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Titan Machinery Inc. Announces Results for Fiscal Second Quarter Ended July 31, 2015

- Revenue for Fiscal Second Quarter of 2016 was $334 million -

- Adjusted EBITDA for Fiscal Second Quarter was $9.8 million -

- Operating Expenses Decreased $12.4 million or 18.3% for Fiscal Second Quarter of 2016 -

- Equipment Inventory Decreased $222 million or 22.3% Compared to Second Quarter of Fiscal 2015 -

Titan Machinery Inc. (Nasdaq: TITN), a leading network of full-service agricultural and construction equipment stores, today reported financial results for the fiscal second quarter ended July 31, 2015.

Fiscal 2016 Second Quarter Results

For the second quarter of fiscal 2016, revenue was $334.2 million, compared to $451.0 million in the second quarter last year. Equipment sales were $221.0 million for the second quarter of fiscal 2016, compared to $320.1 million in the second quarter last year. Parts sales were $62.1 million for the second quarter of fiscal 2016, compared to $70.5 million in the second quarter last year. Revenue generated from service was $32.8 million for the second quarter of fiscal 2016, compared to $38.4 million in the second quarter last year. Revenue from rental and other decreased to $18.3 million for the second quarter of fiscal 2016 from $21.9 million in the second quarter last year.

Gross profit for the second quarter of fiscal 2016 was $62.1 million, compared to $79.7 million in the second quarter last year, primarily reflecting a decrease in Agriculture equipment revenue. The Company's gross profit margin was 18.6% in the second quarter of fiscal 2016, compared to 17.7% in the second quarter last year. This increase in gross profit margin primarily reflects a larger portion of gross profit coming from the Company's higher margin parts and service businesses. Gross profit from parts and service for the second quarter of fiscal 2016 was 63.2% of overall gross profit, compared to 57.4% in the second quarter last year.

Operating expenses were 16.6% of revenue or, $55.4 million, for the second quarter of fiscal 2016, compared to 15.1% of revenue or, $67.8 million, for the second quarter of last year. The decrease in operating expenses of $12.4 million was primarily due to cost savings associated with the Company's realignment activities implemented in the first quarters of fiscal 2016 and 2015 in addition to other cost saving initiatives. The increase in operating expenses as a percentage of revenue was primarily due to the deleveraging of fixed expenses as total revenue decreased from the prior year.

The Company recognized charges of $0.1 million and $1.3 million from the balance sheet impact of the Ukrainian hryvnia devaluation in the second quarters of fiscal 2016 and 2015, respectively.

Floorplan interest expense was $4.7 million for the second quarter of fiscal 2016, compared to $5.3 million in the second quarter of fiscal 2015. The decrease in floorplan interest expense is due to lower average interest-bearing inventory in the second quarter of fiscal 2016.

In the second quarter of fiscal 2016, the Company generated $9.8 million in adjusted EBITDA, compared to $14.9 million in the second quarter of last year. The Company includes floorplan interest expense in its EBITDA calculation.

Pre-tax loss for the second quarter of fiscal 2016 was $0.5 million, compared to pre-tax income of $1.8 million in the second quarter of last year. Excluding all non-GAAP adjustments, adjusted pre-tax loss for the second quarter of fiscal 2016 was $0.5 million. For the second quarter of 2015, excluding non-GAAP adjustments, adjusted pre-tax income was $3.3 million. Adjusted pre-tax Agriculture segment loss was $2.5 million for the second quarter of fiscal 2016, compared to adjusted pre-tax income of $6.6 million in the second quarter last year. Adjusted pre-tax Construction segment loss was $1.0 million for the second quarter of fiscal 2016, compared to adjusted pre-tax loss of $0.4 million in the second quarter last year. Adjusted pre-tax International segment income was $1.0 million for the second quarter of fiscal 2016, compared to adjusted pre-tax loss of $3.7 million in the second quarter last year.

