TORO CO

Working Capital

The macroeconomic environment remains challenging, but our supply chain is continuing to stabilize. Our ongoing goal is to maintain requisite inventory levels to meet our anticipated production requirements, avoid manufacturing delays, and meet the demand for our products, as well as working to ensure service parts availability for our customers. Accounts receivable as of the end of the first quarter of fiscal 2024 increased $111.8 million, or 29.6 percent, compared to the end of the first quarter of fiscal 2023, primarily driven by timing of shipments to our mass channel and payment terms. Inventory levels were up $45.7 million, or 4.0 percent, as of the first quarter of fiscal 2024 compared to the first quarter of fiscal 2023, driven by higher finished goods balances, primarily due to lower shipments of zero-turn mowers and snow and ice management products, partially offset by reduced work in process balances driven by more reliable component availability and productivity improvements. Accounts payable decreased $53.4 million, or 11.2 percent, as of the end of the first quarter of fiscal 2024 compared to the end of the first quarter of fiscal 2023, primarily driven by a reduction in purchases year over year.

Cash Flow

Cash Flows from Operating Activities

Cash used in operating activities for the first three months of fiscal 2024 was $92.2 million compared to $68.9 million for the first three months of fiscal 2023 mainly due to lower net earnings during the current fiscal year period compared to the prior fiscal year period.

Cash Flows from Investing Activities

Cash used in investing activities for the first three months of fiscal 2024 was $19.1 million compared to $21.9 million for the first three months of fiscal 2023. This decrease in cash used in investing activities was primarily driven by lower purchases of property, plant, and equipment, net of proceeds from insurance claim in the current fiscal year period compared to the prior fiscal year period.

Cash Flows from Financing Activities

Cash provided by financing activities for the first three months of fiscal 2024 was $114.1 million compared to cash provided by financing activities for the first three months of fiscal 2023 of $74.4 million. This increase in cash provided by financing activities was mainly due to higher net borrowings, partially offset by lower proceeds from exercise of stock options, in each case during the current fiscal year period compared to the prior fiscal year period.

Liquidity and Capital Resources

As of February 2, 2024, we had available liquidity of $600.9 million, consisting of cash and cash equivalents of $198.5 million, of which $91.1 million was held by our foreign subsidiaries, and availability under our revolving credit facility of $402.4 million. We believe our current liquidity position, including the funds available through existing, and potential future, financing arrangements and forecasted cash flows from operations will be sufficient to provide the necessary capital resources for our anticipated working capital needs, payroll, and other administrative costs, capital expenditures, lease payments, purchase commitments, contractual obligations, acquisitions, investments, establishment of new facilities, expansion and renovation of existing facilities, financing receivables from customers that are not financed with Red Iron or other third-party financial institutions, contingent consideration payments, debt repayments, interest payments, quarterly cash dividend payments, and common stock repurchases, all as applicable, for at least the next twelve months.

Indebtedness

Our debt arrangements are described in further detail in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023. The following is a summary of our indebtedness:

As of February 2, 2024, we had $195.0 million of outstanding borrowings under our revolving credit facility and $2.6 million outstanding under the sublimit for standby letters of credit, which resulted in $402.4 million of unutilized availability under our revolving credit facility.

We are in compliance with our debt covenants and other requirements of our revolving credit facility and term loan credit agreements, indentures, and private placement note purchase agreements.

Cash Dividends

Our Board of Directors approved a cash dividend of $0.36 per share for the first quarter of fiscal 2024 that was paid on January 11, 2024. This was an increase of 5.9 percent over our cash dividend of $0.34 per share for the first quarter of fiscal 2023. Weexpect to continue paying our quarterly cash dividend to shareholders for the remainder of fiscal 2024.

Share Repurchases

During the first three months of fiscal 2024, we did not repurchase shares of our common stock. As of February 2, 2024, 6,949,491 shares remained available for repurchase under our Board authorized repurchase program. We expect to repurchase shares of our common stock throughout the remainder of fiscal 2024, depending on our cash balance, debt repayments, market conditions, our anticipated working capital needs, the price of our common stock, and/or other factors.

Customer Financing Arrangements

Our customer financing arrangements are described in further detail in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023. There have been no material changes to our customer financing arrangements during the first three months of fiscal 2024.

Inventory Financing

We are party to inventory financing arrangements with Red Iron, HCFC, and other third-party financial institutions which provide inventory financing to certain dealers and distributors of certain of our products in the U.S. and internationally.

The net amount of receivables financed for dealers and distributors under the arrangement with Red Iron for the three month periods ended February 2, 2024 and February 3, 2023 were $425.6 million and $674.4 million, respectively. The total amount of net receivables outstanding under the arrangement with Red Iron as of February 2, 2024, February 3, 2023 and October 31, 2023 were $963.9 million, $942.0 million and $1,019.0 million, respectively. The total amount of receivables due from Red Iron to us as of February 2, 2024, February 3, 2023 and October 31, 2023 were $25.6 million, $17.3 million and $34.4 million, respectively.

The net amount of receivables financed for dealers and distributors under the arrangements with HCFC and the other third-party financial institutions for the three month periods ended February 2, 2024 and February 3, 2023 were $131.0 million and $111.3 million, respectively. The total amount of net receivables outstanding under the arrangements with HCFC and the other third-party financial institutions as of February 2, 2024, February 3, 2023, and October 31, 2023 were $202.6 million, $166.1 million, and $234.7 million, respectively.

Inventory Repurchase Agreements

We have entered into a limited inventory repurchase agreement with Red Iron and HCFC under which we have agreed to repurchase certain repossessed products, up to a maximum aggregate amount of $7.5 million in a calendar year.

Additionally, as a result of our financing agreements with the other third-party financial institutions, we have also entered into inventory repurchase agreements with the other third-party financial institutions. Under such inventory repurchase agreements, we have agreed to repurchase products repossessed by the other third-party financial institutions. As of February 2, 2024, February 3, 2023, and October 31, 2023, we were contingently liable to repurchase up to a maximum amount of $28.7 million, $79.4 million, and $32.2 million, respectively, of inventory related to receivables under these inventory repurchase agreements.

Our financial exposure under these inventory repurchase agreements is limited to the difference between the amount paid to Red Iron, HCFC or other third-party financing institutions for repurchases of inventory and the amount received upon subsequent resale of the repossessed product. We have repurchased immaterial amounts of inventory pursuant to such arrangements for the three months ended February 2, 2024 and February 3, 2023. However, a decline in retail sales or financial difficulties of our distributors or dealers could cause this situation to change and thereby require us to repurchase financed product, which could have an adverse effect on our results of operations, financial position, or cash flows.