Titan Machinery Inc. Announces Results for Fiscal Third Quarter Ended October 31, 2020

Tuesday, 24. November 2020 12:45

- Revenue for Third Quarter of Fiscal 2021 was $360.9 million -

- GAAP EPS for Third Quarter of Fiscal 2021 was $0.44 and Adjusted EPS was $0.58 -

- Company Increases Fiscal 2021 Modeling Assumptions -

WEST FARGO, N.D., Nov. 24, 2020 (GLOBE NEWSWIRE) -- Titan Machinery Inc. (Nasdaq: TITN), a leading network of full-service agricultural and construction equipment stores, today reported financial results for the fiscal third quarter ended October 31, 2020.

David Meyer, Titan Machinery’s Chairman and Chief Executive Officer, stated, "We exceeded our third quarter top-line expectations due to strong parts and service performance in our Agriculture segment and better than anticipated equipment sales in our Construction and International segments. The stronger revenue, combined with continued success controlling operating expenses and driving down interest expense, resulted in a significant improvement to our pre-tax income. Due to our strong third quarter results and solid agriculture market fundamentals that are supporting our fourth quarter, including improved corn and soybean prices, we are raising our earnings per share guidance for fiscal year 2021. COVID-19 continues to challenge our team and our customer's end markets, however, I'm proud of how our team has responded to the new operating environment as they continue to deliver the high level of support our customers have come to expect."

Fiscal 2021 Third Quarter Results

Consolidated Results
For the third quarter of fiscal 2021, revenue was flat versus prior year at $360.9 million. Equipment sales were $240.9 million for the third quarter of fiscal 2021, compared to $246.0 million in the third quarter last year. Parts sales were $76.8 million for the third quarter of fiscal 2021, compared to $70.8 million in the third quarter last year. Revenue generated from service was $30.7 million for the third quarter of fiscal 2021, compared to $27.6 million in the third quarter last year. Revenue from rental and other was $12.5 million for the third quarter of fiscal 2021, compared to $16.6 million in the third quarter last year.

Gross profit for the third quarter of fiscal 2021 was $72.6 million, compared to $71.8 million in the third quarter last year. Gross profit margin increased 20 basis points to 20.1% versus the comparable period last year. The increase in gross profit margin was primarily due to an increased mix of higher margin parts and service business, as compared to the third quarter of last year.

Operating expenses decreased by $4.1 million to $54.1 million for the third quarter of fiscal 2021, compared to $58.2 million in the third quarter last year due to managed expense reductions in our Construction and International segments and lower expenses caused by COVID-19, such as travel and fuel expenses. Operating expenses as a percentage of sales decreased 110 basis points to 15.0% for the third quarter of fiscal 2021, compared to 16.1% of revenue in the prior year period. The Company recognized $2.6 million in goodwill, intangibles and long-lived asset impairment in the quarter compared to $0.1 million in the prior year. Nearly all of the impairment in the current quarter related to certain goodwill and other intangible assets in our International segment.

Floorplan and other interest expense was $1.7 million in the third quarter of fiscal 2021, compared to $2.4 million for the same period last year. The decrease was due to a lower interest rate environment, a lower interest rate spread under our new five-year Amended and Restated Credit Agreement that was finalized in April 2020, and lower borrowings on our line of credit.

In the third quarter of fiscal 2021, net income was $9.9 million, or earnings per diluted share of $0.44, compared to net income of $8.2 million, or earnings per diluted share of $0.37, for the third quarter of last year.

On an adjusted basis, net income for the third quarter of fiscal 2021 was $13.0 million, or adjusted earnings per diluted share of $0.58, compared to adjusted net income of $10.7 million, or adjusted earnings per diluted share of $0.48, for the third quarter of last year.

Adjusted EBITDA was $24.8 million in the third quarter of fiscal 2021, compared to $21.4 million in the third quarter of last year.

