting conditions next spring.

All in all, as we see the continued strength of the second-hand equipment market, we are optimistic about the steady performance in the fourth quarter. Due to the high demand for new equipment, we expect to continue to sell through existing new inventory and should continue to receive scheduled pre-sale factory shipments. In addition, we believe that our successful off-season machine inspection program will continue to drive parts and service revenue in the coming months. Overall, our Ag department achieved outstanding results in the third quarter, and we look forward to an exciting fourth quarter and a strong closing.

Go to slide 5. You will see an overview of our domestic construction sector. As we discussed in previous conference calls, the operational improvements we have implemented in construction equipment stores over the past few years have significantly improved bottom-line results. The economic background of increased construction activity, low interest rates, rising oil prices, strong new housing starts, and the recently signed infrastructure bill support the strong demand for construction equipment.

With our footprint in the upper reaches of the Midwest, we also benefit from the current agricultural economy, as farmers, ranchers, customers and agricultural retailers have purchased construction equipment such as excavators, wheel loaders, skid steer loaders, and forklifts for the land Improvement, farm operation and material handling. Similar to our Ag department, we see supply-side challenges, tight inventory and long delivery times, but continue to obtain equipment inventory in this high-demand market. As the economy, stimulus, and infrastructure spending improve, we expect the CE business to remain healthy for the foreseeable future. On Slide 6, we outlined our international division, which represents our business in countries such as Bulgaria, Germany, Romania, and Ukraine.

Our European customers also benefit from higher global commodity prices and obtain favorable yields from early-season cereal crops and autumn field crops. We continue to deal with COVID, border closures, and supply issues, but the demand for new and second-hand equipment more than offsets these challenges. We continue to promote operational improvements and initiatives to further increase our parts and service revenue. As we move on-further execution will provide longer-term sustainability for our international market segments.

Finally, I would like to point out that we successfully closed the Serbian store sales in the third quarter, which will make us pay more attention to the production and agricultural markets in Ukraine, Bulgaria, Romania and Germany. Before I transfer the call to Mark, I would like to thank all our domestic and foreign employees, and thank you for your continuous efforts and great contributions in the first three quarters of our fiscal year. It is great to see the bottom line contribution from all three of our business units, and I am confident that we will continue to succeed when we end this year. With this, I will forward the call to Mark to review our financial performance in more detail.

Mark Calvoda-Chief Financial Officer

Thanks, Brian. Turn to slide 7. Total revenue for the third quarter of fiscal year 2022 increased by 25.8% to $454 million. Our equipment business increased by 36.9% over the previous year, which was attributed to the strong growth of our agricultural and international business.

Our parts and services business continued to grow, increasing by 4.9% and 4.3% respectively compared to the same period last year. We haven't seen much-so much growth this quarter due to tougher competition than the previous year. Parts and service activities in our Ag stores in Northwest Dakota and South Dakota have also decreased because these places are most affected by drought conditions. Rental and other income decreased by 7.1% from the previous year due to lower inventory rentals, the smaller rental fleet in our current construction footprint, and the reduction in fleet due to the divestiture of our construction store in Arizona in January 2021.

The increase in the U.S. dollar utilization rate of our construction department’s rental fleet helped offset these factors, which increased significantly this quarter to 31.4%, compared to 25.7% in the same period last year. The increase in utilization will help increase the profitability of this revenue category. On Slide 8, our gross profit for the quarter increased by 27.5% to US$92 million. Our gross profit margin increased by 30 basis points, mainly due to improved equipment profit margins, but also due to higher profit margins in all revenue categories.

Good end market conditions and healthy inventory support equipment profit margins. Compared with the third quarter of the previous quarter, this year’s sales mix shifted to equipment revenue, and higher profit margins in parts and service revenue partially offset higher profit margins. Operating expenses for the third quarter of fiscal year 2022 increased by US$8.8 million from the previous year to US$62.9 million. This increase was offset by revenue growth and resulted in a 110 basis point increase in operating expense leverage compared to the previous year, which reduced our operating expense to 13.9% of revenue compared to 15% in the same period last year.

Although expenses as a percentage of revenue are trending well, we are aware of inflationary cost pressures in areas such as fuel, wages, and employee benefits, and expect these pressures to intensify in the next few quarters. Due to the reduction in floor plan borrowings, floor plan and other interest expenses for the third quarter of fiscal year 2022 fell 21.6% from the same period last year to US$1.3 million. In the third quarter of fiscal year 2022, our adjusted net income increased by 80.8% to 21.7 million U.S. dollars, of which, after deducting the after-tax impairment costs of the same period last year, it was 2.6 million U.S. dollars. Our adjusted diluted earnings per share this quarter reached a record US$0.96, compared to last year's performance of US$0.53.

