TITN - NASDAQ

Greetings, and welcome to the Titan Machinery Fourth Quarter Fiscal 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jeff Sonnek of ICR. Thank you. Please go ahead.

Thank you. Good morning, ladies and gentlemen. Welcome to Titan Machinery's Fourth Quarter Fiscal 2023 Earnings Conference Call. On the call today from the company are David Meyer, Chairman and CEO; Bo Larsen, CFO; and Bryan Knutson, President and COO. By now, everyone should have access to the earnings release to the fiscal fourth quarter ended January 31, 2023, which went out this morning at approximately 6:45 a.m. Eastern Time. If you've not received the release, it's available on the Investor Relations tab of Titan's website 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. We suggest you access the presentation now by again, going to the Titan's website at ir.titanmachinery.com. The presentation is directly below the webcast information in the middle of the page. You'll see on Slide 2 of the presentation our safe harbor statement. We'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'll 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'll open the call to take your questions. And with that, I'd now like to introduce the Company's Chairman and CEO, Mr. David Meyer. David, please go ahead.

Thank you, Jeff. Good morning, everyone. Welcome to our fourth quarter fiscal 2023 earnings conference call. On today's call, I will provide a summary of our results, and then Bryan Knutson, our President and Chief Operating Officer, will give an overview of each of our business segments. Bo Larsen, our CFO, will then review financial results for the fourth quarter and full year fiscal 2023 and conclude with some commentary around our fiscal 2024 modeling assumptions. Fiscal 2023 was a record year for us, driven by strong execution and our continued commitment to outstanding customer service. We generated sales of $2.2 billion and record adjusted earnings per share of $4.52, reflecting solid organic growth and operating leverage. We are operating the business with discipline and efficiency as demonstrated by the consolidated pre-tax margin of 6.1% that we delivered for the full year with each of our operating segments driving strong pre-tax margin growth. This is a direct reflection of the hard work that we put into the business over the last decade to ensure that Titan Machinery is be in position to drive higher levels of profitability and cash flow throughout the cycle. We are a much stronger company today with earnings per share of more than double that over the prior peak. Our record performance is further supported by a strong year of acquisition activity. Altogether, looking at the past 14 months, we have added 22 new store locations to our footprint, representing approximately $400 million of annualized revenue, marking one of our most productive structures of acquisition activity in Company history. Just last month, we closed our acquisition of the Idaho dealership assets of Pioneer Farm Equipment. This was the first acquisition that leveraged our expanded commercial application footprint following the addition of Heartland's distribution territory in August of 2022. The Pioneer transaction adds 5 full-line Case IH agricultural dealerships located in the Snake River Valley of Southeastern Idaho, 2 of which are also Case Construction equipment dealerships and will help us generate a holistic presence to service the local growers, contractors and commercial applicators in the region. Most importantly, we share similar cultures that are focused on attentive, personal, customer service and we look forward to a successful future together. From a segment perspective, our agriculture segment led the way, benefiting from high levels of demand that is being supported by a favorable farm economy. Equipment was the primary driver in terms of growth in dollar contribution for the full year with parts and service also making strong contributions to the bottom line. Our Construction and International segments each had a great year as well, highlighted by significant expansion in pre-tax margin in fiscal 2023 finishing the full year at 6% and 6.8%, respectively. Looking at the fourth quarter results, the quarter was negatively impacted by delayed new equipment shipments. This abnormal congestion at the very end of the fiscal year, limited our ability to deliver equipment to customers and recognize revenue, which resulted in an increase of pre-sold units sitting with inventory at year-end. While this impacted our financial performance in the fourth quarter, it is ultimately a timing nuance, as we expect to catch up on the backlog as we progress through fiscal 2024. We are carrying significant demand into fiscal 2024 and continues to believe that we are experiencing an extended cycle that is being supported by strong Ag fundamentals, which should drive sustained demand throughout the fiscal year. Equipment availability will likely remain a limiting factor in the near-term, but we are focused on those elements we can control and have an incredible foundation for another strong year as laid out in the modeling assumptions that we are introducing today. Before turning the call over to Bryan, I want to take a moment to reflect that where we are today and why we're excited about the future. As you may recall, at our 2017 Investor Day in conjunction with our 10-year anniversary as a public company, we shared with you a long-term objective of achieving an average annual pre-tax margin of 5%. In fiscal 2023, we achieved a consolidated pre-tax margin of 6.1%, and each of our segments achieved a pre-tax margin of 6% or greater. We anticipate advantageous industry fundamentals as the market continues to consolidate, and we see an increase in dealership groups supported by professional management teams. Furthermore, as we continue to execute our customer care strategy, our customers will benefit from the increased value this brings and Titan Machinery will benefit from an increase in sustainable, higher margin parts and service revenues, which are less cyclical in nature. We have also been able to strengthen the balance sheet by significantly reducing aged inventory and increased inventory turns to over 3x, which is largely attributed to our focus on pre-sell initiatives. With these pieces in place, we expect our average pre-tax margins to trend at these higher levels over the long-term. Additionally, we foresee a continued revenue growth trajectory driven by both organic and acquisition growths, creating a bright future for Titan Machinery, our employees and the customers we serve. I will now turn the call over to Bryan to review our 3 segments in more detail.

