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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2020
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission File No. 001-33866
TITAN MACHINERY INC.
(Exact name of registrant as specified in its charter)
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Delaware |
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45-0357838 |
(State or Other Jurisdiction of
Incorporation or Organization) |
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(IRS Employer
Identification No.) |
644 East Beaton Drive
West Fargo, ND 58078-2648
(Address of Principal Executive Offices)
Registrant’s telephone number
(701) 356-0130
Securities registered pursuant to Section 12(b) of the
Act:
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|
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
|
Common Stock, $0.00001 par value per share |
TITN |
The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and "emerging growth company" in
Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
Large accelerated filer |
☐ |
|
Accelerated filer |
☒ |
|
|
|
|
|
|
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
☐ |
|
|
|
|
|
|
|
|
|
|
Emerging growth company |
☐ |
If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
YES
☐ NO ☒
As of August 31, 2020, 22,533,401 shares of Common Stock,
$0.00001 par value, of the registrant were
outstanding.
TITAN MACHINERY INC.
QUARTERLY REPORT ON FORM 10-Q
Table of Contents
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|
Page No. |
|
PART I. |
FINANCIAL INFORMATION
|
|
|
ITEM 1. |
FINANCIAL STATEMENTS
|
|
|
|
Consolidated Balance Sheets |
|
|
|
Consolidated Statements of Operations |
|
|
|
Consolidated Statements of Comprehensive Income |
|
|
|
Consolidated Statements of Stockholders' Equity |
|
|
|
Consolidated Statements of Cash Flows |
|
|
|
Notes to Consolidated Financial Statements
|
|
|
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
|
|
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
|
|
ITEM 4. |
CONTROLS AND PROCEDURES
|
|
|
PART II. |
OTHER INFORMATION
|
|
|
ITEM 1. |
LEGAL PROCEEDINGS
|
|
|
ITEM 1A. |
RISK FACTORS
|
|
|
ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
|
|
ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES
|
|
|
ITEM 4. |
MINE SAFETY DISCLOSURES
|
|
|
ITEM 5. |
OTHER INFORMATION
|
|
|
ITEM 6. |
EXHIBITS
|
|
|
Exhibit Index |
|
|
|
Signatures |
|
|
PART I. — FINANCIAL INFORMATION
ITEM
1.
FINANCIAL STATEMENTS
TITAN MACHINERY INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020 |
|
January 31, 2020 |
|
|
|
|
|
Assets |
|
|
|
|
Current Assets |
|
|
|
|
Cash |
$ |
44,484 |
|
|
$ |
43,721 |
|
|
Receivables, net of allowance for expected credit
losses |
75,782 |
|
|
72,776 |
|
|
Inventories |
570,680 |
|
|
597,394 |
|
|
Prepaid expenses and other |
7,144 |
|
|
13,655 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
698,090 |
|
|
727,546 |
|
|
Noncurrent Assets |
|
|
|
|
Property and equipment, net of accumulated depreciation |
150,496 |
|
|
145,562 |
|
|
Operating lease assets |
83,586 |
|
|
88,281 |
|
|
Deferred income taxes |
3,337 |
|
|
2,147 |
|
|
Goodwill |
2,818 |
|
|
2,327 |
|
|
Intangible assets, net of accumulated amortization |
8,568 |
|
|
8,367 |
|
|
Other |
1,130 |
|
|
1,113 |
|
|
Total noncurrent assets |
249,935 |
|
|
247,797 |
|
|
Total Assets |
$ |
948,025 |
|
|
$ |
975,343 |
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity |
|
|
|
|
Current Liabilities |
|
|
|
|
Accounts payable |
$ |
20,734 |
|
|
$ |
16,976 |
|
|
Floorplan payable |
352,215 |
|
|
371,772 |
|
|
|
|
|
|
Current maturities of long-term debt |
3,921 |
|
|
13,779 |
|
|
Current operating lease liabilities |
12,158 |
|
|
12,259 |
|
|
Deferred revenue |
22,716 |
|
|
40,968 |
|
|
Accrued expenses and other |
38,122 |
|
|
38,409 |
|
|
|
|
|
|
Total current liabilities |
449,866 |
|
|
494,163 |
|
|
Long-Term Liabilities |
|
|
|
|
Long-term debt, less current maturities |
48,665 |
|
|
37,789 |
|
|
Operating lease liabilities |
83,341 |
|
|
88,387 |
|
|
Deferred income taxes |
2,301 |
|
|
2,055 |
|
|
Other long-term liabilities |
9,060 |
|
|
7,845 |
|
|
Total long-term liabilities |
143,367 |
|
|
136,076 |
|
|
Commitments and Contingencies |
|
|
|
|
Stockholders' Equity |
|
|
|
|
Common stock, par value $.00001 per share, $45,000 shares
authorized; $22,553 shares issued and outstanding at July 31, 2020;
$22,335 shares issued and outstanding at January 31,
2020
|
— |
|
|
— |
|
|
Additional paid-in-capital |
251,587 |
|
|
250,607 |
|
|
Retained earnings |
106,175 |
|
|
97,717 |
|
|
Accumulated other comprehensive loss |