Compared with the third quarter of last year, adjusted EBITDA increased by 42.1% to 35.3 million US dollars. You can find a reconciliation of adjusted net income, adjusted diluted earnings per share, and adjusted EBITDA to its most comparable GAAP amount in the appendix of the slide presentation. On Slide 9, you will see an overview of our department’s performance for the third quarter of fiscal year 2022. Sales in the agricultural sector increased by 27.6% to US$281.5 million, which helped drive the sector’s adjusted pre-tax revenue to increase by 42% to US$19.6 million.

This is equivalent to a pre-tax profit margin of 7% in the third quarter, indicating that we have made extensive improvements to operations in the last cycle. Turn to our construction department. Compared with the same period last year, revenue increased by 0.9% to 79.7 million US dollars. Despite the divestiture of two Arizona stores in January, excluding these stores, same-store revenue increased by 11.1% in the quarter.

We are pleased with the continued improvement in the adjusted pre-tax income of this sector, which increased by nearly 150% to US$3.6 million compared with the US$1.4 million in the same period last year. Our international department also benefited from improved agricultural market conditions, with revenue increasing by 51.5% to US$92.7 million. Strong equipment sales and profit margins, coupled with the steady growth of our higher-margin parts and services business, increased adjusted pre-tax revenue by US$5.9 million to US$6.1 million, compared to US$200,000 in the same period last year . Go to slide 10.

You will see our results for the first nine months. Total revenue increased by 23.6% compared with the same period last year. Year-to-date, equipment sales have increased by 32.7%, parts and components have increased by 7%, service income has increased by 6.1%, and rental and other income has fallen by 16.3%. The nine-month dollar utilization rate of our dedicated rental fleet increased to 25.8%, compared with 22.2% in the same period last year.

Go to slide 11. Our gross profit for the first nine months was US$238.5 million, an increase of 23.1% compared to the same period last year. Our gross profit margin is relatively flat. The gross profit margin for the first nine months of fiscal 2022 will be 19.8%, a decrease of 10 basis points from the previous year. The impact of revenue mix on overall gross profit margin was largely offset by higher equipment profit margins.

Our operating expenses increased by USD 16.2 million, or 10.1%, to USD 176.5 million in the first nine months of fiscal 2022. This increase was offset by revenue growth. Compared with the previous year, operating expense leverage increased by 170 basis points, reducing our operating expense as a percentage of revenue to 14.7%. The impairment charge has been reduced from USD 2.8 million in the previous year to USD 1.5 million in the current nine-month period. In the first nine months, floor plan and other interest expenses fell by 24.2% to US$4.3 million, mainly due to the overall decrease in floor plan borrowings.

Our adjusted diluted earnings per share doubled in the first nine months of fiscal 2022 to $1.98, compared to $0.97 in the same period last year. Our nine-month adjusted EBITDA increased by 52.1% to US$78.6 million, compared with US$51.7 million in the same period last year. On Slide 12, we provide an overview of the market segment over the nine-month period. Overall, our adjusted pre-tax income for the first nine months of fiscal 2022 was US$59.3 million, compared with US$31.3 million in the same period last year.

This 89.8% increase was due to the significant improvement in the performance of all three of our business units. In Slide 13, we outline the balance sheet highlights at the end of the third quarter of fiscal year 2022. As of October 31, 2021, our cash was US$91 million. Equipment inventory at the end of the third quarter was US$323 million, a reduction of US$15 million from January 31, 2021, reflecting the net impact of a reduction of US$44 million in old equipment, partially offset by a US$29 million increase in new equipment.

Strong sales and low inventory levels continued to drive equipment inventory turnover, which increased to 3.1 from 1.6 last year. I will provide more colors for our inventory in the next slide. Our leased fleet assets increased slightly to US$82 million at the end of the third quarter, compared to US$78 million at the end of fiscal 2021. We still expect our fleet size to reach approximately US$80 million by the end of fiscal year 2022.

As of October 31, 2021, we have $175 million of outstanding floor plan payables out of our $753 million total floor plan credit facility, which allows us to have a considerable credit line to handle our equipment financing needs. Our adjusted debt-to-tangible net assets ratio was 0.7 at the end of the third quarter, and 1.0 at the end of the third quarter of fiscal 2021, which is much lower than 3.5. This is the leveraged contract requirement for our two largest floor plan facilities. Outside of the bank’s syndicated credit agreement. Go to slide 14. The quantities of new equipment and old equipment inventory are reflected in the size of the blue and red bars on this slide.

