Q4 2024 Titan Machinery Inc Earnings Call

Participants

Jeff Sonnek; IR Contact Officer, Managing Director; Titan Machinery Inc

Bryan Knutson; President and CEO; Titan Machinery Inc

Bo Larsen; CFO and Treasurer; Titan Machinery Inc

Ted Jackson; Analyst; Northland Securities

Larry De Maria; Analyst; William Blair

Mig Dobre; Analyst; RW Baird

Ben Klieve; Analyst; Lake Street Capital Markets

Alex Rygiel; Analyst; B. Riley

Presentation

Operator

Greetings, and welcome to the Titan Machinery Inc., fourth-quarter fiscal 2024 earnings call. (Operator instructions) Please note this conference is being recorded.
I will now turn the conference over to your host, Jeff Sonnek from IR. You may begin.

Jeff Sonnek

Thank you, and welcome to Titan Machinery 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. These 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 or 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, please, but 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 have 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.

Bryan Knutson

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 Bob 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 expense and 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 were 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 2.5 times.
Those principles remain in place today, 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 at 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-model used equipment for sale. Farmers have had three highly profitable years to bolster their balance sheet and advancements in precision ag technology continue to drive productivity gains, providing ROI on 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 remove costs 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, it 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 two 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 in 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, this 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. Paul 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 customary 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 demand for predelivery 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 has 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 OE 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'Connor acquisition is now consolidated into our financials for the first time this quarter soon, you will be able to monitor our progress in our segment reporting going forward. This 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 tape machinery, and I'd like to reiterate how excited we are to have you have eCommerce joining 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 Bill for his financial review.

Bo Larsen

Thanks, Brian, and good morning, everyone. I'll start with a brief review of our fiscal 2024 full year results. As Brian 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 Ikanos acquisition.
Shifting to our consolidated results for fiscal 2020. For 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 sale sales with the balance reflecting the contribution from the counters and other acquisitions, our equipment revenue increased 51.6% versus the prior year period, while 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. Fourth quarters of fiscal 2024 and fiscal 2023 included benefits related to manufacture 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. 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 Floorplan 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, usage of existing floor plan capacity to finance the Ikanos acquisition and higher interest rates.
Net income for the fourth quarter of fiscal 2024 was $24 million or $1.5 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 $0.8 per diluted share, which included approximately $0.06 of benefits associated with manufacturer 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 and February 2023 and Scott supply in January 2020. For 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. A 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 onto our balance sheet and inventory position. We had cash of $38 million and an adjusted debt to tangible net worth ratio of 1.5 times as of January 31, which is well below our bank covenant of 3.5 times. 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 Brian 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 backlogs as they finished 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 Ag segment, our initial assumption is for revenue to be flat to up 5%. This includes a full year revenue contribution from Scotts supply, which closed in January 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 proactive posture on selling through the used equipment equipment that will be generated through trade-ins.
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 assumptions 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 been 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 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'Connor, we currently expect FY25 revenue to be in the range of $250 million to $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 1st 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 four of our segments as there is now ample supply of inventory available for sale on dealer lots and additional impact on the ag side in the US, 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 US 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 of 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 reduced from there as OEM interest rate 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 than in recent years due to lower equipment availability. OEMs provided shorter than typical interest rate periods, but that has started to shift back to more normal terms and is expected to be a benefit to interest expense, bringing it altogether 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 the 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.

Question and Answer Session

Operator

(Operator Instructions) Ted Jackson, Northland Securities.

Ted Jackson

Thanks very much.Congratulations on the quarter on 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 will. 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 you know, farm income goes down and there's lesser demand on. First of all, with regards to that, and I is this across the board with regards to board 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 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 things.

Bo Larsen

Yes, good morning, Ted, thanks for the question. From an overall margin perspective. In terms of new news, 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 use 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 at 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 we'd expect similar margins to last year. I think you are maybe also referencing their margin changes in Q4, specifically for parts and service and maybe mainly nervous. Some of that can really be a function of 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 have seen, they're pretty similar to what we would expect perhaps slightly down again, as we've seen some of some pressure and we're wanting to make sure that we're a one of the ones in front leading the labor market in recruiting and retaining our service techs.

Ted Jackson

Okay. That's really it for me. Thanks very much.

Bryan Knutson

Yes, Ted, this is Bryan. I would just add on the rental as both commented a failed, but recall that if you go back to FY18, 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 $80 million that we have today and really driven over the last few years, much higher utilization rates and both in terms of dollar and physical utilization. And so we expect that to continue again with their very lean and and agile rental fleet that we have today.

Ted Jackson

Okay. Thanks very much.

