Titan Machinery Inc
NASDAQ:TITN
Earnings Call Analysis
Q4-2024 Analysis
Titan Machinery Inc
In recent times, our company, which provides an illustrative example of diligent execution and strategic foresight, concluded fiscal year 2024 with both record revenue of $2.8 billion and exceptional earnings per share of $4.93. These achievements symbolize the third year straight of record earnings per share and a pretax margin exceeding 5%. Reflecting on the strategies outlined during our 2017 Investor Day, we have successfully doubled the projected revenue scale and enhanced our earnings capability by 2.5 times the planned benchmark. Such accomplishments underscore our commitment to efficiency as well as our ability to sustain strong financial performance through varying economic cycles.
The company's future is shaped by a combination of industry consolidation and technological advancements which fortifies our standing within the sector. Over the past three years, our customers have experienced profitable seasons, leading to solidified balance sheets, and we've directed our efforts towards consolidating our presence by restructuring and focusing on customer care to enhance long-term growth prospects. Despite expectations of net farm income potentially falling to just below the average and a slow decline in interest rates, our company is predicted to maintain resilience. We envision fiscal 2025 as a transitional year, one reflecting a shift from supply constraints and peak demand to a new equilibrium defined by normalized supply and mid-cycle demand levels.
Our segments have delivered robust growth, with the agriculture sector showcasing a remarkable 36% uptick in same-store sales for the fourth quarter, complemented by our steadfast dedication to customer service, demonstrated by double-digit growth in parts and service sales. While our construction segment saw a notable 18% increase in same-store sales, market stability is anticipated. Meanwhile, we aim to capitalize on improved equipment availability from our OEM partnerships.
Speaking to fiscal 2025, we anticipate a year marked by adjustments. Revenue is projected to range from flat to possibly a 5% increase in the Agriculture segment, while the Construction segment is foretold to grow 3-8%. The European and Australian segments are similarly expected to present flat to 5% growth. While we predict equipment margins across all segments to normalize, implying potential margin compression, we strive to maintain higher levels of profitability through proactive management and operational efficiency. Our focus on investments in both personnel and technological infrastructure is poised to lead to an operating expense increase of around 40 basis points across the company. Ultimately, we set our sights on delivering robust earnings per share between $3 and $3.50 for fiscal 2025, which signifies our commitment to enduring profitable growth throughout economic cycles.
In closing, our explorations of forecasted earnings reflect not just the present but extend towards a longer-term horizon. We aim at delivering consistent profitability that surpasses both peak and trough performances experienced in past cycles, ensuring that our investors can look forward to a trajectory of steady and improving returns, regardless of the unpredictable dynamics of the agricultural cycle. This outlook, grounded in historical successes and prudent forecasting, positions us well for confronting future economic fluctuations with confidence and strategic agility.
You don't have any saved screeners yet
Greetings. Welcome to the Titan Machinery Inc. Fourth Quarter Fiscal 2024 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I'll now turn the conference over to your host, Jeff Sonnek from IR. You may begin.
Thank you, and welcome to Titan Machinery's Fourth Quarter Fiscal 2024 Earnings Conference Call today. We have from the company, Bryan Knutson, President and Chief Executive Officer; and Bo Larsen, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal fourth quarter ended January 31, 2024. If you've not received the release, it's available on the IR 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. Additionally, we're providing a presentation to accompany today's prepared remarks, which can be found also on the same website, ir.titanmachinery.com. The presentation is located directly below the webcast information in the middle of the page. We would like to remind everyone that the prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. The statements do not guarantee future performance, and therefore, undue reliance should be placed upon them. These forward-looking statements are based on current expectations of management and involve inherent risks and uncertainties included -- excuse me, 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'll open the call to take your questions and now I'd like to introduce the company's President and CEO, Mr. Bryan Knutson. Bryan, please go ahead.