Segment Results
Agriculture Segment - Revenue for the third quarter of fiscal 2021 was $220.6 million, compared to $214.1 million in the third quarter last year. The increase in revenue was driven by on-going strength in the parts and service business. Pre-tax income for the third quarter of fiscal 2021 was $13.6 million, compared to $10.3 million of pre-tax income in the third quarter last year.

Construction Segment - Revenue for the third quarter of fiscal 2021 was $79.0 million, compared to $78.0 million in the third quarter last year. The increase in revenue was driven by an increase in equipment sales that was partially offset by lower rental revenue. Pre-tax income for the third quarter of fiscal 2021 was $1.4 million, compared to a pre-tax income of $0.3 million in the third quarter last year.

International Segment - Revenue for the third quarter of fiscal 2021 was $61.2 million, compared to $68.8 million in the third quarter last year. Lower revenue was driven by decreased customer demand due to below average yields in certain areas of our International footprint as well as overall challenging economic and business conditions due to COVID-19. Pre-tax loss for the third quarter of fiscal 2021 was $2.4 million, compared to pre-tax income of $2.1 million in the third quarter last year. The lower results were the result of decreased revenues and a $2.3 million impairment of goodwill and other intangibles in this segment. Adjusted pre-tax income for the third quarter of fiscal 2021 was $0.2 million, compared to adjusted pre-tax income of $1.6 million in the third quarter last year.

Fiscal 2021 First Nine Months Results

Revenue was $974.5 million for the first nine months of fiscal 2021, compared to $954.2 million for the same period last year. Net income for the first nine months of fiscal 2021 was $18.6 million, or $0.83 per diluted share, compared to a net income of $13.3 million, or $0.60 per diluted share, for the same period last year. On an adjusted basis, net income for the first nine months of fiscal 2021 was $23.0 million, or $1.02 per diluted share, compared to an adjusted net income of $18.1 million, or $0.81 per diluted share, in the same period last year. Adjusted EBITDA was $51.7 million in the first nine months of fiscal 2021, compared to $44.4 million in the same period last year.

Balance Sheet and Cash Flow

Cash at the end of the third quarter of fiscal 2021 was $41.8 million. Inventories decreased to $532.7 million as of October 31, 2020, compared to $597.4 million as of January 31, 2020. This inventory decrease includes a $66.1 million decrease in equipment inventory, which reflects a decrease in new equipment inventory of $36.1 million and a $29.9 million decrease in used equipment inventory. Outstanding floorplan payables were $287.8 million on $765.0 million total available floorplan lines of credit as of October 31, 2020, compared to $371.8 million outstanding floorplan payables as of January 31, 2020.

In the first nine months of fiscal 2021, net cash provided by operating activities was $60.8 million, compared to net cash used for operating activities of $8.3 million in the first nine months of fiscal 2020. The Company evaluates its cash flow from operating activities net of all floorplan payable activity and maintaining a constant level of equity in its equipment inventory. Taking these adjustments into account, adjusted net cash provided by operating activities was $56.5 million in the first nine months of fiscal 2021, compared to adjusted net cash used for operating activities of $35.0 million in the first nine months of fiscal 2020.

Mr. Meyer concluded, "Our financial position continues to improve due to strong year-to-date performance and prudent management of our inventory position, which is driving significant increases in cash provided by operating activities. Due to the strong third quarter performance and our outlook for the remainder of fiscal 2021, we are increasing our revenue expectations for all three of our operating segments and raising our earnings per share guidance. We are actively monitoring the current environment and the associated impacts that it may have on our customers, the commodities markets, and our business. We remain focused on keeping our business in a sound condition while we pursue our long-term growth initiatives."

Fiscal 2021 Modeling Assumptions

The following are the Company's current expectations for fiscal 2021 modeling assumptions. We believe modeling assumptions will continue to be impacted by the challenging global economy due to the COVID-19 pandemic, creating a higher degree of uncertainty in these assumptions compared to a normal environment.