Thank you, David, and good morning, everyone. First, I will be providing a recap of fiscal year 2023, and will then outline some high level fiscal year 2024 expectations for each of our segments. Slide 4 is an overview of our domestic Agriculture segment. But before we jump into that, I'd like to start by expanding on the comments David made about the whole goods congestion at the end of our fiscal year and explain a little more about our process after we receive new equipment from the factory, which can be several weeks after it comes off the production line. Once we know the unit will arrive at our dealership, we work it into our service schedule, where we perform comprehensive pre-delivery inspections, commonly referred to as PDI. In many cases, after completion of the PDI, we installed additional components like technology or other various attachments and completing packages. These additional components have also been experiencing supply chain constraints, delaying their arrival and thus holding up final delivery. This combination of PDI assembly and calibration activities can cause pre-sold equipment to sit in our inventory for several weeks or up to several months before we are able to deliver to the end user and recognize the sale. A delay in any part of our process can affect the cadence of our revenue recognition. In this case, the largest contributing factor to the increase in pre-sold units sitting in inventory at year-end was the timing of new equipment shipments so late in the fourth quarter, reducing the window of time to complete our normal delivery process. Now on to our Agriculture segment highlights. Fiscal 2023 was quite a year. Favorable commodity prices and yields led to record net farm income, which helped drive strong organic sales. We've also been very busy with M&A. Having acquired 22 store locations in the last 14 months, including Heartland Ag, which was the largest acquisition in company history and I expect that we'll continue to see additional acquisitions as we move forward, complementing our intense focus on organic growth. The integration of Heartland is going well, and we are very pleased with how the businesses are coming together. The opportunity for revenue synergies remains as expected, but equipment availability has limited our ability to realize these opportunities in the near-term and will continue to do so in fiscal 2024. With all of our organic and acquisitive growth, we didn't just add revenue. We grew pre-tax margins to 6.4% for the full year, and we continue to execute our customer care strategy. Even in years of strong net farm income, uptime is just as critical for our customers, and we continue to drive initiatives to serve them even better by continuing to invest in our people, facilities, service vehicles, training and recruitment efforts and by providing and supporting the latest technological advancements in agriculture and most importantly, by building relationships with our customers, focusing on how to make them more efficient and profitable. As we begin fiscal 2024, we expect another strong year of performance. Net farm income is expected to step back from last year's record highs but still remain well above historical averages. We expect this to sustain demand throughout the fiscal year and for demand to continue to outpace supply in cash crop equipment such as high horsepower tractors and self-propelled sprayers. While there are equipment shortages and long lead times, we have a very full order board and have incorporated these factors into our modeling assumptions that Bo will share with you shortly. Overall, we had a great fiscal year 2023 in our domestic Ag segment, and I expect much of the same in fiscal year 2024. Turning to Slide 5, you will see an overview of our domestic Construction segment. This