Thank you, Jeff. Good morning, everyone. I want to begin today's call by providing some historical context, which will help put our recent earnings performance into perspective. Then I will offer some thoughts on our fiscal 2025 outlook that we are providing today and finish with a summary of our segment performance before passing the call to Bo for his financial review and incremental thoughts on our modeling assumptions. We finished fiscal year 2024 with a strong performance that was driven by growth across all of our legacy operating segments and resulted in record revenue of $2.8 billion and record earnings per share of $4.93. This marked the third consecutive year of achieving record earnings per share while achieving a pretax margin of greater than 5%. Our business remains in a position of strength, and we expect to demonstrate the durability of our earnings through this cycle following a multiyear effort to implement greater efficiency across our organization. Moreover, this is exactly the level of execution that we outlined at our 2017 Investor Day. I'd remind everyone that back then, we were working hard on expensing inventory optimization as a means to driving higher levels of profitability through the cycle. At that meeting, we also outlined a path to $2 earnings per share. Conceptually, we wanted to ensure we made the adjustments necessary to drive an acceleration in operating leverage so that we are in a strong position once the next cycle arrived. Our business today is nearly twice as large as those projections from 2017 in terms of revenue, and I'm proud to say our earnings power of nearly $5 per share is higher by 2.5x. Those principles remain in place today, thus positioning the business to drive greater and more sustainable levels of profitability in all demand environments which leads me to some brief commentary on our outlook for fiscal 2025 that we are introducing today. First of all, I'd like to highlight a few key differences between this cycle and the last one for both Titan and the industry in general and why both are in a healthier position today than the previous cycle. First, for the industry as a whole. As has been well documented, supply chain constraints significantly limited OEM production volumes, restricting the amount of new equipment that was going into the market over the past few years. Because of this, fleet age for categories such as high horsepower tractors are still above long-term averages. There has been less short-term leasing activity, further limiting the amount of late mile used equipment for sale. Farmers have had 3 highly profitable years to bolster their balance sheets and advancements in precision ag technology continue to drive productivity gains, providing ROI in new equipment and aftermarket upgrades. For Titan specifically, as the industry continues to consolidate with larger, higher horsepower and more technologically advanced equipment, we optimized our footprint and removed cost from the business through these restructuring efforts during the last cycle. We doubled down on our customer care strategy, driving more sustainable growth in our parts and service business, and we bolstered our professional back office team who focus on managing inventory levels and used trade-in valuations. While all of these factors I just mentioned put us in a healthier spot today than we were a decade ago. Net farm income is expected to be at or possibly below the 20-year average in calendar year 2024. And interest rates don't appear to be dropping as fast as our customers would like to see. General consensus by industry participants is that ag volumes will be around mid-cycle levels this year. As such, we don't expect to repeat the success we enjoyed over the past 2 fiscal years, but we remain in a strong position heading into our current fiscal 2025. We believe this year will prove to be best described as a year of transition. We have rapidly moved out of a period characterized by restricted supply and high demand to one that reflects ample to even excess supply and mid-cycle demand. We continue to have good visibility into demand for the first half of the fiscal year given healthy backlog and presale activity. However, the supply chain has caught up quickly in recent months and OEM lead times have normalized, whereas they had extended out 12 to 18 months, not that long ago. In a broader sense, this normalized supply environment is a welcome change after years of excessive delays and the additional uncertainty with allocations. This allows us to significantly improve our in-stock levels of high horsepower equipment, self-propelled sprayers and wheel loaders across our footprint. But the pace of the improved supply creates challenges in the near term as we will be working through a rapid influx of equipment deliveries, which will be visible in our new and used inventory balances throughout this fiscal year. As we meet demand from our existing backlog, those new unit sales to customers also generate trade-ins of used equipment. The guidance we are providing today reflects anticipated margin compression in part so that we can manage inventory levels through this transitional period. Our team will proactively manage through these factors in order to drive strong financial results and position us to maintain the higher levels of pretax margin that we've worked so hard to produce. Bo will provide some additional depth on the assumptions that underpin our modeling guidance for fiscal 2025. But before I pass the call to him, I want to briefly walk through our customer update on each of our reporting segments, starting with domestic agriculture. We had a great finish to the year growing segment same-store