 Current AssumptionsPrevious Assumptions
Segment Revenue  
Agriculture(1)Up 5-10%Up 0-5%
Construction(2)Down 0-5%Down 5-10%
InternationalDown 5-10%Down 10-15%
   
Diluted EPS$0.83 - $0.93$0.55 - $0.75
Adjusted Diluted EPS(3)$1.05 - $1.15$0.65 - $0.85
   
 
(1) Includes the full year impact of the Northwood, ND acquisition completed in October 2019 and partial year impact of the HorizonWest acquisition completed in May 2020. 
(2) Includes the full year impact of the Albuquerque, NM store divestiture in January 2020.
(3) Adjusted Diluted EPS excludes impacts related to: impairment expenses for certain goodwill, intangible assets, and long-lived assets, primarily in the Company's International segment; anticipated ERP-related expenses; and Ukraine remeasurement (gains) and losses.

Conference Call and Presentation Information
The Company will host a conference call and audio webcast today at 7:30 a.m. Central time (8:30 a.m. Eastern time). Investors interested in participating in the live call can dial (877) 705-6003 from the U.S. International callers can dial (201) 493-6725. A telephone replay will be available approximately two hours after the call concludes and will be available through Tuesday, December 8, 2020, by dialing (844) 512-2921 from the U.S., or (412) 317-6671 from international locations, and entering confirmation code 13711574.

A copy of the presentation that will accompany the prepared remarks on the conference call is available on the Company’s website under Investor Relations at www.titanmachinery.com. An archive of the audio webcast will be available on the Company’s website under Investor Relations at www.titanmachinery.com for 30 days following the audio webcast.

Non-GAAP Financial Measures

Within this release, the Company refers to certain adjusted financial measures, which have directly comparable GAAP financial measures as identified in this release. The Company believes that these non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating current period performance and in assessing future performance. For these reasons, internal management reporting also includes non-GAAP financial measures. Generally, the non-GAAP financial measures include adjustments for items such as valuation allowances for income tax, costs associated with impairment charges, Ukraine remeasurement gains/losses and charges associated with our Enterprise Resource Planning (ERP) system transition. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for the GAAP financial measures presented in this release and the Company's financial statements and other publicly filed reports. Non-GAAP measures presented in this release may not be comparable to similarly titled measures used by other companies. Investors are encouraged to review the reconciliations of adjusted financial measures used in this release to their most directly comparable GAAP financial measures. These reconciliations are attached to this release. The tables included in the Non-GAAP Reconciliations section reconcile adjusted net income (loss), adjusted EBITDA, adjusted diluted earnings (loss) per share, adjusted income (loss) before income taxes, and adjusted net cash provided by (used for) operating activities (all non-GAAP financial measures) for the periods presented, to their respective most directly comparable GAAP financial measure.

About Titan Machinery Inc.

Titan Machinery Inc., founded in 1980 and headquartered in West Fargo, North Dakota, owns and operates a network of full service agricultural and construction equipment dealer locations in North America and Europe. The network consists of US locations in Arizona, Colorado, Iowa, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Wisconsin and Wyoming and its European stores are located in Bulgaria, Germany, Romania, Serbia and Ukraine. The Titan Machinery locations represent one or more of the CNH Industrial Brands, including Case IH, New Holland Agriculture, Case Construction, New Holland Construction, and CNH Industrial Capital.  Additional information about Titan Machinery Inc. can be found at www.titanmachinery.com.