As we have discussed in the past few quarters, due to increased customer demand and tighter equipment supply in the industry, our inventory turnover has accelerated. At the end of the third quarter, we promoted an inventory turnover rate of 3.1 times, and we expect this ratio to continue to rise by the end of fiscal year 2022, given current inventory levels and terminal market conditions. We believe that our equipment orders, delivery schedules, pre-sale levels and equipment inventory enable us to meet our current revenue model assumptions for fiscal year 2022. The overall quality of our inventory is still very healthy.

As can be seen from the gray bars on the slide, our non-interest-bearing inventory was 45.5% at the end of the third quarter. Slide 15 shows our updated annual modeling assumptions for fiscal year 2022. The continued income strength of our agricultural and international sectors, coupled with the expectation-the expected acquisition of the three Jaycox stores in early December, has allowed us to improve our revenue growth model assumptions for these two sectors. This revenue growth, coupled with the strong profitability performance of all three divisions, has also raised our expectations for the range of diluted earnings per share.

For the agricultural sector, we increase the income growth assumption from 18% to 23% to 23% to 28%. The growth scope for fiscal year 2022 includes the full-year revenue contribution from the HorizonWest acquisition that we completed in May 2020, as well as the expected revenue from the acquisition of Jaycox. For the construction sector, we maintain a revenue assumption of as high as 2% to 7%. As a reminder, this assumption includes the divestiture of our two construction equipment stores in Arizona at the end of fiscal 2021. The combined revenue of these two companies is approximately $27 million.

Excluding these revenues from the previous year's basis, our model assumes that the same-store sales range is approximately 10% to 15%. For the international segment, we increased our revenue assumptions from 27% to 32% to 35% to 40%. The strong year-to-date performance, coupled with the good crop conditions of our international footprint and strong global agricultural prices, has led to a significant increase in expectations. As Bryan pointed out earlier, we sold our Serbian single-store business in the third quarter.

The small impact of the divestiture is also reflected in the revised income range. From the perspective of earnings per share, we raise the assumption of diluted earnings per share for fiscal year 2022 to a new range of US$0.40 to US$2.40 to US$2.60 at the midpoint. As a reminder, this interval includes all ERP implementation costs. This concludes our prepared comments.

Operator, we are now ready for a telephone Q&A session.

thank you. [Operator Instructions] Our first question comes from Mig Dobre with Baird. please continue.

Mig Dobre - Robert W. Baird and Company - Analyst

Thank you for your question and good morning everyone.

Mark Calvoda-Chief Financial Officer

Mig Dobre - Robert W. Baird and Company - Analyst

I think my first question is that you have previously commented on your North American Ag business. At this time, the production time for the 22-year calendar is full. I am looking for possible more views on this. Obviously, you have a good reputation here. How do these production periods look relative to the calendar '21? I mean, how can you see the sales growth of this pre-sale device now?

Brian Knudsen-Chief Operating Officer

Yes, MiG, this is Brian. Just to clarify, it is for the '22 model year, so it will cover the first few quarters of that year-or -. So, yes, CNH put forward the requirements for procedures earlier. The order board was also filled a little earlier than last year, but—especially, as I said in my prepared comment on cash crop equipment.

Therefore, generally speaking, there are still some product categories that can still be used for the production of 22 car models. But in most cases, we started selling 23 models in certain cash crop categories.

Mig Dobre - Robert W. Baird and Company - Analyst

right. But my question still exists in the question that we should consider in terms of incremental transaction volume in 22 years versus 21 years. Because I mean, you see, I know you didn't provide guidance for your fiscal year 23, but there is still a quarter left. I think the big problem we all have is, well, you have a very strong 22 years.

So-what will it look like next year? At least for the parts of the business that are indeed well-known due to pre-sale equipment, can you help us understand the type of growth we might see next year?

Brian Knudsen-Chief Operating Officer

MiG, I will return to our guidance, maybe a bit sensitive to time here, for the sake of forward thinking. But yes, we have already-as you know, the supply chain will be a rubbish next year. At this point, we feel good about our distribution and orders. We received many orders very early.

We-our sales staff have been there for pre-sales with customers. So at this point I don’t want to talk about the exact percentage next year. We can share some additional colors in the next quarter.