revenue by 36% in the fourth quarter. This was largely a function of the team's strong execution on improving the pace of customer deliveries following a concerted effort to complete pre-delivery inspections on new machinery. As we've discussed during the past several quarters, balancing the limitations of our service capacity between our ongoing needs of customers with incremental demands for pre-delivery inspections has been a challenge. So with that in mind, in addition to the strong equipment deliveries, I'm particularly pleased with our ability to continue to advance our customer care strategy and drive a double-digit same-store sales increase in our reoccurring parts and service business. Investing in people and CapEx to increase our service network capacity remains a key priority for our organization. As such, we will continue to focus on recruiting, hiring and training skilled technicians in the coming fiscal year as well as investing in related capital expenditures to support that growth. Shifting to our domestic construction segment. As expected, our construction segment produced a strong fourth quarter with same-store sales growth of 18%. This was due in part to timing of OEM deliveries this year versus last and our focus on getting these units turned around and out to our customers. We are pleased with the execution of our construction team who have continued to drive growth and maintain healthy pretax margins. Although there's been some recent softening as we look ahead, we see general stability in the construction markets that we serve. Further, we also anticipate benefiting from improved availability of equipment from our OEM partners. Now moving on to an overview of our Europe segment, which represents our business within the countries of Bulgaria, Germany, Romania and Ukraine. As discussed on our third quarter call, the growing season varied this year with timely precipitation driving above-average yields in Germany and Ukraine will dry conditions create some headwinds in Bulgaria and Romania. As expected, we saw a slowdown in demand in the fourth quarter, but still achieved modest year-over-year sales growth on a same-store basis. Turning to our new Australia segment. The O'Connors acquisition is now consolidated into our financials for the first time this quarter, so you will be able to monitor our progress in our segment reporting going forward. The segment's fourth quarter came in as expected and plentiful rainfall has provided healthy subsoil moisture across our footprint heading into the next growing season. We've completed initial integration discussions across departments, sharing best practices and setting the stage for future collaboration. In the coming months, we will initiate the branding transition to Titan Machinery, and I'd like to reiterate how excited we are to have O'Connors join the Titan team. Finally, I want to sincerely thank our employees for their tremendous efforts that drove our record revenue and earnings. With that, I will turn the call over to Bo for his financial review.
Thanks, Bryan, and good morning, everyone. I'll start with a brief review of our fiscal 2024 full year results. As Bryan noted in his commentary, we had another exceptional year and are proud of the performance the team delivered. While we don't expect to repeat this performance in the coming year, we are focused on demonstrating improved results relative to that of the previous cycle as we move forward. Total revenue increased 24.9% to a record $2.8 billion, driven by balanced growth across each of our revenue categories. Equipment grew 25.3% for the full year and was complemented by solid contributions from our recurring parts and service businesses, which increased 25.6% and 21.2%, respectively. Additionally, rental and other was up 10.4%. Earnings per diluted share increased 9.8% to $4.93 for fiscal 2024. This was a record for Titan, and it was also right in line with the midpoint of the guidance we established at the beginning of fiscal 2024 after adjusting for the O'Connors acquisition. Shifting to our consolidated results for the fiscal 2024 fourth quarter, total revenue was $852.1 million, an increase of 46.2% compared to the prior year period. Growth was driven by a 29.9% increase in same-store sales, with the balance reflecting the contribution from the O'Connor and other acquisitions. Our equipment revenue increased 51.6% versus the prior year period. Both parts and service revenue each increased 25.7% and rental and other revenue was up 3.1% versus the prior year period. Gross profit for the fourth quarter was $141 million. And as expected, gross profit margin contracted year-over-year to 16.6%, driven primarily by lower equipment margins, which are experiencing some normalization as expected at this stage in the cycle. The fourth quarters of fiscal 2024 and fiscal 2023 included benefits related to manufacturer incentive plans of $7.8 million and $1.8 million, respectively. Operating expenses were $100.3 million for the fourth quarter of fiscal 2024 compared to $83.7 million in the prior year period. The year-over-year increase of 19.9% was driven by additional operating expenses related to our acquisitions that have taken place in the past year as well as an increase in variable expenses associated with increased sales. Floor plan and other interest expense was $9.3 million as compared to $2.1 million for the fourth quarter of fiscal 2023, with the increase led by a higher level of interest-bearing inventory, the usage of existing floor plan capacity to finance the O'Connors acquisition and higher interest rates. Net income for the fourth quarter of fiscal 2024 was $24 million or $1.05 per diluted