segment also executed very well in fiscal 2023. Same-store sales growth of over 25% primarily offset the divestitures of our 5C stores. This footprint optimization and further operational improvements strengthen the financial performance of our Construction segment, and you can see that with its pre-tax margin growing to 6%. Additionally, having the right fleet available to customers and providing them with flexible equipment options is an important competitive advantage for us. Our team has done a fantastic job managing our rental fleet to put us in the position we are today, which can also be seen in our fiscal 2023 fleet dollar utilization of 30%. Our CE segment is benefiting from our diversified customer base as well as the less volatile Midwest construction market dynamics. We support customers in both housing and commercial construction, energy production with exposure to business in the Bakken and Colorado Front Range and continue to serve farmer demand for construction equipment being used for material handling, fee buds and land improvement. Our expectations for fiscal year 2024 remain high. The residential market and our footprint, although moderating, remain solid. General construction activity remains strong and infrastructure projects will further support demand for construction equipment throughout the 2024 fiscal year. Not unlike our Ag segment, equipment availability is our limiting factor in the near-term for certain types of equipment, and we'll continue to give more visibility into second half production and fourth quarter allocation as we move through the year. As many of you are aware, the CONEXPO Construction Equipment Show in Las Vegas this week, and we are really excited about the new Case Construction products, including their new electric product lineup, which showcases their commitment to sustainability and advanced technologies. Now moving to Slide 6, we have an overview of our International segment, which represents our businesses within the countries of Bulgaria, Germany, Romania and Ukraine. The year-over-year decline in revenue was driven by the weakening of the euro. However, net of these foreign currency fluctuations, full year sales grew by 4.2% despite being negatively impacted by the conflict in Ukraine. As for Ukraine, we are very pleased with our team's efforts to find ways to serve customers in these challenging circumstances, primarily focusing on parts and service to keep our customers' existing fleet up and running. Overall, our business within the countries of Bulgaria, Germany and Romania has been performing quite well. Despite the year-over-year decrease in revenues, the International segment achieved impressive pre-tax margins of 6.8%. And this improved profitability illustrates the continued improvements of our European business operations. Looking towards fiscal year 2024, European Ag fundamentals are expected to be more modern in nature with flat industry volumes, given the impact from the equipment availability issues that we see across the other segments of our business. However, favorable moisture conditions and commodity pricing can provide tailwinds to company-specific actions in driving year-over-year growth. Before I turn the call over to Bo, I'd like to thank all of our employees, both in the U.S. and Europe for their tremendous efforts, which resulted in a record performance in fiscal 2023. We executed with discipline to take advantage of the opportunities in front of us and continue to find ways to add value for our customers, all this while dealing with unprecedented supply challenges. I'm excited for another strong year in fiscal 2024 and thankful for the great team we have and their dedication to our customers. With that, I will turn the call over to Bo to review our financial results in more detail.