(2,970) |
|
|
(3,220) |
|
|
Total stockholders' equity |
354,792 |
|
|
345,104 |
|
|
Total Liabilities and Stockholders' Equity |
$ |
948,025 |
|
|
$ |
975,343 |
|
See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
Six Months Ended July 31, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Revenue |
|
|
|
|
|
|
|
|
Equipment |
$ |
202,654 |
|
|
$ |
214,435 |
|
|
$ |
421,159 |
|
|
$ |
408,390 |
|
|
Parts |
61,454 |
|
|
59,202 |
|
|
118,068 |
|
|
111,140 |
|
|
Service |
27,986 |
|
|
26,832 |
|
|
53,586 |
|
|
49,662 |
|
|
Rental and other |
11,371 |
|
|
14,512 |
|
|
20,860 |
|
|
24,079 |
|
|
Total Revenue |
303,465 |
|
|
314,981 |
|
|
613,673 |
|
|
593,271 |
|
|
Cost of Revenue |
|
|
|
|
|
|
|
|
Equipment |
180,231 |
|
|
190,707 |
|
|
377,278 |
|
|
363,861 |
|
|
Parts |
43,032 |
|
|
41,732 |
|
|
82,649 |
|
|
78,546 |
|
|
Service |
9,665 |
|
|
8,737 |
|
|
18,010 |
|
|
16,219 |
|
|
Rental and other |
7,849 |
|
|
9,778 |
|
|
14,636 |
|
|
16,719 |
|
|
Total Cost of Revenue |
240,777 |
|
|
250,954 |
|
|
492,573 |
|
|
475,345 |
|
|
Gross Profit |
62,688 |
|
|
64,027 |
|
|
121,100 |
|
|
117,926 |
|
|
Operating Expenses |
53,079 |
|
|
54,855 |
|
|
106,137 |
|
|
107,410 |
|
|
|
|
|
|
|
|
|
|
Impairment of Long-Lived Assets |
— |
|
|
— |
|
|
216 |
|
|
135 |
|
|
|
|
|
|
|
|
|
|
Income from Operations |
9,609 |
|
|
9,172 |
|
|
14,747 |
|
|
10,381 |
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
Interest and other income |
562 |
|
|
620 |
|
|
692 |
|
|
1,414 |
|
|
Floorplan interest expense |
(901) |
|
|
(1,399) |
|
|
(2,054) |
|
|
(2,276) |
|
|
Other interest expense |
(978) |
|
|
(966) |
|
|
(1,944) |
|
|
(2,607) |
|
|
Income Before Income Taxes |
8,292 |
|
|
7,427 |
|
|
11,441 |
|
|
6,912 |
|
|
Provision for Income Taxes |
1,892 |
|
|
1,916 |
|
|
2,779 |
|
|
1,846 |
|
|
Net Income |
$ |
6,400 |
|
|
$ |
5,511 |
|
|
$ |
8,662 |
|
|
$ |
5,066 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share: |
|
|
|
|
|
|
|
|
Basic |
$ |
0.28 |
|
|
$ |
0.25 |
|
|
$ |
0.39 |
|
|
$ |
0.23 |
|
|
Diluted |
$ |
0.28 |
|
|
$ |
0.25 |
|
|
$ |
0.39 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares: |
|
|
|
|
|
|
|
|
Basic |
22,118 |
|
|
21,960 |
|
|
22,068 |
|
|
21,917 |
|
|
Diluted |
22,119 |
|
|
21,964 |
|
|
22,068 |
|
|
21,922 |
|
See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
Six Months Ended July 31, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Net Income |
$ |
6,400 |
|
|
$ |
5,511 |
|
|
$ |
8,662 |
|
|
$ |
5,066 |
|
|
Other Comprehensive Income |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
778 |
|
|
1,012 |
|
|
250 |
|
|
241 |
|
|
Comprehensive Income |
$ |
7,178 |
|
|
$ |
6,523 |
|
|
$ |
8,912 |
|
|
$ |
5,307 |
|
See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Additional Paid-In Capital |
|
Retained Earnings |
|
Accumulated Other Comprehensive Income (Loss) |
|
Total Stockholders' Equity |
|
|
Shares Outstanding |
|
Amount |
|
|
|
|
|
|
|
|
|
BALANCE, January 31, 2019 |
22,218 |
|
|
$ |
— |
|
|
$ |
248,423 |
|
|
$ |
89,228 |
|
|
$ |
(2,340) |
|
|
$ |
335,311 |
|
|
Cumulative-effect adjustment of adopting ASC 842,
Leases |
— |
|
|
— |
|
|
— |
|
|
(5,464) |
|
|
— |
|
|
(5,464) |
|
|
Common stock issued on grant of restricted stock and exercise of
stock options, net of restricted stock forfeitures and restricted
stock withheld for employee withholding tax |
(34) |
|
|
— |
|
|
(492) |
|
|
— |
|
|
— |
|
|
(492) |
|
|
Stock-based compensation expense |
— |
|
|
— |
|
|
603 |
|
|
— |
|
|
— |
|
|
603 |
|
|
Net loss |
— |
|
|
— |
|
|
— |
|
|
(445) |
|
|
— |
|
|
(445) |
|
|
Other comprehensive loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(771) |
|
|
(771) |
|
|
BALANCE, April 30, 2019 |
22,184 |
|
|
$ |
— |
|
|
$ |
248,534 |
|
|
$ |
83,319 |
|
|
$ |
(3,111) |
|
|
$ |
328,742 |
|
|
Cumulative-effect adjustment of adopting ASC 842,
Leases |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Common stock issued on grant of restricted stock and exercise of
stock options, net of restricted stock forfeitures and restricted
stock withheld for employee withholding tax |
170 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock-based compensation expense |
— |
|
|
— |
|
|
694 |
|
|
— |
|
|
— |
|
|
694 |
|
|
Net Income |
— |
|
|
— |
|
|
— |
|
|
5,511 |
|
|
— |
|
|
5,511 |
|
|
Other comprehensive Income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,012 |
|
|
1,012 |
|
|
BALANCE, July 31, 2019 |
22,354 |
|
|
— |
|
|
249,228 |
|
|
88,830 |
|
|
(2,099) |
|
|
335,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Additional Paid-In Capital |
|
Retained Earnings |
|