share, which included approximately $0.26 of benefits associated with manufacturer incentive plans. This compares to last year's fourth quarter net income of $18.1 million or $0.80 per diluted share, which included approximately $0.06 of benefits associated with manufacturing and incentive plans. Now turning to our segment results for the fourth quarter. In our Agriculture segment, sales increased 40.8% to $620.6 million. Growth was led by strong same-store sales increase of 35.5%, which was further supported by contributions from the acquisitions of Pioneer Farm Equipment in February 2023 and Scott Supply in January 2024. Agriculture segment pretax income was $28.8 million and compared to $19.3 million in the fourth quarter of the prior year. In our construction segment, same-store sales increased 17.7% to $100.1 million, led by the timing of equipment deliveries, which shifted some revenue into the fourth quarter of this year as compared to the timing of deliveries to customers in the second half of last year. Pretax income was $4.6 million and compared to $5.4 million in the fourth quarter of the prior year. In our Europe segment, sales increased 8.1% to $61.6 million, which reflects a 5.5% currency tailwind on the strengthening euro. Net of the effect of these foreign currency fluctuations, revenue increased $2.1 million or 3.6%. Pretax loss was $600,000 and compared to pretax income of $1.5 million in the fourth quarter of fiscal 2023. The decrease in profitability was driven primarily by a partial normalization of equipment margins and higher operating expenses. In our Australia segment, sales were $69.8 million and pretax income was $4.1 million. This was in line with the lower end of the range we provided on the Q3 call, primarily due to timing of OEM deliveries. This segment is well positioned to start fiscal 2025 with a good amount of presale orders on hand. Now on to our balance sheet and inventory position. We had cash of $38 million and an adjusted debt to tangible net worth ratio of 1.5x as of January 31, which is well below our bank covenant of 3.5x. Equipment inventory increased approximately $200 million in the fourth quarter, of which approximately $87 million is attributable to acquisitions made during the fourth quarter. As Bryan mentioned, we were pleased to be able to improve the pace of customer deliveries following a concerted effort to complete pre-delivery inspections of new machinery, but as expected, our high volume of deliveries to customers was more than offset by receipts from our OEM partners as they were rapidly catching up on production backlog as they finish the calendar year. With that, I'll finish by sharing a few comments on our fiscal 2025 full year guidance, which we are providing today. First, some segment-specific color on the top line. For the Agriculture segment, our initial assumption is for revenue to be flat to up 5%. This includes a full year revenue contribution from Scott Supply, which closed in January of 2024 and achieved revenues of approximately $40 million for calendar year 2023. It also assumes mid- to high single-digit growth on our parts and service business as we continue to advance our customer care strategy. As for equipment revenues, it assumes industry equipment volumes to be down 10% to 15% and pricing on new equipment to be up low single digits. The underlying growth for equipment revenue is expected to be driven by market share gains, aided by improved availability of high horsepower equipment as well as a proactive posture on selling through the used equipment that will be generated through trade-ins. The construction segment has diverse exposure to various end markets and construction activity in Titan's Midwest footprint remains at levels supporting healthy demand. Our initial assumption is for revenue growth in the range of up 3% to 8%. Here again, we assume mid- to high single-digit growth of our parts and service business and the low single-digit increase of pricing on new equipment. Construction should also benefit from improved availability of key equipment categories for which we have not been able to fulfill demand in recent years.For the Europe segment, our initial assumption is for revenue to be flat to up 5%. Our European business being predominantly ag-based has most of the same semantics as we laid out today for our Ag segment. One difference being that each country has its own nuances and are at different points in terms of maturation of our business operations. For instance, while our operations in Romania and Bulgaria are more mature, Ukraine is being impacted by ongoing conflict with Russia. And in Germany, we are in the earlier innings of establishing our presence across our footprint. As for the Australia segment, which made its debut in Q4 with the acquisition of O'Connors, we currently expect FY '25 revenue to be in the range of USD 250 million to USD 270 million, which is right in line with the $258 million that they achieved in the most recently completed fiscal year prior to acquisition. This business has a strong foundation in place with a focused operations team and is positioned well to deliver a solid first year performance as part of Titan Machinery. Now on for some overall commentary across our segments. From a gross margin perspective, we expect equipment margins to normalize across all 4 of our segments as there is now ample supply of inventory available for sale on dealer lots. An additional impact on the agriculture side as the U.S. net farm income is expected to decrease approximately 25%, which has started to impact demand for equipment purchases. As such, we expect incremental compression on equipment margins in this transitionary