Net income attributable to common stockholders for the second quarter of fiscal 2016 was $0.0 million, or earnings per diluted share of $0.00, compared to net loss attributable to common stockholders of $0.6 million, or $0.03 per diluted share, for the second quarter of fiscal 2015. Excluding all non-GAAP adjustments, adjusted net income attributable to common stockholders for the second quarter of fiscal 2016 was $0.0 million, or $0.00 per diluted share, compared to adjusted net income attributable to common stockholders for the second quarter of fiscal 2015 of $0.8 million, or $0.04 per diluted share.

Fiscal 2016 First Six Months Results

Revenue was $687.4 million for the first six months of fiscal 2016, compared to $916.5 million for the same period last year. Gross profit margin was 17.8% for the first six months of fiscal 2016, compared to 17.0% for the same period last year. The Company generated $14.9 million in adjusted EBITDA in the first six months of fiscal 2016, compared to $22.5 million in the same period last year. Pre-tax loss was $9.3 million for the first six months of fiscal 2016, compared to pre-tax loss of $6.8 million for the same period last year. Excluding certain non-GAAP adjustments, adjusted pre-tax loss was $5.2 million for the first six months of fiscal 2016, compared to pre-tax income of $1.0 million for the same period last year. Net loss attributable to common stock for the first six months of fiscal 2016 was $6.2 million, or $0.29 per diluted share, compared to a loss of $7.0 million, or $0.34 per diluted share, for the same period last year. Excluding non-GAAP items, adjusted net loss attributable to common stock for the first six months of fiscal 2016 was $2.9 million, or $0.14 per diluted share, compared to a loss of $0.7 million, or $0.03 per diluted share, for the same period last year.

Balance Sheet

The Company ended the second quarter of fiscal 2016 with cash of $95.4 million. The Company's inventory level, including amounts classified as held for sale, was $884.0 million as of July 31, 2015, compared to inventory of $1.1 billion as of July 31, 2014, primarily reflecting a $222.0 million reduction in equipment inventory. The Company had, including amounts classified as held for sale, $622.1 million outstanding floorplan payables on $1.0 billion total discretionary floorplan lines of credit as of July 31, 2015, reflecting a decrease of $228.2 million from the floorplan payable balance of $850.3 million as of July 31, 2014. The reduced floorplan levels has improved the Company's total liabilities to tangible net worth to 2.5 as of July 31, 2015 from 3.3 as of July 31, 2014.

Management Comments

David Meyer, Titan Machinery's Chairman and Chief Executive Officer, stated, "Our financial performance in the second quarter was in-line with our expectations. Our Agriculture segment continues to be impacted by ongoing industry headwinds, and our Construction business, which faced strong year-over-year comparisons in the second quarter of fiscal 2016, was impacted by lower oil prices as well as reduced sales of construction equipment to agricultural customers. We are pleased to report second quarter pre-tax income for our International segment reflecting the previously announced initiatives as well as slightly improved market conditions in some of the regions in which we operate."

Mr. Meyer continued, "While Agriculture headwinds continue to persist, we believe we are taking the necessary steps to manage the challenging environment and position our business for long-term, profitable growth. We have substantially completed our previously outlined realignment plan, which is expected to generate approximately $20 million in cost savings, and contributed to the $12.4 million reduction in operating expenses during the second quarter of this year compared to the second quarter last year. In addition, we remain on track to achieve our $150 million equipment inventory reduction goal in fiscal 2016. Based on our year-to-date results and outlook for the back half of the year, we are updating our annual revenue modeling assumptions and continue to anticipate achieving positive adjusted net income/earnings per share."

Fiscal 2016 Modeling Assumptions

The Company is updating the following modeling assumptions for fiscal 2016 that it believes will provide investors with relevant information about expectations regarding financial results and business trends:

  • Agriculture Same Store Sales Down 20% to 25%
  • Construction Same Store Sales Flat to Down 5%
  • International Same Store Sales Flat to Down 5%
  • Equipment Margins Between 7.7% and 8.3%
  • Expects to be profitable on an adjusted diluted earnings per share basis

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). A copy of the presentation that will accompany the prepared remarks from 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.