Operator

Larry De Maria, William Blair.

Larry De Maria

Thanks. Good morning. I have a few questions. First, I guess can you talk about I know you talked about lead times and degree. Can you talk about other any pockets where there's still extended or is everything normal at this point? And are you guys significantly slowing down or canceling orders at this?

Bryan Knutson

Yes. Hey, Larry, this is Brian. Good morning and thank you for the question. Yes, generally, everything across the board is now normalized. Larry, as you know, of domestic Midwest plants versus overseas production plants always have varying lead times. But to the supply chain, as we mentioned, has really quickly caught up here. And so going from even towards the latter at the end of last year, still being extended out to now generally everything normalized because even though it's large four-wheel, drive it staggers and all that stuff relatively easy to get.
Yes, you know, there is the and not easy for the OEMs still still some production challenges for them. But yes, we now no longer allocation, I believe, from any of the OEMs on a product categories and just to make sure we address the one point.
I mean, there's not a cancellation of orders. Here were a what we've done right is adjust the dials and that started last year. So we're just at 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 just that, you know, as you know, we were short on inventory for in many categories for two plus years. We've talked a lot about that over the past two years and so it took us a long time to get here and say, 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 and just it's become a lot of equipment coming in a short period of time. Some orders that we have placed all throughout 2023 and even back into 2020 to come in in a short period here.
But just to your point about the dialing back in, as both said, as we saw from some of the markets starting to soften late last summer, we started to pull levers and dial things back and put actions in place. So we feel really good about the proactive measures we've taken in and of and I 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 the 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 some that we are just going to get after and sell through.

Larry De Maria

Got you. Thanks for the color and maybe asking from the customer's perspective or how did orders kind of come in through the quarter as they have finer sand, has it fallen off a cliff for they got is slowly continuing to get weak, but have they sort of felt like they've bottomed stabilized and are we seeing any cancellations from sorry?

Bryan Knutson

Yes. So the cancellations are very low on generally, as we've talked in the past that tied back to a death or divorce or unexpected health issues and and so on. No, those does just continue, but it has not fallen off a cliff by any means or commodity prices. It feels been been pretty steady here for the last few weeks and on and so forth. Farmers again, had three really good good years here.
And balance sheets are really strong, recording a lot of record land sale prices throughout our footprint, and they're 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.

Larry De Maria

Okay, fantastic. And if I could, if I could just ask one final question, sorry for ask more, but in your chart where you show the margins in our future trough in revenue and you have breakeven margins at sales, about half of where we're looking now is it meant to be indicative of where you think the market's going or they're more illustrative of what you've of the work you've done cycle the cycle?

Bryan Knutson

Yes. And I appreciate the opportunity to clarify that. And there was a bit challenging to perfectly capture something that you can digest relatively quickly that that future state in that trough there. Right is not trying to provide any indication on the level of revenue. It simply trying to provide the pretax margin percentage range. So and we also have the budget and there's a reference, right?
So we're coming out 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 that at the midpoint at about 3.4%. The guidance range here from zero to three is a spot to be indicative of kind of that pretax range in terms of where it falls in that range. Right.
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 our equipment inventory levels that were interest rates at that point in time. But overall, what we're trying to illustrate it 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.

Larry De Maria

Okay. Perfect. Thanks very much. Good luck.

Operator

Mig Dobre, RW Baird.

Mig Dobre

Hey, good morning, guys. It's Joe Grabowski on for Mig this morning, Joe. like Joe and good morning. Tony, I guess I wanted to start with the quarter, you know, 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 to the equipment availability really improved that much more than you were expecting in late November. Kind of what what played out in the quarter and did you maybe pull any revenue forward? It might have gotten in the current fiscal year?

Bryan Knutson

Yes, I think just quickly for me and our boys expand further, Joe, but add to your question, yes, of the equipment has been really tricky to forecast timing of deliveries the past two years and so on. 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 have really worked hard to reduce our backlog that has been at a record level for the past two years. And then we we're putting in the hours in getting our equipment out to our customers.
Yes, yes, I don't think I have anything to add there?

Bo Larsen

I think you covered it well.

Mig Dobre

Okay, great. Thank you. And then my next question is you you walk through why your ag revenue guidance for the current fiscal year is so much better than the OEM's industry forecasts. And it seems like a big component of that is market share gains that you're expecting. Maybe talk about your confidence in those market share gains? And I guess if it's if it's predicated on better equipment availability, I mean, isn't equipment availability improving for everybody? Just your thoughts on.

Bryan Knutson

Yes. So the stripping everything back in setting the acquisition to the side, right equipment and our 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.