period. As for operating expenses, we continue to take action to retain and recruit talent in a consistently tight labor market, especially with service technicians. We also expect a ramp-up in IT expenses as we look to complete the rollout of our new ERP across our remaining U.S. locations. From a year-over-year comparison perspective, it's also worth noting that our Australia segment has a similar level of operating expenses as a percentage of sales as the rest of the business, implying an annualized run rate of about $30 million for that segment. Taken together, these impacts are expected to result in operating expenses as a percentage of sales, about 40 basis points higher than was realized in fiscal 2024 across the company as a whole. Moving to interest expense. I would expect similar levels of quarterly floorplan interest expense in the first half of fiscal 2025 as we incurred in the fourth quarter of fiscal 2024. And then see it reduce from there as OEM interest free terms normalize, and interest rates are expected to reduce modestly in the back half of the year. What I mean by normalization of interest returns is that in recent years due to low equipment availability, OEMs provided shorter than typical interest free periods, but that has started to shift back to more normal terms and is expected to be a benefit to interest expense. Bringing it all together on a diluted earnings per share basis, we are introducing a fiscal 2025 range of $3 to $3.50 per share, which implies a pretax margin of 3.2% to 3.5%. Overall, we believe the variables just discussed are reasonably factored into the ranges we are providing today, though both risks and opportunities still exist. The midpoint of our guidance at $3.25 earnings per share, which reflects a mid-cycle ag environment, along with some added transitional pressures would be the third highest EPS in company history and continues to build on a solid foundation for more sustainable and profitable growth through the cycle. To provide more color on this important topic, we have added a slide in the back of our earnings presentation, which provides a comparison of recent years versus the prior Ag cycle. It also summarizes some of the key reasons for the improved profitability as has already been discussed today. Overall, we are focused on executing the plan and driving higher levels of profitability through the cycle. This concludes our prepared remarks. Operator, we are now ready for the question-and-answer session of our call.
Thank you. At this time, we'll be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Ted Jackson with Northland Securities.
Congratulations on the quarter, and congratulations on all the work you've done in the last several years to position yourself to work your way through a change in the cycle, if you would -- I just wanted to touch base quickly on some of the commentary around margin. I know you highlighted that you were going to see more pressure on margin on the equipment side as farm income goes down and there's lesser demand. First of all, with regards to that, is this across the board with regards to both new and used, I assume that a bigger driver of this would be used more than new. My second point within margin is what does it mean with regards to rental? And then in my third kind of looking at your parts and services in the last quarter was a little below margin relative to kind of recent periods where we see margin pressure with regards to parts and services also.
From an overall margin perspective, in terms of new and used, we don't really split that out, and it's really a function of how you evaluate the use, which impacts the new. Overall, your commentary makes sense, right? The pressure comes from selling through the used side. So we don't really split it out, but I mean, that's how we're thinking about it. And overall, that's why we talk about a total equipment margin. From a parts and service perspective, I would expect similar margins this next year as we had in fiscal '24, maybe slightly down but we're not talking about the same factors that are impacting our equipment margins. And then from a rental perspective, also feeling good about where that's at and would expect similar margins to last year. I think you were maybe also referencing their margin changes in Q4, specifically for parts and service and maybe mainly service. Some of that can really be a function of the seasonality, which we really see in the business and where our team is focusing their time between delivering new equipment versus service revenue. And I wouldn't read anything into that. The margins we've seen are pretty similar to what we would expect, perhaps slightly down, again, as we've seen some pressure and we're wanting to make sure that we're one of the ones in front leading the labor market and recruiting and retaining our service techs.
Ted, this is Brian. I would just add on the rental, as Bo commented to -- recall that if you go back to FY '18, we had a much higher rental fleet, and we've gotten that really lean and reduced it down by over 35% down to just under that $80 million that we have today and really driven over the last few years, much higher utilization rates both in terms of dollar and physical utilization. And so we expect that to continue, again, with their very lean and agile rental fleet that we have today.
Our next question comes from the line of Larry De Maria with William Blair.
First, I guess, can you talk about -- I know you talked about lead times to some degree. Can you talk about are there any pockets where they're still extended? Or is everything normal at this point? And are you guys significantly slowing down or canceling orders at this point?