Investors interested in participating in the live call can dial (888) 359-3627 from the U.S. International callers can dial (719) 325-2177. A telephone replay will be available approximately two hours after the call concludes and will be available through Wednesday, September 23, 2015, by dialing (877) 870-5176 from the U.S., or (858) 384-5517 from international locations, and entering confirmation code 3761097.

Non-GAAP Financial Measures

Within this announcement, the Company makes reference to certain adjusted financial measures, which have directly comparable GAAP financial measures as identified in this release. These adjusted measures are provided so that investors have the same financial data that management uses with the belief that it will assist the investment community in properly assessing the underlying performance of the Company for the periods being reported. This includes adjusted EBITDA, which the Company defines as net income (loss) including noncontrolling interest, adjusted for net interest (excluding floorplan interest expense), income taxes, depreciation, amortization, and items included in its non-GAAP pre-tax income (loss) reconciliation for each of the respective periods. The presentation of this additional information is not meant to be considered a substitute for measures prepared in accordance with GAAP. Investors are encouraged to review the reconciliations of adjusted financial measures used in this press release to their most directly comparable GAAP financial measures as provided with the financial statements attached to this press release.

About Titan Machinery Inc.

Titan Machinery Inc., founded in 1980 and headquartered in West Fargo, North Dakota, is a multi-unit business with mature locations and newly-acquired locations. The Company owns and operates a network of full service agricultural and construction equipment stores in the United States and Europe. The Titan Machinery network consists of 92 North American dealerships in North Dakota, South Dakota, Iowa, Minnesota, Montana, Nebraska, Wyoming, Wisconsin, Colorado, Arizona, and New Mexico, including two outlet stores, and 16 European dealerships in Romania, Bulgaria, Serbia, and Ukraine. The Titan Machinery dealerships represent one or more of the CNH Industrial Brands (CNHI), including CaseIH, New Holland Agriculture, Case Construction, New Holland Construction, and CNH 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. Forward-looking statements made herein, which include statements regarding Agriculture, Construction, and International segment initiatives and improvements, segment revenue realization, growth and profitability expectations, inventory expectations, leverage expectations, and modeling assumptions and expected results of operations for the fiscal year ending January 31, 2016, 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, 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, climate 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. 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. Titan Machinery disclaims any obligation to update such factors or to publicly announce results of revisions to any of the forward-looking statements contained herein to reflect future events or developments.

 
TITAN MACHINERY INC.
Consolidated Balance Sheets
(in thousands, except per share data)
(Unaudited)
       
July 31, 2015January 31, 2015
Assets
Current Assets
Cash $ 95,416 $ 127,528
Receivables, net 70,797 76,382
Inventories 877,823 879,440
Prepaid expenses and other 5,353 10,634
Income taxes receivable 3,834 166
Deferred income taxes 18,297 19,025
Assets held for sale 11,246   15,312  
Total current assets 1,082,766   1,128,487  
Intangibles and Other Assets
Intangible assets, net of accumulated amortization 5,272 5,458
Other 6,490   7,122  
Total intangibles and other assets 11,762   12,580  
Property and Equipment, net of accumulated depreciation 186,000   208,680  
Total Assets $ 1,280,528   $ 1,349,747  
 
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 18,358 $ 17,659
Floorplan payable 619,636 627,249
Current maturities of long-term debt 6,365 7,749
Customer deposits 15,442 35,090
Accrued expenses 30,062 35,496
Income taxes payable - 3,529
Liabilities held for sale 2,531   2,835  
Total current liabilities 692,394   729,607  
Long-Term Liabilities
Senior convertible notes 134,170 132,350
Long-term debt, less current maturities 41,629 67,123
Deferred income taxes 39,433 38,996
Other long-term liabilities 3,289   3,312  
Total long-term liabilities 218,521   241,781  
Stockholders' Equity
Common stock - -
Additional paid-in-capital 241,158 240,180
Retained earnings 131,120 137,418
Accumulated other comprehensive loss (3,492 ) (1,099 )
Total Titan Machinery Inc. stockholders' equity 368,786 376,499
Noncontrolling interest 827   1,860  
Total stockholders' equity 369,613   378,359  
Total Liabilities and Stockholders' Equity $ 1,280,528   $ 1,349,747  
 