Thanks, Bryan. Starting with our consolidated results for fiscal 2023 fourth quarter, total revenue was $583 million, an increase of 14.9% compared to the prior year. Our equipment business increased 14% versus prior year, led by incremental revenue from our recent acquisitions as well as same-store sales growth across our Agriculture and Construction segments. Our parts revenue grew 23.6%. While service revenue growth was held lower at 6.6% as much of the service team's effort was focused on getting new equipment ready for delivery rather than working on service tickets. Rental and other revenue also increased 21.3% versus prior year. Gross profit for fourth quarter increased by 15.5% to $108.9 million, reported gross profit margin increased by a modest 10 basis points. However, I'd point out that the fourth quarter of fiscal 2023 and fiscal 2022 included benefits related to manufacturer incentive plans of USD 1.8 million and USD 6.4 million, respectively. The underlying gross profit margin, excluding those manufacturer incentives, saw more substantial improvement, increasing by 106 basis points, primarily due to stronger equipment margins. While the fourth quarter amounts differed primarily due to the timing of incentive accruals, on a full year basis, those manufacturer incentives were approximately $6.4 million in each fiscal year. Operating expenses were $83.7 million for the fourth quarter of fiscal 2023 compared to $64.6 million in the prior year. The year-over-year increase was primarily due to the inclusion of operating expenses related to our acquisitions over the past year as well as higher variable expenses on increased revenues. Floorplan and other interest expense was $2.1 million as compared to $1.4 million for the fourth quarter of fiscal 2022, primarily due to the utilization of our bank syndicate line to help fund the Heartland acquisition and modestly higher interest-bearing floorplan borrowings. Adjusted net income for the fourth quarter of fiscal 2023 was $18.3 million or $0.81 per diluted share, which included approximately $0.06 of benefits associated with manufacturer incentive plans. This compares to adjusted net income of $22.5 million or $0.99 per diluted share for the fourth quarter of last year, which included approximately $0.47 of benefits associated with the manufacturer incentive plans, a gain on the sale of the Montana and Wyoming construction stores, and the partial release of an income tax valuation allowance. Excluding these aforementioned items, adjusted diluted earnings per share increased $0.23 or 44% year-over-year. Now turning to our segment results for the fourth quarter. In our Agriculture segment, sales increased 27.3% to $440.9 million. This growth was driven by our recent acquisitions of Jaycox Implement, Mark's Machinery and Heartland Ag as well as organic growth. However, as David mentioned in his commentary, fourth quarter revenues were limited by timing of new equipment receipts, which slowed same-store sales growth for the quarter. Pre-tax income was $19.3 million and compared to $17.7 million in the fourth quarter of the prior year. This year-over-year comparison in pre-tax income was impacted by the timing of the accruals for manufacturer incentives with $1.8 million being recognized in the fourth quarter of this year versus $5.1 million in the fourth quarter of the prior year. Excluding those incentives from both periods, the underlying increase was $5 million or 40% year-over-year. In our Construction segment, sales decreased 3.2% to $85.1 million compared to the prior year period. We achieved strong same-store sales growth of 27.8%, which largely replaced revenue from the prior year store divestitures. Pre-tax income was $5.4 million and compared to $9 million in the fourth quarter of the prior year. As a reminder, in the fourth quarter of fiscal 2022, we recorded a $5.7 million gain associated with those store divestitures. Excluding that gain, our year-over-year pre-tax margin increased by approximately 250 basis points to 6.3%. In our International segment, sales decreased 22.3% to $57 million, which reflects a 10.9% currency headwind on a weakening euro and was also negatively impacted by the ongoing conflict in Ukraine. Adjusted pre-tax income, which excludes negligible adjustments reflecting Ukraine remeasurement losses was $1.7 million. This compares to $3.1 million in the fourth quarter of fiscal 2022, which included a $1.3 million benefit earned through manufacturer incentives specific to Ukraine and did not repeat in fiscal 2023. Now I'll briefly review our fiscal 2023 full year results. Total revenue increased 29.1% to $2.2 billion, primarily driven by 32.5% growth in equipment revenue and was further supported by solid contributions from our parts and service businesses, which increased 22.6% and 12.2%, respectively. Additionally, rental and other was up 8.2%. Adjusted earnings per diluted share increased 51.7% to a record $4.52 for fiscal 2023, which included approximately $0.21 of benefits associated with manufacturer incentive plans. This compared to $2.98 in fiscal 2022, which included the same $0.47 of benefits that I just mentioned impacted the fourth quarter of fiscal 2022. Our full year adjusted EBITDA increased 45% to $165.9 million compared to the $114.5 million that we generated the prior year. Our adjusted pre-tax income increased 54.3% to $136 million in fiscal 2023, representing a margin of 6.2%, which is 110 basis points higher than the prior year period and demonstrates improvement across all segments of our business. Now on to our balance sheet and inventory position. We had