Mig Dobre

All right. And my last question, Harm, any early learnings from the eCommerce acquisition and you're from maybe you and your broader thoughts about the Australian market?

Bryan Knutson

Yes. I think just as we continue to get to know the team better and collaborate with them on honor best practice sharing and leveraging each other's knowledge and skill sets. It's just all been extremely positive where we're really pleased with the acquisition. We're really pleased with the leadership team and the employees over there and very similar business philosophy that our two 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 to grow over there and continue to invest over over in Australia and yes, we just couldn't be happier, Joe, and really pleased with that acquisition and excited about going forward.

Mig Dobre

All right. Great. Thank you.

Operator

Ben Klieve, Lake Street Capital Markets.

Ben Klieve

Thanks for taking my questions. A couple for me. First of all, regarding the 25 outlook on. I'm wondering if you can kind of help us a bit with top-line seasonality on that. But last year was it was a very lumpy one. I'm wondering if you can kind of point to any historic year to give us a kind of a bit of a benchmark for kind of how we should look at seasonality here in fiscal 25 today. I suspect that's going to be I'm off quite a bit in fiscal 24.

Bryan Knutson

Yes. So certainly, when you look at and things like the strength of the fourth quarter definitely come into play there. With your comments on big picture wise, surprisingly, and as you know, we look at things on average over the last six years, last three years last couple of years level of a 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% ish 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 US 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 FY25 than they did in FY24, 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 in purchasing. And so overall, big picture wise, it won't change drastically from what we've seen. But there is some nuances and certainly more of a level setting between Q3 and Q4 is probably the best expectation at this point.

Ben Klieve

Got it. That's very helpful. Tony's bolt on. 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 that your mid-cycle on the midpoint of the previous cycle as was 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?

Bryan Knutson

Yes. Thanks, Ben. Yes, certainly, I believe there's those start to be a greater amount of opportunities here as we go forward. And also, you know, and we could see a little bit of a change 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. And but the real drivers still remain in place here all the back office challenges in the US, a lot of the single store, the smaller and the traditional operations struggling with the technology and all the HR and government regulations and Anda. It was just a lot of that back-office function that really ties in nicely with our models. And so those drivers, so just continue to be ever ever present.
And as we again go towards more mid cycle here does 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 here for the 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 three priorities. We certainly will be opportunistic with acquisitions. And as we manage through that inventory, that'll 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 done and going to be very selective and with acquisitions as we go forward.

Ben Klieve

Very good. I appreciate the color on. Thanks for taking my questions. I'll get back in queue.

Operator

Alex Rygiel, B. Riley.

Alex Rygiel

Thank you. Good morning. A couple of quick questions here. First, can you talk a little bit about your expectations for inventory increasing throughout the year.

Bryan Knutson

And 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 it has 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 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 two, again, the timing of how everything plays out, and we'll continue to provide an update for you on a quarterly basis.

Alex Rygiel

Thank you. And then what's your appetite these days to increase investment into the rental fleet?

Bryan Knutson

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 will continue to add fleet. And as we see them start to taper off and pull back a little bit, I will turn the valves of decrease develops back down. And again, the it's really a function of the utilizations.

Alex Rygiel

Thank you.

Operator

Ted Jackson, Northern Securities.

Ted Jackson

Thanks. 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 20 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 and what kind of take taking that now 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 will we will kind of what can we expect in terms of a three times free cash flow number for the year? And how would that be weighted out in terms of sort of first half to second half?

Bryan Knutson

Yes. I mean, overall, at the heart of your question is, would we see a 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 FY25, right? So that's going to be a real positive to the dynamics on the cash flow side and just a bit more on that.
I guess as we as we look at this, so I can 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. Well, 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 and more a larger portion of inventory coming in in the period where you have a lower portion of your sales. That's just mathematically what's 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 slide, and we talk about the team that we have in place and the controls we have in place and everything that we 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, you know, working through FY26 to get the turns back up. Just the dynamics of how those ratios are even calculated. So we see that transitionary period and kind of a two year journey to get back on that turn level. But very much seeing it play out something we can manage to deliver the higher profitability that we're talking about today be well positioned for FY26 and beyond. And ultimately, all of that is going to lead to better cash flow generation that we have 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, and ultimately all comes down to inventory levels, but we feel good about being able to manage those maturities.

Ted Jackson

Okay. Thanks, Bob.

Operator

Thank you. And we have reached the end of the question-and-answer session. I will now turn the call back over to management for closing.

Bryan Knutson

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.

Operator

This concludes today's conference, and you may disconnect your lines. Thank you for your participation.