Forward Looking Statements

Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “potential,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “will,” “plan,” “anticipate,” and similar words and expressions are intended to identify forward-looking statements. These statements are based upon the current beliefs and expectations of our management. Forward-looking statements made in this release, which may include statements regarding Agriculture, Construction, and International segment initiatives and improvements, segment revenue realization, growth and profitability expectations, inventory expectations, leverage expectations, agricultural and construction equipment industry conditions and trends, and modeling assumptions and expected results of operations for the fiscal year ending January 31, 2021, involve known and unknown risks and uncertainties that may cause Titan Machinery’s actual results in current or future periods to differ materially from the forecasted assumptions and expected results. The Company’s risks and uncertainties include, among other things, the duration, scope and impact of the COVID-19 pandemic on the Company's operations, a substantial dependence on a single distributor, the continued availability of organic growth and acquisition opportunities, potential difficulties integrating acquired stores, industry supply levels, fluctuating agriculture and construction industry economic conditions, the success of recently implemented initiatives within the Company’s operating segments, the uncertainty and fluctuating conditions in the capital and credit markets, difficulties in conducting international operations, foreign currency risks, governmental agriculture policies, seasonal fluctuations, the ability of the Company to reduce inventory levels, weather conditions, disruption in receiving ample inventory financing, and increased competition in the geographic areas served. These and other risks are more fully described in Titan Machinery’s filings with the Securities and Exchange Commission, including the Company’s most recently filed Annual Report on Form 10-K, as updated in subsequently filed Quarterly Reports on Form 10-Q, as applicable. Titan Machinery conducts its business in a highly competitive and rapidly changing environment. Accordingly, new risk factors may arise. It is not possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on Titan Machinery’s business or the extent to which any individual risk factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Other than required by law, Titan Machinery disclaims any obligation to update such factors or to publicly announce results of revisions to any of the forward-looking statements contained in this release to reflect future events or developments.

Investor Relations Contact:
ICR, Inc.
John Mills, jmills@icrinc.com
Managing Partner
646-277-1254

TITAN MACHINERY INC.
Consolidated Balance Sheets
(in thousands, except per share data)
(Unaudited)
    
 October 31, 2020 January 31, 2020
Assets   
Current Assets   
Cash$41,808  $43,721 
Receivables, net of allowance for expected credit losses73,531  72,776 
Inventories532,746  597,394 
Prepaid expenses and other8,737  13,655 
Total current assets656,822  727,546 
Noncurrent Assets   
Property and equipment, net of accumulated depreciation148,520  145,562 
Operating lease assets81,401  88,281 
Deferred income taxes3,787  2,147 
Goodwill1,433  2,327 
Intangible assets, net of accumulated amortization7,764  8,367 
Other1,129  1,113 
Total noncurrent assets244,034  247,797 
Total Assets$900,856  $975,343 
    
Liabilities and Stockholders' Equity   
Current Liabilities   
Accounts payable$23,433  $16,976 
Floorplan payable287,837  371,772 
Current maturities of long-term debt4,423  13,779 
Current operating lease liabilities12,373  12,259 
Deferred revenue14,708  40,968 
Accrued expenses and other38,433  38,409 
Total current liabilities381,207  494,163 
Long-Term Liabilities   
Long-term debt, less current maturities55,109  37,789 
Operating lease liabilities80,782  88,387 
Deferred income taxes5,814  2,055 
Other long-term liabilities10,376  7,845 
Total long-term liabilities152,081  136,076 
Stockholders' Equity   
Common stock   
Additional paid-in-capital252,270  250,607 
Retained earnings116,087  97,717 
Accumulated other comprehensive loss(789) (3,220)
Total stockholders' equity367,568  345,104 
Total Liabilities and Stockholders' Equity$900,856  $975,343 


TITAN MACHINERY INC.
Consolidated Condensed Statements of Operations
(in thousands, except per share data)
(Unaudited)
        
 Three Months Ended October 31, Nine Months Ended October 31,
 2020 2019 2020 2019
Revenue       
Equipment$240,901  $245,986  $662,060  $654,376 
Parts76,778  70,788  194,846  181,928 
Service30,696  27,553  84,282  77,215 
Rental and other12,497  16,609  33,357  40,688 
Total Revenue360,872  360,936  974,545  954,207 
Cost of Revenue       
Equipment215,770  219,484  593,048  583,345 
Parts53,556  49,834  136,205  128,380 
Service10,254  8,950  28,263  25,170 
Rental and other8,741  10,894  23,379  27,612 
Total Cost of Revenue288,321  289,162  780,895  764,507 
Gross Profit72,551  71,774  193,650  189,700 
Operating Expenses54,115  58,184  160,252  165,594 
Impairment of Goodwill1,453    1,453   
Impairment of Intangible and Long-Lived Assets1,102  51  1,318  186 
Income from Operations15,881  13,539  30,627  23,920 
Other Income (Expense)       
Interest and other income (expense)(360) 1,273  333  2,687 
Floorplan interest expense(757) (1,448) (2,811) (3,724)
Other interest expense(940) (955) (2,884) (3,562)
Income Before Income Taxes13,824  12,409  25,265  19,321 
Provision for Income Taxes3,912  4,195  6,691  6,041 
Net Income9,912  8,214  18,574  13,280 
        