Generally, everything across the board is now normalized, Larry. As you know, domestic Midwest plants versus overseas production plants, I always have varying lead times, but the supply chain, as we mentioned, has really quickly caught up here. And so going from even towards the last -- at the end of last year still being extended out to now generally everything normalized.
Given those large 4-wheel drive and staggers and all that stuff is relatively easy to get?
There's not easy for the OEMs still some production challenges for them. But yes, now no longer allocation, I believe, from any of the OEMs on any product categories.
And just to make sure we address the one point. I mean there's not a cancellation of order. [indiscernible] what we've done right is adjust the dials and that started last year. So we've kind of referred to this as a transitionary period when the supply chain catches up and you see kind of a condensing of when that equipment arrives, right? So it's kind of a matter of timing, and it will play itself through, but feel good about our ability to do so, and that's one of the main focuses this year.
And Larry, I'd just add. As you know, we were short on inventory for -- in many categories for 2-plus years, we've talked a lot about that over the past 2 years. And so it took us a long time to get here. And so as things have rapidly normalized, it's going to take a while to manage through these. And so that's why you hear us talking about the transition year. It has become a lot of equipment coming in a short period of time, orders that we have placed all throughout 2023 and even back into 2022 coming in a short period here. But just to your point about the dialing back and as Bo said, as we saw some of the markets starting to soften late last summer, we started to pull levers and dial things back and put actions into place. So we feel really good about the proactive measures we've taken and the visibility we have into the order board for the first half of the year and the strong presales coming in. And so again, there's just -- will be a lot of inventory that's recently come in and will be coming out in throughout this year that we've got built into our modeling that we are just going to get after and sell through.
And then maybe asking from the customer perspective, how did orders kind of come in through the quarter? [indiscernible] trying to understand have they fallen off cliff -- are they slowly continuing to get weak? And have they sort of felt like they've bottomed stabilized? And are we seeing any cancellations from customers?
Yes. So the cancellations are very low. Generally, as we've talked in the past, that ties back to a death or a divorce or unexpected health issues. And so those just continue. But it has not fallen off a cliff by any means. Commodity prices have been pretty steady here for the last few weeks. And so farmers again had 3 really good years here and balance sheets are really strong, recording a lot of record land sale prices throughout our footprint, and they're carrying over a lot of good income into this year, and that will help stabilize as well. And then just a lot of the new products from our OEMs and the technology that's really helping with the productivity and supporting demand as well.
And if I could just ask one final question, sorry for one more. But in your chart where you show the margins on future drops in revenue and you have breakeven margins at sales, about half of where we're looking now. Is that meant to be indicative of where you think the market is going? Or is that more illustrative of what you -- of the work you've done cycle-to-cycle.
I appreciate the opportunity to clarify that. And it was a bit challenging to perfectly capture something that you could digest relatively quickly. That future state in that trough there, right, is not trying to provide any indication on the level of revenue. It's simply trying to provide the pretax margin percentage range. And we also have the budget in there as a reference, right? So we're coming off of our recent peaks, and we saw an ability to produce pretax north of 6%. This year, budgeting a mid-cycle assumption with some added transitionary pressure at the midpoint of about 3.4%. The guidance range here from 0 to 3 is supposed to be indicative of kind of that pretax range. And in terms of where it falls in that range, right, it all comes down to kind of the timing and the factors at the time, right? Like what is the trough, what does that look like? Where equipment inventory levels that were interest rates at that point in time. But overall, what we're trying to illustrate is both from peak-to-peak perspective, and then trough-to-trough perspective and all the way through the cycle, delivering significantly higher profitability. And that's what we're excited and focused on executing here over the next few years.
Our next question comes from the line of Mig Dobre with RW Baird.
I guess I wanted to start with the quarter. The guidance you gave in late November would have implied your ad revenue would have been up about 20% in the fourth quarter. It came in up over 40%. I guess I'm just checking, did the equipment availability really improved that much more than you were expecting in late November, kind of what played out in the quarter? And did you maybe pull any revenue forward that you might have gotten in the current fiscal year?
Yes. I think just quickly from me, and Bo [indiscernible], Joe. To your question, yes, the equipment has been really tricky to forecast timing of deliveries in the past 2 years. And so with supply chain improving and so on, it did come in better than anticipated. So that certainly was a part of it. And then also, again, as I mentioned in our prepared comments, just credit to our team, who really worked hard to reduce our backlog that has been in a record levels the past 2 years and putting in the hours and getting that equipment out to our customers.