 
TITAN MACHINERY INC.
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
               
Three Months Ended July 31,Six Months Ended July 31,
2015201420152014
Revenue
Equipment $ 221,016 $ 320,087 $ 465,999 $ 665,132
Parts 62,081 70,526 123,601 138,905
Service 32,842 38,447 65,744 75,531
Rental and other 18,251   21,930   32,042   36,885  
Total Revenue 334,190   450,990   687,386   916,453  
Cost of Revenue
Equipment 203,152 292,879 430,185 609,161
Parts 43,382 49,730 86,953 97,744
Service 12,327 13,529 23,687 27,932
Rental and other 13,260   15,199   24,057   26,024  
Total Cost of Revenue 272,121   371,337   564,882   760,861  
Gross Profit 62,069 79,653 122,504 155,592
Operating Expenses 55,385 67,795 112,495 138,947
Impairment and Realignment Costs (104 ) 151   1,497   2,952  
Income from Operations 6,788 11,707 8,512 13,693
Other Income (Expense)
Interest income and other income (expense) 837 (1,028 ) (1,287 ) (3,606 )
Floorplan interest expense (4,744 ) (5,308 ) (9,343 ) (9,901 )
Other interest expense (3,360 ) (3,559 ) (7,187 ) (7,000 )
Income (Loss) Before Income Taxes (479 ) 1,812 (9,305 ) (6,814 )
Provision for (Benefit from) Income Taxes (649 ) 2,587   (2,585 ) 854  
Net Income (Loss) Including Noncontrolling Interest 170 (775 ) (6,720 ) (7,668 )
Less: Net Income (Loss) Attributable to Noncontrolling Interest 164   (161 ) (422 ) (505 )
Net Income (Loss) Attributable to Titan Machinery Inc. 6 (614 ) (6,298 ) (7,163 )
Net Income (Loss) Allocated to Participating Securities -   11   112   114  
Net Income (Loss) Attributable to Titan Machinery Inc. Common Stockholders $ 6   $ (603 ) $ (6,186 ) $ (7,049 )
 
Earnings (Loss) per Share - Diluted $ 0.00   $ (0.03 ) $ (0.29 ) $ (0.34 )
Weighted Average Common Shares - Diluted 21,217   20,986   21,075   20,969  
 
 
TITAN MACHINERY INC.
Consolidated Condensed Statements of Cash Flows
(in thousands)
(Unaudited)
       
Six Months Ended July 31,
20152014
Operating Activities
Net loss including noncontrolling interest $ (6,720 ) $ (7,668 )
Adjustments to reconcile net loss including noncontrolling interest to net cash provided by (used for) operating activities
Depreciation and amortization 13,824 14,746
Impairment 152 268
Deferred income taxes 689 385
Other, net 4,725 3,068
Changes in assets and liabilities
Inventories 8,910 (68,312 )
Manufacturer floorplan payable 186,563 (643 )
Other working capital (22,574 ) (21,251 )
Net Cash Provided by (Used for) Operating Activities 185,569   (79,407 )
Investing Activities
Property and equipment purchases (4,160 ) (8,751 )
Proceeds from sale of property and equipment 2,201 2,444
Other, net 470   328  
Net Cash Used for Investing Activities (1,489 ) (5,979 )
Financing Activities
Net change in non-manufacturer floorplan payable (190,744 ) 100,790
Net proceeds from (payments on) long-term debt borrowings (24,410 ) 274
Other, net (573 ) (264 )
Net Cash Provided by (Used for) Financing Activities (215,727 ) 100,800  
Effect of Exchange Rate Changes on Cash (465 ) 57
Net Change in Cash (32,112 ) 15,471
Cash at Beginning of Period 127,528   74,242  
Cash at End of Period $ 95,416   $ 89,713  
 
 
TITAN MACHINERY INC.
Segment Results
(in thousands)
(Unaudited)
       