Diluted Earnings per Share$0.44  $0.37  $0.83  $0.60 
Diluted Weighted Average Common Shares22,137  21,976  22,091  21,942 


TITAN MACHINERY INC.
Consolidated Condensed Statements of Cash Flows
(in thousands)
(Unaudited)
    
 Nine Months Ended October 31,
 2020 2019
Operating Activities   
Net income$18,574  $13,280 
Adjustments to reconcile net income to net cash provided by (used for) operating activities   
Depreciation and amortization17,731  21,061 
Impairment2,771  186 
Other, net12,033  12,281 
Changes in assets and liabilities   
Inventories76,495  (133,929)
Manufacturer floorplan payable(46,466) 113,632 
Other working capital(20,324) (34,800)
Net Cash Provided by (Used for) Operating Activities60,814  (8,289)
Investing Activities   
Property and equipment purchases(16,205) (20,402)
Proceeds from sale of property and equipment795  1,386 
Acquisition consideration, net of cash acquired(6,790) (11,752)
Other, net(16) 13 
Net Cash Used for Investing Activities(22,216) (30,755)
Financing Activities   
Net change in non-manufacturer floorplan payable(40,779) 62,387 
Principal payments on senior convertible notes  (45,644)
Net proceeds from (payments on) long-term debt and finance leases909  18,668 
Other, net(909) (509)
Net Cash Provided by (Used for) Financing Activities(40,779) 34,902 
Effect of Exchange Rate Changes on Cash268  (183)
Net Change in Cash(1,913) (4,325)
Cash at Beginning of Period43,721  56,745 
Cash at End of Period$41,808  $52,420 


TITAN MACHINERY INC.
Segment Results
(in thousands)
(Unaudited)
    
 Three Months Ended October 31, Nine Months Ended October 31,
 2020 2019 % Change 2020 2019 % Change
Revenue           
Agriculture$220,625  $214,073  3.1% $583,326  $533,538  9.3%
Construction79,030  78,031  1.3% 216,862  232,813  (6.9)%
International61,217  68,832  (11.1)% 174,357  187,856  (7.2)%
Total$360,872  $360,936  —% $974,545  $954,207  2.1%
            
Income (Loss) Before Income Taxes           
Agriculture$13,575  $10,259  32.3% $26,490  $18,312  44.7%
Construction1,448  347  n/m (50) (541) 90.8%
International(2,424) 2,061  n/m (3,136) 2,783  n/m
Segment income before income taxes12,599  12,667  (0.5)% 23,304  20,554  13.4%
Shared Resources1,225  (258) n/m 1,961  (1,233) n/m
Total$13,824  $12,409  11.4% $25,265  $19,321  30.8%


TITAN MACHINERY INC.
Non-GAAP Reconciliations
(in thousands, except per share data)
(Unaudited)
         
  Three Months Ended October 31, Nine Months Ended October 31,
  2020 2019 2020 2019
Adjusted Net Income        
Net Income $9,912  $8,214  $18,574  $13,280 
Adjustments        
ERP transition costs 765  2,062  2,250  4,778 
Impairment charges 2,555  51  2,771  186 
Ukraine remeasurement (gain) / loss 339  (435) 974  (588)
Total Pre-Tax Adjustments 3,659  1,678  5,995  4,376 
Less: Tax Effect of Adjustments (1) 1,566  (846) 2,613  (417)
Plus: Income Tax Valuation Allowance 1,018    1,018   
Total Adjustments 3,111  2,524  4,400  4,793 
Adjusted Net Income $13,023  $10,738  $22,974  $18,073 
         