cash of $44 million and [ net ] debt to tangible net worth ratio of 0.9x as of January 31, 2023. We continue to maintain a relatively low amount of leverage and primarily utilize floorplan financing for its interest-free period. Our total inventory balance at the end of fiscal 2023 was $704 million, an increase of approximately $282 million from January 31, 2022. This increase came via increases in equipment and parts inventories of USD 211 million and USD 69 million, respectively. Of the total increase, $118 million is attributable to acquisitions made during the fiscal year. Excluding acquisition-related balances, the increase was driven by a modest improvement toward healthier inventory levels in some equipment categories, such as low horsepower tractors as well as the timing of new equipment receipts near year-end, which didn't allow for delivery to our customers before the end of the fiscal year. We achieved inventory turns of 3.3x in fiscal 2023. And as I look ahead to fiscal 2024, given the favorable industry conditions and current health of our inventory, coupled with limited equipment availability, I expect that we will continue to operate at higher than normal turn levels as we move through the year, although it may moderate somewhat as we see a replenishment of inventory for certain equipment categories. With that, I'll now take you through our initial fiscal 2024 full year modeling assumptions. As David mentioned, we are carrying significant demand into fiscal 2024, underpinned by strong fundamentals. However, fourth quarter equipment allocations and timing of new equipment delivery schedules remain uncertain. So we will continue to provide more visibility as we progress throughout the year. Other high level assumptions that apply across our segments are as follows: we assume that availability will be a limiting factor for certain high demand types of equipment, while in other areas, supply is expected to meet demand. We assume that equipment margins, while still at historically high levels, will moderate from all-time highs as we experienced an unusual strengthening of industry used equipment values as we progress throughout fiscal 2023. While in fiscal 2024, we anticipate used cash crop equipment values to remain stable at current levels. We have taken and will continue to take action to retain and recruit talent in a consistently tight labor market. Actions we have taken include enhanced benefits and wage increases to maintain market competitiveness, especially with service technicians. These impacts, along with the inclusion of operating expenses related to Heartland and Pioneer are expected to result in operating expenses as a percentage of sales similar to fiscal 2023 levels for each segment and across the company as a whole. Now on the segment specific modeling assumptions. For the Agriculture segment, farmer economics remain strong and look to support another year of robust demand. Our initial assumption is for revenue growth in the range of up 20% to 25%, which includes full year revenue contribution from the Heartland and Pioneer acquisitions, which closed in August of calendar year 2022 and February of calendar year 2023, respectively. Revenues for the calendar year 2022 for Heartland and Pioneer were approximately USD 260 million and USD 60 million, respectively. And keep in mind that we have 6 months of Heartland in our fiscal year 2023 financial results, which contributed $103 million in revenue to Titan Machinery's consolidated results. If you factor in those annualized impacts into our baseline, then the growth rate on top of that adjusted baseline is more like up 6% to 11%, with pricing expected to be up on average mid-single digits year-over-year, but varying between different equipment categories, parts and service. An additional factor to keep in mind that within our Ag segment, we recognized $6.4 million of manufacturer incentives in fiscal 2023 and assuming we achieve budgeted sales levels, we should realize a similar incentive in fiscal 2024. The Construction segment has diverse exposure to various end markets and construction activity in Titan's Midwest footprint remains at high levels, supporting sustained demand. Our initial assumption is for revenue growth in the range of flat to up 5%. This growth is driven by pricing with volumes flattish to down slightly and equipment availability being a limiting factor in the near-term for certain types of equipment. For the International segment, our initial assumption is for revenue growth in the range of up 8% to 13%. Included in this figure is the assumption of no significant foreign exchange impact relative to the prior year. Additionally, factored within revenue and profitability for our International segment is the expectation of a similar level of revenue and small operating loss for our Ukraine business operations as was realized in fiscal 2023. Overall, we look forward to another strong year of performance. On a diluted earnings per share basis, we are introducing a fiscal 2024 range of $4.50 to $5.10. This wider range is reflective of the uncertainty in equipment availability and timing of deliveries. We believe the variables just discussed are reasonably factored into the ranges we are providing today, though both risk and opportunities still exist. And as previously mentioned, fourth quarter equipment allocations and timing of new equipment delivery schedules remain uncertain, so we will continue to provide more visibility as we progress throughout the year. This concludes our prepared remarks. Operator, we are now ready for the question-and-answer session of our call.