Accumulated Other Comprehensive Income (Loss) |
|
Total Stockholders' Equity |
|
|
Shares Outstanding |
|
Amount |
|
|
|
|
|
|
|
|
|
BALANCE, January 31, 2020 |
22,335 |
|
|
$ |
— |
|
|
$ |
250,607 |
|
|
$ |
97,717 |
|
|
$ |
(3,220) |
|
|
$ |
345,104 |
|
|
Cumulative-effect adjustment of adopting ASC 326, Credit
Loss |
— |
|
|
— |
|
|
— |
|
|
(204) |
|
|
— |
|
|
(204) |
|
|
Common stock issued on grant of restricted stock, net of restricted
stock forfeitures and restricted stock withheld for employee
withholding tax |
(21) |
|
|
— |
|
|
(201) |
|
|
— |
|
|
— |
|
|
(201) |
|
|
Stock-based compensation expense |
— |
|
|
— |
|
|
645 |
|
|
— |
|
|
— |
|
|
645 |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
2,262 |
|
|
— |
|
|
2,262 |
|
|
Other comprehensive loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(528) |
|
|
(528) |
|
|
BALANCE, April 30, 2020 |
22,314 |
|
|
$ |
— |
|
|
$ |
251,051 |
|
|
$ |
99,775 |
|
|
$ |
(3,748) |
|
|
$ |
347,078 |
|
|
Cumulative-effect adjustment of adopting ASC 326, Credit
Loss |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Common stock issued on grant of restricted stock, net of restricted
stock forfeitures and restricted stock withheld for employee
withholding tax |
239 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
Stock-based compensation expense |
— |
|
|
— |
|
|
536 |
|
|
— |
|
|
— |
|
|
536 |
|
|
Net income |
— |
|
|
— |
|
|
— |
|
|
6,400 |
|
|
— |
|
|
6,400 |
|
|
Other comprehensive income |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
778 |
|
|
778 |
|
|
BALANCE, July 31, 2020 |
22,553 |
|
|
— |
|
|
251,587 |
|
|
106,175 |
|
|
(2,970) |
|
|
354,792 |
|
See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended July 31, |
|
|
|
|
2020 |
|
2019 |
|
Operating Activities |
|
|
|
|
Net income |
$ |
8,662 |
|
|
$ |
5,066 |
|
|
Adjustments to reconcile net income to net cash provided by (used
for) operating activities |
|
|
|
|
Depreciation and amortization |
11,286 |
|
|
13,264 |
|
|
Impairment |
216 |
|
|
135 |
|
|
Deferred income taxes |
(944) |
|
|
(251) |
|
|
Stock-based compensation expense |
1,181 |
|
|
1,297 |
|
|
Noncash interest expense |
75 |
|
|
407 |
|
|
Noncash lease expense |
5,717 |
|
|
6,198 |
|
|
|
|
|
|
Other, net |
(368) |
|
|
(8) |
|
|
Changes in assets and liabilities |
|
|
|
|
Receivables, prepaid expenses and other assets |
3,347 |
|
|
(2,149) |
|
|
Inventories |
31,885 |
|
|
(140,149) |
|
|
Manufacturer floorplan payable |
(26,726) |
|
|
128,635 |
|
|
Accounts payable, deferred revenue, accrued expenses and other and
other long-term liabilities |
(15,140) |
|
|
(12,362) |
|
|
|
|
|
|
Operating lease liabilities |
(6,156) |
|
|
(6,386) |
|
|
Net Cash Provided by (Used for) Operating Activities |
13,035 |
|
|
(6,303) |
|
|
Investing Activities |
|
|
|
|
Rental fleet purchases |
(6,001) |
|
|
(9,249) |
|
|
Property and equipment purchases (excluding rental
fleet) |
(4,472) |
|
|
(3,101) |
|
|
Proceeds from sale of property and equipment |
489 |
|
|
670 |
|
|
Acquisition consideration, net of cash acquired |
(6,790) |
|
|
(2,972) |
|
|
Other, net |
(20) |
|
|
14 |
|
|
Net Cash Used for Investing Activities |
(16,794) |
|
|
(14,638) |
|
|
Financing Activities |
|
|
|
|
Net change in non-manufacturer floorplan payable |
7,229 |
|
|
49,937 |
|
|
Principal payments on senior convertible notes |
— |
|
|
(45,644) |
|
|
Proceeds from long-term debt borrowings |
1,112 |
|
|
11,786 |
|
|
Principal payments on long-term debt and finance leases |
(2,952) |
|
|
(1,940) |
|
|
Payment of debt issuance costs |
(670) |
|
|
— |
|
|
Other, net |
(200) |
|
|
(492) |
|
|
Net Cash Provided by Financing Activities |
4,519 |
|
|
13,647 |
|
|
Effect of Exchange Rate Changes on Cash |
3 |
|
|
66 |
|
|
Net Change in Cash |
763 |
|
|
(7,228) |
|
|
Cash at Beginning of Period |
43,721 |
|
|
56,745 |
|
|
Cash at End of Period |
$ |
44,484 |
|
|
$ |
49,517 |
|
|
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
Cash paid (received) during the period |
|
|
|
|
Income taxes, net of refunds |
$ |
(228) |
|
|
$ |
3,064 |
|
|
Interest |
$ |
4,103 |
|
|
$ |
4,705 |
|
|
Supplemental Disclosures of Noncash Investing and Financing
Activities |
|
|
|
|
Net property and equipment financed with long-term debt, finance
leases, accounts payable and accrued liabilities |
$ |
4,645 |
|
|
$ |
6,133 |
|
|
Net transfer of assets from (to) property and equipment to (from)
inventories |
$ |
319 |
|
|
$ |
(2,995) |
|
|
|
|
|
See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The unaudited consolidated financial statements included herein
have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission (“SEC”) for interim