Adjusted Diluted EPS        
Diluted EPS $0.44  $0.37  $0.83  $0.60 
Adjustments (2)        
ERP transition costs 0.03  0.09  0.10  0.21 
Impairment charges 0.11    0.12  0.01 
Ukraine remeasurement (gain) / loss 0.02  (0.02) 0.04  (0.03)
Total Pre-Tax Adjustments 0.16  0.07  0.26  0.19 
Less: Tax Effect of Adjustments (1) 0.07  (0.04) 0.12  (0.02)
Plus: Income Tax Valuation Allowance 0.05    0.05   
Total Adjustments 0.14  0.11  0.19  0.21 
Adjusted Diluted EPS $0.58  $0.48  $1.02  $0.81 
         
Adjusted Income Before Income Taxes        
Income Before Income Taxes $13,824  $12,409  $25,264  $19,321 
Adjustments        
ERP transition costs 766  2,061  2,250  4,778 
Impairment charges 2,555  51  2,771  186 
Ukraine remeasurement (gain) / loss 338  (435) 973  (588)
Total Adjustments 3,659  1,677  5,994  4,376 
Adjusted Income Before Income Taxes $17,483  $14,086  $31,258  $23,697 
         
Adjusted Income (Loss) Before Income Taxes - Agriculture        
Income Before Income Taxes $13,575  $10,259  $26,490  $18,311 
Impairment charges 244    244   
Adjusted Income Before Income Taxes $13,819  $10,259  $26,734  $18,311 
         
Adjusted Loss Before Income Taxes - Construction        
Income (Loss) Before Income Taxes $1,448  $347  $(50) $(541)
Impairment charges   51  216  186 
Adjusted Income (Loss) Before Income Taxes $1,448  $398  $166  $(355)
         
Adjusted Income Before Income Taxes - International        
Income (Loss) Before Income Taxes $(2,424) $2,061  $(3,136) $2,783 
Adjustments        
Impairment charges 2,311    2,311   
Ukraine remeasurement (gain) / loss 338  (435) 973  (588)
Adjusted Income Before Income Taxes $225  $1,626  $148  $2,195 
         
         
Adjusted EBITDA        
Net Income $9,912  $8,214  $18,574  $13,280 
Adjustments        
Interest expense, net of interest income 898  887  2,690  3,305 
Provision for income taxes 3,912  4,195  6,691  6,041 
Depreciation and amortization 6,445  7,797  17,731  21,061 
EBITDA 21,167  21,093  45,686  43,687 
Adjustments        
ERP transition costs 765  687  2,250  1,113 
Impairment charges 2,555  51  2,771  186 
Ukraine remeasurement (gain) / loss 339  (435) 974  (588)
Total Adjustments 3,659  303  5,995  711 
Adjusted EBITDA $24,826  $21,396  $51,681  $44,398 
         
Adjusted Net Cash Provided By (Used for) Operating Activities        
Net Cash Used for Operating Activities     $60,814  $(8,289)
Net Change in Non-Manufacturer Floorplan Payable     (40,779) 62,387 
Adjustment for Constant Equity in Inventory     36,477  (89,076)
Adjusted Net Cash Provided by (Used) for Operating Activities     $56,512  $(34,978)
         
(1) The tax effect of U.S. related adjustments was calculated using a 26% tax rate, determined based on a 21% federal statutory rate and a 5% blended state income tax rate. The tax effect of the Germany related adjustments was calculated using a 29% tax rate. Included in the tax effect of the adjustments is the tax impact of foreign currency changes in Ukraine of $0.7 million for the three months ended October 31, 2020 and $1.3 million for the nine months ended October 31, 2020.  
(2) Adjustments are net of amounts allocated to participating securities where applicable.    

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