[Operator Instructions] Our first question is coming from the line of Mig Dobre with R.W. Baird.

It's Joe Grabowski on for Mig this morning. So I guess my first question, supply chain and production issues have been problematic the past several quarters, but Titan has exceeded their quarterly expectations each of the past several quarters. So I'm hoping you could expand a little more on what happened specifically in the fourth quarter that was different than the prior quarters and how you expect these issues to impact deliveries in the upcoming year?

Yes, I'll start with that one. This is Bo. So I think what you saw there compared to the prior quarter was, there was a bit more of an acute congestion of deliveries right at the end of the fiscal year. So you're absolutely right. The OEMs continue to work through supply chain constraints and other production challenges. And that's not something that's new. But what was new, again, was the congestion of the deliveries to us right at the end of the fiscal year, which as Bryan was walking through today based on the activities that we need to perform didn't allow us enough time to really push through the rest of those deliveries. As to what you expect for the rest of the year, what I would say from that right is that we'll work through and catch up on some of that miss as we progress throughout the year. The reason for that would be is certainly, right, we'll probably deliver all of those pieces of equipment that we had at the end of the year, but there will likely be some timing exchange between Q1 and Q2 and Q2 and Q3, for example.

Okay. Got it. And just out of curiosity, I mean, obviously, the OEM has a December fiscal year, you guys have a January fiscal year. I mean, did that impact the congestion right at the end of your fiscal year? Or was that not really a factor?

Well, it is one benefit to having a little bit of an offset here. But unfortunately, a month didn't give us enough time to catch up there. But what you're probably alluding to, right, is that they're all pushing hard to deliver strong results for the end of their fiscal years. It resulted in what we saw as an increase in inventory in our year. But again, big picture wise, this is a timing issue. Demand is strong, and we expect a strong fiscal 2024.

Got it. Okay. Next question I wanted to ask is around International, revenue down 22% year-over-year. You mentioned FX and you mentioned the war in Ukraine, but obviously, those have been issues throughout the fiscal year and the revenues, the first thing specific in the fourth quarter in International, were they impacted at all by equipment deliveries, I guess, and supply chain? Or just anything you can expand on there?

Yes. So big picture wise, on a constant currency basis for the full year, International sales were up 4.2%. In the fourth quarter, excluding the currency impact, right, primarily the decrease year-over-year was Ukraine. And the rest of the business was down mid-single digits. So not significantly different than the full year results and it was primarily a result of the timing of when revenue was recognized for Ukraine in the quarters versus the first 3 quarters of the year.

Got it. Okay. And then my final question. Regional banks have been in the news the past week with some thoughts that maybe they were going to have to tighten their lending standards. How do you view that? And do you think if the regional banks did have to tighten their lending standards, if that could impact the farmers' ability to secure financing going forward?

So we've been having conversations with our banking partners as well and paying close attention to the developments in the banking space. We've also been paying attention to what the government has been doing in terms of taking action to ensure confidence in the industry. And we feel good about where things are progressing and that there shouldn't be an impact there, right? There's a little bit of speculation right now with what interest rates are going to do. But big picture wise, we don't have concerns and impact to our business in fiscal 2024.

Our next question is coming from the line of Daniel Imbro with Stephens.

On the farmer backdrop, we've seen crop prices maybe moderate here in the last 30 to 60 days, maybe some more uncertainty around China reopening than we anticipated. I'm just curious if you've seen any notable change in farmer behavior. It sounds like your commentary is that demand is still strong. But if crop prices maybe remain, there's still elevated relative history, but below where they've been, do you think you'll see pre-orders flow kind of what's baked into the guide to that outlook? And just any thoughts you can provide on that backdrop?

Daniel, this is Bryan. Yes. So to your point, the projections out there right now are net farm income to be down just over 20%. However, again, as you mentioned, coming off a record year, so -- and still being projected to be the second highest profit year for them on record. So really good demand still far outpacing supply for us, all the cash crop products and so on, as we mentioned, in all 3 of our segments in Ag specifically cash crop products being our limiting factor for us right now. So even -- we haven't seen it yet, but if we did get a little slowing of the order board due to profitability coming down a little higher equipment prices, interest rates, some of the buzzy here around those topics. Again, we still have way more demand than we have for supply and for allocation right now.

Great. My first follow-up, I don't know if I missed it to the first question during Q&A, but have you given an expectation of how long do you think it will take you to work through this timing issue of whatever was pushed from 4Q. Is that all going to get sold in 1Q? Or does that get dragged out for a while?