reporting. Accordingly, they do not include all the information and
footnotes required by accounting principles generally accepted in
the United States of America (“GAAP”) for complete financial
statements. In the opinion of management, all adjustments,
consisting of normal recurring accruals, considered necessary for a
fair presentation have been included. The quarterly operating
results for Titan Machinery Inc. (the “Company”) are subject to
fluctuation due to varying weather patterns, which may impact the
timing and amount of equipment purchases, rentals, and after-sales
parts and service purchases by the Company’s Agriculture,
Construction and International customers. Therefore, operating
results for the six-month period ended July 31, 2020 are not
necessarily indicative of the results that may be expected for the
fiscal year ending January 31, 2021. The information contained
in the consolidated balance sheet as of January 31, 2020 was
derived from the audited consolidated financial statements for the
Company for the fiscal year then ended. These consolidated
financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the
Company’s Annual Report on Form 10-K for the fiscal year ended
January 31, 2020 as filed with the SEC.
Nature of Business
The Company is engaged in the retail sale, service and rental of
agricultural and construction machinery through its stores in the
United States and Europe. The Company’s North American stores are
located 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.
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak
of COVID-19 a pandemic, and the President of the United States
declared the COVID-19 outbreak as a national emergency. The nature
of COVID-19 led to worldwide shutdowns and halting of commercial
and interpersonal activity as governments imposed regulations in
efforts to control the spread of the pandemic, such as
shelter-in-place orders and quarantines. The pandemic is a highly
fluid and rapidly evolving situation, and we cannot anticipate with
any certainty the length, scope, or severity of such restrictions
in each of the markets that we operate. See Item 1A. Risk Factors
for more information on possible impacts.
Since the beginning of the COVID-19 pandemic, the safety of our
employees and customers has been and continues to be our top
concern. At the onset of the pandemic we organized a COVID Task
Force to implement safety protocols and to quickly respond to
matters, in the event of a positive case at one of our
locations.
Even though we are considered an essential business, in response to
the COVID-19 pandemic, the Company closed its U.S. stores to the
public on March 23, 2020 but continued operations through social
distancing means in all areas: equipment, parts, service and
rental. Beginning May 4, 2020, we began fully reopening our stores
to the public, following pandemic safety protocols applicable to
the locations. Additionally, our International stores have also
been following pandemic safety protocols applicable to each
location. By June 2020, all of our stores were open to the public
but still maintain pandemic safety protocols.
Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ
from those estimates, particularly related to realization of
inventory, impairment of long-lived assets, collectability of
receivables, and income taxes.
Principles of Consolidation
The
consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material accounts,
transactions and profits between the consolidated companies have
been eliminated in consolidation.
Recently Adopted Accounting Guidance
In
June 2016, the Financial Accounting Standards Board ("FASB") issued
a new standard, codified in ASC 326, that modifies how entities
measure credit losses on most financial instruments. The new
standard replaced the "incurred loss" model with an "expected
credit loss" model that requires consideration of a broader range
of information to estimate expected credit losses over the lifetime
of the asset. The guidance impacts the Company on its accounts
receivable portfolio but specifically excluded receivables from
operating lease arrangements and, therefore, the Company’s
receivables from rental contracts were not impacted. The guidance
also requires new disclosures to allow the users of the financial
statements to understand the credit risk inherent in a portfolio
and how management monitors the credit quality of the portfolio,
management’s estimate of expected credit losses, and changes in the
estimate of expected credit losses that have taken place during the
reporting period.