Mig Dobre - Robert W. Baird and Company - Analyst

Row. Then my last question is inventory turnover. This year's performance is indeed strong. Maybe, Mark, can you give us a feeling about how you see this indicator developing on the basis of moving forward? Do you think you can get extra efficiency from this indicator? In my opinion, what about your various investments in technical back-end overtime-not only ERP, but also inventory management tools, and how does this kind of investment drive this indicator higher? Basically, I am trying to understand how much of this in your opinion is driven by the market itself and the tight supply relative to the structural improvements you have made to your business? thank you.

Mark Calvoda-Chief Financial Officer

Yes. MiG, I think-yes, first of all, considering the tight supply we talked about, it is now 3.1 and many of them are pre-sold at this point. So when they come in, they will go out immediately, and of course I see that this indicator is increasing. By the end of this year, I will say that it is easy to be around 3.5, we can see it, maybe even a little bit higher than that, which must be largely driven by what we are talking about in terms of demand and supply chain .

But yes, we have made a lot of good improvements in inventory management over the years. I think this helps our profitability today-what we have achieved in terms of equipment profitability. Therefore, even if we enter a stronger cycle, our inventory status is very healthy, the inventory is aging and decreasing, and the inventory is fresh. As for driving more, I think we-run very efficiently at this point, call it, run speeds of about three, three and a half.

So we don't have a lot of interest-bearing inventory. Our profit margins are very high, and there may be minor improvements in every aspect. But I think at this point, in terms of where we are in the cycle and how we operate in the field, we are very efficient at this point.

Mig Dobre - Robert W. Baird and Company - Analyst

Yes, I agree with this. Thank you for answering my question.

Mark Calvoda-Chief Financial Officer

Our next question comes from Larry De Maria and William Blair. please continue.

Larry De Maria-William Blair & Company-Analyst

Hello, thanks. good morning everyone. Just follow up the last one, the last question about the pre-sale next year. Can you talk about the average price increase for new equipment next year? If there are obviously a lot of pre-sales this year, we should know this.

Has the price dropped to you? Or do you have to obviously get the price difference on used equipment? This is the first question.

Brian Knudsen-Chief Operating Officer

Yes. Good morning, Larry, this is Brian. Thank you for your question. Yes.

Therefore, the price of our 21-year model here has risen, and now the price of the 22nd model year has risen, which is very consistent with the competition in terms of price increases. We have also been passing it on to our customers. In fact, I think so far this reflects our profit margins, and expect this to be-you will continue to see where we do this.

Larry De Maria-William Blair & Company-Analyst

Row. Therefore, if you sell the same number of devices, your sales may increase by 5 to 10 units, and then you will get some incremental profits on new and used equipment. Is it fair to say that?

Brian Knudsen-Chief Operating Officer

Yes. Mixing will also play a little bit there, but generally speaking, yes.

Larry De Maria-William Blair & Company-Analyst

Row. Second, when we consider that a lot of pre-sales next year will enter the 2023 calendar, when is this too long and we risk canceling it? I am a little curious about what protection measures you have. Secondly, how do we deal with trade-in? Because many things you sell are obviously for trading, this is where you make a lot of money. Are we making a transaction, this is the transaction after the transaction is completed? Or, is there any protection for you or the customer’s trade-in value that will not happen in another year from today?

Brian Knudsen-Chief Operating Officer

Yes. So this is one of the benefits of pre-sale customers. They can lock their production slots. They can lock in their pricing, from our point of view, lock in transactions with us.

Therefore, we spend a lot of time researching and predicting the value of second-hand equipment. When we conduct these pre-sale transactions, I will use the expected value at the time we receive it to trade in the old. So there is usually a little risk. Sometimes the market will go up a little bit, and sometimes it will go down a bit due to trade-in.

But again, we expect to use the value. Again, some of them-these are some of the benefits of the customer and the final pre-sale.

Larry De Maria-William Blair & Company-Analyst

Row. So the transaction was completed at that time, and then there was really no change-since then, has the second-hand price gone up or down? Then I think this is what you said. Then the last question. Did everyone get what they needed through harvest? Or is there a big problem? Or are you able to more or less secure all the equipment needed at the time and have been ordered, or are there any delays? This is-I will continue.

Brian Knudsen-Chief Operating Officer

Yes. There is generally going well. There are many headaches along the way. I would like to thank everyone on our team and the manufacturers who work with us for their tremendous efforts.

There is a lot of behind-the-scenes work and a lot of extra busy work, if you want, we traditionally did not find missing components or ship things and send them here. However, in this day and age, on-time delivery is correct. So in this respect, everything is going well. But again, everyone needs to do something.

Larry De Maria-William Blair & Company-Analyst

[Operator Instructions] Our next question comes from Rick Nelson and Stephens. please continue.