And my next question, you walked through your ag revenue guidance for the current fiscal year is so much better than the OEMs industry forecasts. And it seems like a big component of that is the market share gains that you're expecting. Maybe talk about your confidence in those market share gains? And I guess, if it's predicated on better equipment availability, I mean, isn't equipment availability improving for everybody. So just your thoughts on that.
So stripping everything back and setting the acquisition to the side, right, equipment revenues on the ag segment is about flat to slightly down versus I think you're referencing the industry volume expectation of like 10% to 15%. And yes, we are better positioned with our equipment, right, and specifically for customers we serve. So it's really looking at those relationships and the equipment that they're looking for, and in some cases, our inability to get it in previous years and now our ability to execute and serve those specific customers. So it's not just a broad statement, and we feel pretty good with line of sight. And as we mentioned with our presale activity through the first half of the year, what we're looking to achieve here.
And my last question, any early learnings from the O'Connor's acquisition and your -- maybe your broader thoughts about the Australian market.
I think just as we continue to get to know the team better and collaborate with them on our best practice sharing and leveraging each other's knowledge and skill sets, it's just all been extremely positive. We're really pleased with the acquisition. We're really pleased with the leadership team and the employees over there and very similar business philosophies that our 2 companies have, and so that's really helped with the integration and transition. We really like the market over there. We're very excited to grow over there and continue to invest over in Australia. And yes, we just couldn't be happier, Joe, and really pleased with that acquisition, excited about it going forward.
Our next question comes from the line of Ben Klieve with Lake Street Capital Market.
A couple for me. First of all, regarding the 25 outlook. I'm wondering if you can kind of help us a bit with top line seasonality. Last year was a very lumpy one. I'm wondering if you can kind of point to any historic year to give us kind of a bit of a benchmark for kind of how we should look at seasonality here in fiscal '25 because I suspect it's going to be off quite a bit in fiscal '24.
So certainly, when you look at it in things like the strength of the fourth quarter, definitely come into play there with your comments. Big picture-wise, surprisingly. And as you -- we look at things as average over the last 6 years, last 3 years, last couple of years, all bunch of different ways. But as we see it, traditionally, our revenues are about 45% in the first half of the year, 55% in the second half of the year. And Australia, even when you overlay Australia with our financials, we expect something very similar with 45%-ish in the first half of the year, 55% is in the second half of the year. The nuance here, I think, is you're definitely right. There was some strength in the fourth quarter in our U.S. ag segment, which kind of made Q4 stand out. So I think that, that normalizes a bit in Q3 and Q4 look more similar in FY '25 than they did in FY '24 better overall back half of the year, about 55%. And then from a first half of the year perspective, that first 45%, Q1 is traditionally and expected to be lower than Q2. And a lot of that is seasonality and timing of activity and purchasing. So overall, big picture wise, it won't change drastically from what we've seen, but there is some nuance and certainly more of a level setting between Q3 and Q4 is probably the best expectation at this point.
And then one more for me, and I'll get back in queue. I'm wondering if you can talk about the M&A opportunities today and maybe in the context of kind of how the M&A environment was at mid-cycle in the -- excuse me, midpoint of the previous cycle as well. Is the outlook kind of more favorable, less favorable than it was at this point in the prior cycle or any big takeaways you can point to there?
Yes, certainly, I believe the there'll start to be a greater amount of opportunities here as we go forward. And also, we could see a little bit of a changing in the multiples and so on as we go more towards mid-cycle here and as margins come down a little bit for the other dealers as well. But the real drivers still remain in place. All the back office challenges and a lot of the single store, the smaller and the traditional operations struggling with the technology and all the HR and government regulations and just a lot of that back office function that really ties in nicely with our model. And so those drivers just continue to be ever present. And as we, again, go towards more mid-cycle here, those get highlighted even further. So we do believe there will be an increased amount of opportunities as we go forward here. But I would reiterate for the immediate year here, as we laid out in our prepared comments, we're really focused on our customer care strategy and continuing to focus on driving our parts and service business and increasing our parts and service revenues, increasing our support capabilities for our customers, and we're going to continue to invest in that and be really focused on our customer care strategy and just really keen on expenses and again, inventory management. So those are the 3 priorities. We certainly will be opportunistic with acquisitions. And as we manage through that inventory, that will free up room on the balance sheet. That will generate quite a bit of cash as we exit the year and go throughout next year as well. So we'll certainly be ready and going to be very selective with acquisitions as we go forward.