The Company adopted the new guidance on February 1, 2020 using a
modified retrospective approach and recognized an immaterial
cumulative-effect adjustment to retained earnings as of the
effective date. The Company identified and updated existing
internal controls and procedures to ensure compliance with the new
guidance, but such modifications were not deemed to be material to
the Company's overall system of internal control. While the
adoption of this standard did not have a material impact on the
Company's consolidated financial statements, it required changes to
the Company's process of estimating expected credit losses on trade
receivables. See footnote 4 for further discussion of our accounts
receivables.
In February 2018, the FASB issued guidance on the accounting for
implementation costs incurred in a cloud computing arrangement that
is a service contract, codified in ASC 350-40. This guidance aligns
the accounting for costs incurred to implement a cloud computing
arrangement that is a service arrangement with the guidance on
capitalizing costs associated with developing or obtaining
internal-use software. This standard was adopted on February 1,
2020 and was applied using the prospective transition approach. The
adoption of this standard did not have a material impact on the
Company's consolidated financial statements.
Accounting Guidance Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04,
Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting
(“ASU No. 2020-04”), which provides temporary optional expedients
and exceptions to accounting guidance on contract modifications and
hedge accounting to ease entities’ financial reporting burdens as
the market transitions from the London Interbank Offered Rate
(“LIBOR”) and other interbank offered rates to alternative
reference rates. ASU 2020-04 is effective upon issuance and can be
applied through December 31, 2022. The Company is currently
evaluating its contracts and hedging relationships that reference
LIBOR to determine if the Company will adopt the new
guidance.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
Six Months Ended July 31, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
(in thousands, except per share data) |
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
Net income |
$ |
6,400 |
|
|
$ |
5,511 |
|
|
$ |
8,662 |
|
|
$ |
5,066 |
|
|
Allocation to participating securities |
(101) |
|
|
(82) |
|
|
(129) |
|
|
(76) |
|
|
Net income attributable to Titan Machinery Inc. common
stockholders |
$ |
6,299 |
|
|
$ |
5,429 |
|
|
$ |
8,533 |
|
|
$ |
4,990 |
|
|
Denominator: |
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding |
22,118 |
|
|
21,960 |
|
|
22,068 |
|
|
21,917 |
|
|
Plus: incremental shares from vesting of restricted stock
units |
1 |
|
|
4 |
|
|
— |
|
|
5 |
|
|
Diluted weighted-average common shares outstanding |
22,119 |
|
|
21,964 |
|
|
22,068 |
|
|
21,922 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share: |
|
|
|
|
|
|
|
|
Basic |
$ |
0.28 |
|
|
$ |
0.25 |
|
|
$ |
0.39 |
|
|
$ |
0.23 |
|
|
Diluted |
$ |
0.28 |
|
|
$ |
0.25 |
|
|
$ |
0.39 |
|
|
$ |
0.23 |
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from diluted weighted-average common
shares outstanding: |
|
|
|
|
|
|
|
|
Restricted stock units |
— |
|
|
— |
|
|
18 |
|
|
— |
|
|
|
|
|
|
|
|
|
NOTE 3 - REVENUE
Revenues are
recognized when control of the promised goods or services is
transferred to the customer, in an amount that reflects the
consideration we expect to collect in exchange for those goods or
services. Sales, value added and other taxes collected from our
customers concurrent with our revenue activities are excluded from
revenue.
The following
tables present our revenue disaggregated by revenue source and
segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, 2020 |
|
|
|
|
|
|
|
Three Months Ended July 31, 2019 |
|
|
|
|
|
|
|
|
Agriculture |
|
Construction |
|
International |
|
Total |
|
Agriculture |
|
Construction |
|
International |
|
Total |
|
|
(in thousands) |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Equipment |
$ |
110,601 |
|
|
$ |
48,478 |
|
|
$ |
43,575 |
|
|
$ |
202,654 |
|
|
$ |
111,212 |
|
|
$ |
51,396 |
|
|
$ |
51,827 |
|
|
$ |
214,435 |
|
|
Parts |
37,470 |
|
|
13,016 |
|
|
10,968 |
|
|
61,454 |
|
|
35,054 |
|
|
13,066 |
|
|
11,082 |
|
|
59,202 |
|
|
Service |
19,429 |
|
|
6,806 |
|
|
1,751 |
|
|
27,986 |
|
|
18,000 |
|
|
6,968 |
|
|
1,864 |
|
|
26,832 |
|
|
Other |
829 |
|
|
725 |
|
|
119 |
|
|
1,673 |
|
|
793 |
|
|
820 |
|
|
130 |
|
|
1,743 |
|
|
Revenue from contracts with customers
|
168,329 |
|
|
69,025 |
|
|
56,413 |
|
|
293,767 |
|
|
165,059 |
|
|
72,250 |
|
|
64,903 |
|
|
302,212 |
|
|
Rental |
743 |
|
|
8,694 |
|
|
261 |
|
|
9,698 |
|
|
633 |
|
|
11,789 |
|
|
347 |
|
|
12,769 |
|
|