Yes. So we see that really spreading across the year. The reason for that, right, is as we mentioned, there's still supply chain and production constraints, and there's movement from quarter-to-quarter. So again, big picture, demand is strong. We feel good about our guidance. In terms of that whole $100 million push from Q4, I would not expect that all to be in Q1.

Got it. Helpful. And then last one for me. Just on the construction side, obviously, resi feels a good slowed. On the commercial side, just curious, any update on the trends, the guide kind of low singles, I think, makes sense, but we've seen energy prices come off has been an investor focus. So can you update us kind of on maybe what the inputs you're assuming are there? And then what are the biggest risks when you think about the 0% to 5% guide as you move through the year. Maybe that would cause you to come to the low end or maybe that guidance?

Yes. So biggest risk for us would be overall economy, Daniel, but we definitely mentioned a couple of times our diversification. So being quite a bit tied to agriculture as well and not just oil and not just resi and highway and bridge work or landscape, et cetera, again, we're really diversified across all those various industries. And so we feel good about a lot of demand right now for farmers buying construction equipment, so we feel really good about that continuing. And again, if you look at just a lot of our key product categories, again, we -- our demand is still way outpacing supply. We still have a big backlog there. And so that's going to take a while to catch up. So I think we feel really good about fiscal '24 here in construction.

The next question is coming from the line of Larry De Maria with William Blair.

So I just wanted to get back to the timing when the issue developed. Is it -- you're saying it's late in the quarter. Was this like a late January issue, where things just didn't get there in time or I really want to drill down to when did this actually happened? And secondly, are we talking about incremental production problems and delays at your OEM partner? Or are these more on allocation issues that maybe other folks got stuff and wasn't your turn?

Yes. So I'll clarify a little bit and then BJ or Dave, if you had anything to add there, right? So I would say that there isn't some incremental production issue that we're seeing, right? And in terms of timing, there was -- we received a significant amount of inventory like right at the end of December. You're kind of talking about that last 30 days of the quarter, and BJ was backing through everything it takes to deliver pieces of equipment, right? So if we take a step back and we look at November came in as about as expected, and we had visibility to December and January, December was a bit slower. And then right at the end of December, right, was a big push as OEMs were finishing their fiscal year, for example, right? And then we worked as hard as we could to process through as much of that as we could in the fourth quarter. That push is about $100 million. We expect to process that through as we progress throughout the year, right? And that's included in our growth rate assumptions that we were discussing. So if anything -- things are looking as good or continue to trend in the right direction from our OEM partners.

This is David. And I can add on to that a little bit. So we were anticipating more equipment to get shipped before Christmas and a lot of this is -- so if you flyover over an airplane in any of the plants, you just see rows and rows of tractors and combines and sprayers and sitting or waiting there. There -- they came off the assembly line, but they're waiting for the various components. And as those components came in, they get them mine. They get them invoiced to us. Then there's been a couple of weeks there in the first part of January get on trucks to get them shipped to us. And just like I said, just the whole -- the magnitude of it and the whole congestion, but we're getting enough special haul trailers and all that stuff to get that stuff out there. So really, a lot of these units -- and I think if you listen to some of the OEM calls, I think they substantiated, a lot of that. It was just a lot of really all hands on deck put and all these components on to get their completed tractors done by -- waiting for that week before Christmas in the end of the year, which really is tough to manage through that magnitude and that congestion on a onetime. So…

Yes. And Larry, this is Bryan. I'd just add too, as you know, we put a lot of technology on the equipment and do other things to it, as I mentioned there. And just the supply chain issues and the backlogs we're experiencing and even shipping delays on that stuff as well, which also compounded it.

Okay. Yes. I guess I was just surprised because you're at a conference in early mid-January. And this issue didn't come up, but it sounds like you probably knew about it at that point. So that was sort of the gist of the question, as to why the kind of the big surprise today. But it sounds like things are congested and obviously, the $100 million miss in Ag, but it didn't go away. We're going to get it over the next couple of quarters. And how much -- so obviously, your inventory is up substantially in large part because of this. How much of inventory, especially naturally on the new stuff, has a customer name attached to it? Can you just help us out there? Just trying to understand any kind of risk to the inventory that you have on balance sheet now?