Three Months Ended July 31,Six Months Ended July 31,
2015     2014     % Change2015     2014     % Change
Revenue
Agriculture $ 209,449 $ 305,721 (31.5 )% $ 449,304 $ 650,102 (30.9 )%
Construction 81,407 101,747 (20.0 )% 162,578 193,512 (16.0 )%
International 43,334   43,522   (0.4 )% 75,504   72,839   3.7 %
Total $ 334,190   $ 450,990   (25.9 )% $ 687,386   $ 916,453   (25.0 )%
 
Income (Loss) Before Income Taxes
Agriculture $ (2,440 ) $ 6,494 (137.6 )% $ (3,526 ) $ 9,999 (135.3 )%
Construction (937 ) (368 ) (154.6 )% (4,502 ) (6,361 ) 29.2 %
International 946   (5,016 ) 118.9 % (3,425 ) (10,281 ) 66.7 %
Segment income (loss) before income taxes (2,431 ) 1,110 (319.0 )% (11,453 ) (6,643 ) (72.4 )%
Shared Resources 1,952   702   178.1 % 2,148   (171 ) 1,356.1 %
Income (Loss) Before Income Taxes $ (479 ) $ 1,812   (126.4 )% $ (9,305 ) $ (6,814 ) (36.6 )%
 
 
TITAN MACHINERY INC.
Non-GAAP Reconciliations
(in thousands, except per share data)
(Unaudited)
               
Three Months Ended July 31,Six Months Ended July 31,
2015201420152014
Pre-Tax Income (Loss)
Income (Loss) Before Income Taxes $ (479 ) $ 1,812 $ (9,305 ) $ (6,814 )
Non-GAAP Adjustments
Debt Issuance Cost Write-Off - - 539 -
Realignment / Store Closing Costs (104 ) 218 1,497 3,423
Ukraine Remeasurement 63   1,284   2,103   4,406  
Total Non-GAAP Adjustments (41 ) 1,502   4,139   7,829  
Adjusted Pre-Tax Income (Loss) $ (520 ) $ 3,314   $ (5,166 ) $ 1,015  
 
Adjusted EBITDA
Net Income (Loss) Including Noncontrolling Interest $ 170 $ (775 ) $ (6,720 ) $ (7,668 )
Adjustments
Interest Expense, Net of Interest Income 3,181 3,559 6,278 6,770
Provision for (Benefit from) Income Taxes (649 ) 2,587 (2,585 ) 854
Depreciation and amortization 7,157 8,017 13,824 14,746
Total Non-GAAP Adjustments to Pre-Tax Income (Loss) (41 ) 1,502   4,139   7,829  
Total Adjustments 9,648   15,665   21,656   30,199  
Adjusted EBITDA $ 9,818   $ 14,890   $ 14,936   $ 22,531  
 
Net Income (Loss) Attributable to Titan Machinery Inc. Common Stockholders
Net Income (Loss) Attributable to Titan Machinery Inc. Common Stockholders $ 6 $ (603 ) $ (6,186 ) $ (7,049 )
Non-GAAP Adjustments (1)
Debt Issuance Cost Write-Off - - 318 -
Realignment / Store Closing Costs (62 ) 130 882 2,038
Ukraine Remeasurement 62   1,262   2,066   4,336  
Total Non-GAAP Adjustments -   1,392   3,266   6,374  
Adjusted Net Income (Loss) Attributable to Titan Machinery Inc. Common Stockholders $ 6   $ 789   $ (2,920 ) $ (675 )
 
Earnings (Loss) per Share - Diluted
Earnings (Loss) per Share - Diluted $ 0.00 $ (0.03 ) $ (0.29 ) $ (0.34 )
Non-GAAP Adjustments (1)
Debt Issuance Cost Write-Off - - 0.01 -
Realignment / Store Closing Costs - 0.01 0.04 0.10
Ukraine Remeasurement -   0.06   0.10   0.21  
Total Non-GAAP Adjustments -   0.07   0.15   0.31  
Adjusted Earnings (Loss) per Share - Diluted $ 0.00   $ 0.04   $ (0.14 ) $ (0.03 )
 
(1) Adjustments are net of the impact of amounts related to income taxes, attributable to noncontrolling interests, and allocated to participating securities.
 

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

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