Total revenues |
$ |
169,072 |
|
|
$ |
77,719 |
|
|
$ |
56,674 |
|
|
$ |
303,465 |
|
|
$ |
165,692 |
|
|
$ |
84,039 |
|
|
$ |
65,250 |
|
|
$ |
314,981 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended July 31, 2020 |
|
|
|
|
|
|
|
Six Months Ended July 31, 2019 |
|
|
|
|
|
|
|
|
Agriculture |
|
Construction |
|
International |
|
Total |
|
Agriculture |
|
Construction |
|
International |
|
Total |
|
|
(in thousands) |
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Equipment |
$ |
250,349 |
|
|
$ |
82,732 |
|
|
$ |
88,078 |
|
|
$ |
421,159 |
|
|
$ |
219,075 |
|
|
$ |
94,442 |
|
|
$ |
94,873 |
|
|
$ |
408,390 |
|
|
Parts |
72,550 |
|
|
24,476 |
|
|
21,042 |
|
|
118,068 |
|
|
65,029 |
|
|
25,770 |
|
|
20,341 |
|
|
111,140 |
|
|
Service |
37,150 |
|
|
13,017 |
|
|
3,419 |
|
|
53,586 |
|
|
32,984 |
|
|
13,489 |
|
|
3,189 |
|
|
49,662 |
|
|
Other |
1,562 |
|
|
1,243 |
|
|
223 |
|
|
3,028 |
|
|
1,412 |
|
|
1,413 |
|
|
152 |
|
|
2,977 |
|
|
Revenue from contracts with customers
|
361,611 |
|
|
121,468 |
|
|
112,762 |
|
|
595,841 |
|
|
318,500 |
|
|
135,114 |
|
|
118,555 |
|
|
572,169 |
|
|
Rental |
1,089 |
|
|
16,365 |
|
|
378 |
|
|
17,832 |
|
|
964 |
|
|
19,668 |
|
|
470 |
|
|
21,102 |
|
|
Total revenues |
$ |
362,700 |
|
|
$ |
137,833 |
|
|
$ |
113,140 |
|
|
$ |
613,673 |
|
|
$ |
319,464 |
|
|
$ |
154,782 |
|
|
$ |
119,025 |
|
|
$ |
593,271 |
|
Unbilled Receivables and Deferred Revenue
Unbilled
receivables amounted to $17.3 million and $13.9 million as of
July 31, 2020 and January 31, 2020. The increase in
unbilled receivables is primarily the result of a seasonal increase
in the volume of our service transactions in which we recognize
revenue as our work is performed and prior to customer
invoicing.
Deferred revenue
from contracts with customers amounted to $21.7 million and $39.5
million as of July 31, 2020 and January 31, 2020. Our
deferred revenue most often increases in the fourth quarter of each
fiscal year due to a higher level of customer down payments or
prepayments and longer time periods between customer payment and
delivery of the equipment asset, and the related recognition of
equipment revenue, prior to its seasonal use. During the six months
ended July 31, 2020 and 2019, the Company recognized $37.0
million and $41.2 million, respectively, of revenue that was
included in the deferred revenue balance as of January 31,
2020 and January 31, 2019, respectively. No material amount of
revenue was recognized during the three months ended July 31,
2020 and 2019 from performance obligations satisfied in previous
periods.
The Company has
elected as a practical expedient to not disclose the value of
unsatisfied performance obligations for (i) contracts with an
original expected length of service of one year or less and (ii)
contracts for which we recognize revenue at the amount to which we
have the right to invoice for services performed. The contracts for
which the practical expedient has been applied include (i)
equipment revenue transactions, which do not have a stated
contractual term, but are short-term in nature, and (ii) service
revenue transactions, which also do not have a stated contractual
term but are generally completed within 30 days and for such
contracts we recognize revenue over time at the amount to which we
have the right to invoice for services completed to
date.
NOTE 4 - RECEIVABLES
The Company provides an allowance for expected credit losses on its
nonrental receivables in accordance with the guidance in ASU
2016-13. To measure the expected credit losses, receivables have
been grouped based on shared credit risk characteristics as shown
in the table below.
Trade and unbilled receivables from contracts with customers have
credit risk and the allowance is determined by applying expected
credit loss percentages to aging categories based on historical
experience that are updated each quarter. The rates may also be
adjusted to the extent future events are expected to differ from
historical results. Given that the credit terms for these
receivables are short-term, changes in credit loss percentages due
to future events may not occur on a frequent basis. In addition,
the allowance is adjusted based on information obtained by
continued monitoring of individual customer credit.
Trade receivables from finance companies, other receivables due
from manufacturers, and other receivables have not historically
resulted in any credit losses to the Company. These receivables are
short-term in nature and deemed to be of good credit quality and
have no need for any allowance for expected credit losses.
Management continually monitors these receivables and should
information be obtained that identifies potential credit risk, an
adjustment to the allowance would be made if deemed
appropriate.