Yes, Larry, I'll just go a high level and then Bo can speak a little more to the numbers. But a very high percentage of it has a customer name to it, especially the high dollar pieces, the part that's the majority of our business, the cash crop equipment. So the only building that we actually have that's not just a timing issue we've been discussing here or sales WIP, if you will, or from acquisitional growth is really just the small horsepower tractors under 140 horsepower, especially under 100 and then hand-forge equipment to a degree. So beyond that, again, I just reiterate the cash crop equipment we're short of on demand and have an order backlog for that. And so obviously, high degree -- very high degree of names on all that pre-sold.

The other thing I would say, just to add a little bit of perspective, right, if you think about fiscal 2023, in large part, there was virtually no equipment that was sitting on a lot that was available for sale. So to see some areas starting to improve, for example, like the low horsepower tractors, combines and some other areas is definitely a welcomed thing. But yes, big picture wise, on a lot of our main bread and butter pieces of equipment, overall demand is outstrip supply. Everything is pre-sold, and we'd love to get as much of it as we can.

And the -- because of the kind of where you were the timing, maybe you're not going to catch up everything, but is this -- maybe you can give us a cadence first half or second half in terms of maybe sales and earnings?

So big picture wise, from a cadence perspective, right? If you set Heartland to the side and talk about the rest of our business, last year, we did about 45% of our revenue in the first half of the year, 55% of the revenue in the second half of the year. We see something very similar to that happening this year, right? The question is just how -- within the first half, how much is in Q1 versus Q2. But it should be about in that mix. And then as you're doing your modeling and your layering on Heartland, they are a bit more of a front half business. Although also with equipment availability, you might think about more of that is like 55% in the first half of the year, 45% in the back half of the year for them.

Our next question is coming from the line of Steve Dyer with Craig-Hallum.

Most of mine might have been answered. Just a couple of questions on your outlook for the year. It sounds like you are assuming a relatively consistent level of manufacturers' incentives for this year, is that right?

Included in our guidance.

Got it. And then it seems a bit late in the year, maybe I'm wrong or a bit late to not sort of have a good sense of your Q4 allocations yet. I mean, do you typically -- and when do you anticipate sort of having better color on that throughout the year?

Yes, it definitely is late. And so, all the manufacturers are definitely keeping those windows tight right now. They're wanting to get as much visibility as they can to pricing and production abilities. So we're anticipating, hopefully, in Q2 here, seeing what those are. And so it is making it a little tough to plan, but all our modeling that we've got here takes into account to the best that we have. And obviously, we've gotten some indications of what our Q4 allocation could be.

Sure. Got it. Last one then for me as you look at sort of potential acquisitions throughout the year. I mean, I guess, any help there on what we should expect in terms of some of the smaller tuck-in stuff you've historically done. You went a little bigger. This last year, sort of what -- generally, what's sort of the thought process going forward, big, small Ag, construction, et cetera?

Well, I think we're targeting the Ag and I think you're probably going to -- you're going to see definitely I think there could be some tuck-in, Steve. And then -- and there's -- I think there are also some larger opportunities out there. So I just want to make sure right now, near-term, we're integrating, and we've got -- we had a pretty big chunk last year. But at the same time, the pipeline is full, and we've got a number of people we're talking to stuff. So we just -- I think the last couple of years, we had a good run rate acquisition you can see there are -- the dynamics out there, they do their principles and that increased sophistication of the equipment and you can add that whole another dimension of the capital needs out there and then the -- and some of the difficulties and the backroom activities, right, and the regulations and stuff out there and some of the HR challenges. So yes, I still -- I don't think the dynamics aren't change out there. So we still think there's really a nice runway out there, potential acquisitions going ahead and we're managing through those.

It appears we have no additional questions at this time. So I'd like to pass the floor back over to Mr. Meyer for any additional closing remarks.

Okay. Thanks, everyone, for your interest in Titan, and we look forward to updating you on our progress on our next call. So have a great day, everybody.