Rick Nelson - Stephens Inc. - Analyst

thanks. Good morning guys. The gross profit of the equipment was followed up twice, which was very strong and better than expected. Is that-is it used? Is it both? What do you think is the sustainability of these profits?

Mark Calvoda-Chief Financial Officer

Yes, Rick, Mark is here. They were even better than we expected, not that our simulated models performed strongly again this quarter. We see that it is still mainly on the used side. However, one big thing we are going through is that when we make lower costs or market adjustments, we make very few (if any) write-downs every month.

So this is it-this is mainly the side that has been used occasionally, and it is new, and we have it too. But today, this is very low in history. We are at a very low level. So it definitely helps.

Of course, another thing, I have mentioned before, but with international same-store sales growth or strong overall sales growth, they are mainly new equipment, where the profit margins are higher. Therefore, mixing with the international is helpful for us, and it also helped a lot this quarter. So from-in terms of maintaining this, for the next quarter, I didn't see it. I talked about it before.

In the fourth quarter, we usually have some high-priced goods. We also have more domestic banks in other market segments, especially less internationally. So if all of this is true and everything else stays the same, I expect it to be reduced by 11 to some extent, instead of-I think our year-to-date growth rate is about 12.1%. So I do hope it will go down, and this is what is included in the modeling assumptions I provided.

Rick Nelson - Stephens Inc. - Analyst

I will catch up. So I want to get an update on the acquisition environment, and the Jaycox tool will be shut down soon. If you can talk about that and some of the surrounding colors, the multiples you pay now.

David Meyer-Chairman and CEO

Yes, we are very excited because on Jaycox, it is adjacent to our Marshall and Pipeline location. Those locations were Fern, Minnesota, and we entered Minnesota, and then in a location like Parker, Iowa, near the border. Such good farmland is mainly farming, and the livestock is also a bit diversified. So it really suits us-not only depends on our footprint, but also similar products, really high-quality labor, really strong after-sales parts and service support, and a good culture.

So yes, it's really good-we are really excited about this. And I think you will see more details in economics when we provide year-end figures and data. I can say that we closed in December. So we don't want to surpass ourselves here.

At the same time, the modeling is very good, which will have a positive impact on our signature, in the beginning, a well-managed and excellent team of employees. So you will see that we are very excited about it.

Rick Nelson - Stephens Inc. - Analyst

I think, do you currently have more interest in making more acquisitions? that's it -

David Meyer-Chairman and CEO

Yes. We have-the balance sheet is very strong. We haven't even joined some of our banking consortia, and it's okay now. We want to deploy some funds on more acquisitions.

What I want to talk about is the pipeline. The more interested you are now, the strongest in years. So some active sellers or in communication, we just want to bring-try to complete more transactions and bring one in time and leave a little room to clean them up, but we are very excited about what we think we will be able to in the near future Do this on the acquisition side.

Rick Nelson - Stephens Inc. - Analyst

great. You are in the second-hand equipment market. Do you think the new tight supply is driving people into the second-hand market? If you can comment on the pricing. Have you seen any objections from your customers to the higher unused pricing?

Brian Knudsen-Chief Operating Officer

Hey, Rick, this is Brian. Yes, the shortage of supply must also promote the sales of second-hand equipment. The larger contributor will be the later model used, and the grower can still upgrade and get a lot of benefits from the new technology. In addition, the fleet is really old.

As you know, this is the oldest in decades. Therefore, growers can perform quite a few upgrades even on used equipment. Then there is Article 179 and tax incentives also related to usage. So we saw good pricing for used equipment.

I think it is similar to the production line percentage of new equipment. Then we pass it on to the customer. And net farm income supports it and provides some good upgrades for our customers.

Rick Nelson - Stephens Inc. - Analyst

That's great. Thank you for your help and wish us good luck as we move forward.

Brian Knudsen-Chief Operating Officer

Ladies and gentlemen, this concludes the question and answer session. I want to turn the call back to Mr. David Meyer's closing speech.

David Meyer-Chairman and CEO

Thank you for your time this morning and your interest in Titan Machinery, and look forward to keeping you informed of our progress in our next call. Have a nice day.

Jeff Sonnek - Investor Relations

David Meyer-Chairman and CEO

Brian Knudsen-Chief Operating Officer

Mark Calvoda-Chief Financial Officer

Mig Dobre - Robert W. Baird and Company - Analyst

Larry De Maria-William Blair & Company-Analyst

Rick Nelson - Stephens Inc. - Analyst

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