Trade and unbilled receivables from rental contracts are primarily
in the US and are specifically excluded from the guidance in ASU
2016-13 in determining an allowance for expected losses. The
Company does provide an allowance for these receivables based on
historical experience and using credit information obtained from
continued monitoring of customer accounts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
Trade and unbilled receivables from contracts with
customers |
|
|
|
|
Trade receivables due from customers |
$ |
35,691 |
|
|
$ |
36,400 |
|
|
Unbilled receivables |
17,280 |
|
|
13,944 |
|
|
Less allowance for expected credit loss |
3,293 |
|
|
2,943 |
|
|
|
49,678 |
|
|
47,401 |
|
|
|
|
|
|
|
Trade receivables due from finance companies |
11,813 |
|
|
12,352 |
|
|
|
|
|
|
|
Trade and unbilled receivables from rental contracts |
|
|
|
|
Trade receivables |
5,578 |
|
|
7,381 |
|
|
Unbilled receivables |
875 |
|
|
861 |
|
|
Less allowance for expected credit loss |
1,979 |
|
|
2,180 |
|
|
|
4,474 |
|
|
6,062 |
|
|
Other receivables |
|
|
|
|
Due from manufacturers |
8,819 |
|
|
5,763 |
|
|
Other |
998 |
|
|
1,198 |
|
|
|
9,817 |
|
|
6,961 |
|
|
Receivables, net of allowance for expected credit
losses |
$ |
75,782 |
|
|
$ |
72,776 |
|
Following is a summary of allowance for credit losses on trade and
unbilled accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture |
|
Construction |
|
International |
|
Total |
|
Balance at February 1, 2020 |
$ |
181 |
|
|
$ |
1,016 |
|
|
$ |
1,746 |
|
|
$ |
2,943 |
|
|
Current Expected Credit Loss Provision |
14 |
|
|
113 |
|
|
226 |
|
|
353 |
|
|
Write-offs Charged Against Allowance |
5 |
|
|
71 |
|
|
133 |
|
|
209 |
|
|
Credit Loss Recoveries Collected |
40 |
|
|
4 |
|
|
6 |
|
|
50 |
|
|
F/X Impact |
— |
|
|
— |
|
|
(29) |
|
|
(29) |
|
|
Balance at April 30, 2020 |
230 |
|
|
1,062 |
|
|
1,816 |
|
|
3,108 |
|
|
Current Expected Credit Loss Provision |
16 |
|
|
95 |
|
|
265 |
|
|
376 |
|
|
Write-offs Charged Against Allowance |
47 |
|
|
78 |
|
|
98 |
|
|
223 |
|
|
Credit Loss Recoveries Collected |
9 |
|
|
— |
|
|
— |
|
|
9 |
|
|
F/X Impact |
— |
|
|
— |
|
|
23 |
|
|
23 |
|
|
Balance at July 31, 2020 |
$ |
208 |
|
|
$ |
1,079 |
|
|
$ |
2,006 |
|
|
$ |
3,293 |
|
The following table presents impairment losses on receivables
arising from sales contracts with customers and receivables arising
from rental contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
Six Months Ended July 31, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
(in thousands) |
|
|
|
|
|
|
|
Impairment losses on: |
|
|
|
|
|
|
|
|
Receivables from sales contracts |
$ |
377 |
|
|
$ |
658 |
|
|
$ |
520 |
|
|
$ |
986 |
|
|
Receivables from rental contracts |
13 |
|
|
414 |
|
|
151 |
|
|
497 |
|
|
|
$ |
390 |
|
|
$ |
1,072 |
|
|
$ |
671 |
|
|
$ |
1,483 |
|
NOTE 5 - INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
New equipment |
$ |
334,457 |
|
|
$ |
358,339 |
|
|
Used equipment |
148,239 |
|
|
157,535 |
|
|
Parts and attachments |
86,301 |
|
|
79,813 |
|
|
Work in process |
1,683 |
|
|
1,707 |
|
|
|
$ |
570,680 |
|
|
$ |
597,394 |
|
NOTE 6 - PROPERTY AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
Rental fleet equipment |
$ |
101,856 |
|
|
$ |
104,133 |
|
|
Machinery and equipment |
23,346 |
|
|
22,682 |
|
|
Vehicles |
53,048 |
|
|
51,850 |
|
|
Furniture and fixtures |
42,468 |
|
|
41,720 |
|
|
Land, buildings, and leasehold improvements |
76,861 |
|
|
70,408 |
|
|
|
297,579 |
|
|
290,793 |
|
|
Less accumulated depreciation |
147,083 |
|
|
145,231 |
|
|
|
$ |
150,496 |
|
|
$ |
145,562 |
|
The
Company reviews its long-lived assets for potential impairment
whenever events or circumstances indicate that the carrying value
of the long-lived asset (or asset group) may not be recoverable.
During the three months ended July 31, 2020, the Company
determined that a current period operating loss combined with
historical losses of a certain store location indicated that the
long-lived asset group of a store location may not be recoverable.
The Company performed an impairment assessment of this asset group
and as a result determined an impairment charge was not needed for
the three months ended July 31, 2020. For the six months ended
July 31, 2020, the Company recognized total impairment charges
of $0.2 million within its Construction segment. For the three and
six months ended July 31, 2019, the Company recognized an
impairment charge of $0.1 million within its Construction
segment.
In March 2019, the
Company completed an assessment of its Enterprise Resource Planning
("ERP") application and concluded that the Company would begin the
process to prepare for conversion to a new ERP application. The
Company integrated one pilot store on the new ERP system in the
second quarter of the current fiscal year and expects all domestic
stores to be on the new ERP application in the first half of the
fiscal year ending January 31, 2022. We have prospectively adjusted
the useful life of our current ERP application such that it will be
fully amortized upon its estimated replacement date. The net book
value of the current ERP asset of $1.3 million as of July 31,
2020 will be amortized on a straight-line basis over the estimated
remaining period of use.