Our next question comes from the line of Alex Rygiel with B. Riley.
First, can you talk a little bit about your expectations for inventory increasing throughout the year?
Yes. I mean from the color we're trying to provide today is generally right, that we still have inventory coming in. And obviously, we have expectations for good sales pull through. In terms of quarter-to-quarter, that remains to be seen a little bit. Again, as we've said, lead times have normalized some, but there's still some inconsistency in terms of when things would arrive. But as it stands, I would expect that we do see some uptick in inventory here in the first half of the year, assuming that all of those things stay on schedule. And then we would play it out and see some inventory reduction from there in the back half of the year. All of that subject to, again, the timing of how everything plays out. And we'll continue to provide an update for you on a quarterly basis.
And then what's your appetite these days to increase investment into the rental fleet.
Yes. So Alex, we monitor that closely on a real-time basis. And it just ultimately is a function of our utilization. And so our team does a great job building relations and relationships and being out there in the market. And we really look to continue to push and promote our rental fleet. It continues to improve every year. And so we're just very mindful, though, of the utilization rates. And as long as we can keep those up and keep improving those, we'll continue to add fleet. And as we see them start to taper off or pull back a little bit, we'll turn the valves, decrease the wells back down. And again, just really a function of the utilizations.
And our final question comes from the line of Ted Jackson with Northland Securities.
You kind of touched on it a little bit with your inventory comment, but I did want to circle back with regards to kind of working capital levels as we roll through -- or fiscal 2025, and that's obviously tied to inventory levels. I'm a little bit surprised that you would see inventories trending up like in the first half, given the jump you had in the fourth quarter. But kind of taking that and all tying it together, is it fair to assume that we'll see a drop in working capital and an improvement in free cash flow during fiscal 2025. And what can we expect in terms of a free cash flow number for the year? And how would that be weighted out in terms of sort of first half to second half?
Yes. So I mean, overall, at the heart of your question is, would we see better operating cash flow generation right? And ultimately, that all comes down to what the inventory balance is going to look like. So this year, we saw a significant increase year-over-year in inventory. We certainly wouldn't expect to see the same thing occur in FY '25, right? So that's going to be a real positive to the dynamics on the cash flow side. Just a bit more on that, I guess, as we look at this. So again, we mentioned a little bit earlier about 45% of revenue in the first half of the year, 55% in the back half of the year. We kind of the inverse is true in terms of expectations for deliveries, again, because of the supply chain catch-up, right? So when you have more -- a larger portion of inventory coming in, in the period where you have a lower portion of your sales, that's just mathematically that against it, that would lead to a continued increase here in the near term. But overall, as we step back and take a look at this, right, and we talk about the team that we have in place and the controls we have in place and everything that we focus on. The dynamics that have kind of come together here in terms of the cycle turning and then the catch-up with the supply chain ultimately just lead to a situation where it takes a little time to play through, right? So big picture-wise, we talk about maintaining healthy inventory turns and staying out of interest-bearing inventory. And I think this year, we'll see that inventory turns are lower than our targeted levels. And it probably takes working through FY '26 to get the turns back up just the dynamics with how those ratios are even calculated. So we see the transitionary period and kind of a 2-year journey to get back on that turn level, but very much seeing it play out, something we can manage, deliver the higher profitability that we're talking about today, be well positioned for FY '26 and beyond. And ultimately, all of that is going to lead to better cash flow generation that we had seen recently. But in terms of specifically now in the quarters, I mean, we'll have to continue to see how that plays out here in '25.
Do you think you can generate positive free cash flow for the entire year.
Yes. Again, it ultimately all comes down to inventory levels, but we feel good about being able to manage those and achieve that.
Thank you. And we have reached the end of the question-and-answer session. I'll now turn the call back over to management for closing remarks.
Okay. Thank you for your interest in Titan Machinery, and we look forward to updating you with our progress on our next call. Thank you, and have a great day, everyone.
And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.