NOTE 7 - FLOORPLAN PAYABLE/LINES OF CREDIT
On April 3, 2020,
the Company entered into a Third Amended and Restated Credit
Agreement (the "Bank Syndicate Agreement") with a group of banks,
that amended and restated the Company's prior $200.0 million
credit facility, dated October 28, 2015. The Bank Syndicate
Agreement provides for a secured credit facility in an amount up to
$250.0 million, consisting of a $185.0 million floorplan
facility (the "Floorplan Loan") and a $65.0 million operating
line (the "Revolver Loan"), and changed the interest rates as
compared to the prior credit facility, amongst other things. The
amounts available under the Bank Syndicate Agreement are subject to
base calculations and reduced by outstanding standby letters of
credit and certain reserves. The Bank Syndicate Agreement has a
variable interest rate on outstanding balances, has a 0.25%
non-usage fee on the average monthly unused amount (replacing the
previous non-usage fee of 0.25% to 0.375%), and requires monthly
payments of accrued interest. The Company elects at the time of any
advance to choose a Base Rate Loan or a LIBOR Rate Loan. The LIBOR
Rate is based upon one month, two month, or three month LIBOR, as
chosen by the Company, but in no event shall the LIBOR Rate be less
than 0.50%. The Base Rate is the greater of (a) the prime rate of
interest announced, from time to time, by Bank of America; (b) the
Federal Funds Rate plus 0.5%, or (c) one month LIBOR plus 1%, but
in no event shall the Base Rate be less than zero. The applicable
margin rate is determined based on excess availability under the
Bank Syndicate Agreement and
ranges from 0.5% to 1.0% for Base Rate Loans and 1.5% to 2.0% for
LIBOR Rate Loans. The new applicable margins under the Bank
Syndicate Agreement are up to 0.5% less than the existing margins
under the prior credit facility.
The Bank Syndicate Agreement does not obligate the Company to
maintain financial covenants, except in the event that excess
availability (each as defined in the Bank Syndicate Agreement) is
less than 15% of the lower of the borrowing base or the size of the
maximum credit line, at which point the Company is required to
maintain a fixed charge coverage ratio of at least 1.10:1.00. The
Bank Syndicate Agreement includes various restrictions on the
Company and its subsidiaries’ activities, including, under certain
conditions, limitations on the Company’s ability to make certain
cash payments including cash dividends and stock repurchases,
issuance of equity instruments, acquisitions and divestitures, and
entering into new indebtedness transactions. The Bank Syndicate
Agreement matures on April 3, 2025.
The Floorplan Loan under the Bank Syndicate Agreement e is used to
finance equipment inventory purchases. Amounts outstanding are
recorded as floorplan payable, within current liabilities on the
consolidated balance sheets, as the Company intends to repay
amounts borrowed within one year.
The Revolver Loan under the Bank Syndicate Agreement is used to
finance rental fleet equipment and for general working capital
requirements of the Company. Amounts outstanding are recorded as
long-term debt, within long-term liabilities on the consolidated
balance sheets, as the Company does not have the intention or
obligation to repay amounts borrowed within one year.
As of July 31, 2020, the Company had floorplan lines of credit
totaling $763.0 million, which is primarily comprised of three
significant floorplan lines of credit: (i) a $450.0 million credit
facility with CNH Industrial, (ii) a $185.0 million line of credit
under the Bank Syndicate Agreement, and (iii) a $60.0 million
credit facility with DLL Finance LLC.
As of July 31, 2020 and January 31, 2020, the Company's
outstanding balances of floorplan lines of credit consisted of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
CNH Industrial |
$ |
151,790 |
|
|
$ |
187,690 |
|
|
Bank Syndicate Agreement Floorplan Loan |
98,400 |
|
|
— |
|
|
Wells Fargo Floorplan Payable Line |
— |
|
|
82,700 |
|
|
DLL Finance |
25,064 |
|
|
30,657 |
|
|
Other outstanding balances with manufacturers and
non-manufacturers |
76,961 |
|
|
70,725 |
|
|
|
$ |
352,215 |
|
|
$ |
371,772 |
|
As of July 31,
2020, the interest-bearing U.S. floorplan payables carried various
interest rates ranging primarily from 2.00% to 3.31%, compared to a
range of 4.05% to 4.81% as of January 31, 2020. As of
July 31, 2020, foreign floorplan payables carried various
interest rates primarily ranging from 1.34% to 6.15%, compared to a
range of 0.86% to 7.66% as of January 31, 2020. As of
July 31, 2020 and January 31, 2020, $185.0 million and
$205.2 million, respectively, of outstanding floorplan payables
were non-interest bearing. As of July 31, 2020, the Company
had a compensating balance arrangement under one of its foreign
floorplan credit facilities, which requires a minimum cash deposit
to be maintained with the lender in the amount of $5.0 million for
the term of the credit facility.
NOTE 8 - DEFERRED REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
Deferred revenue from contracts with customers |
$ |
21,686 |
|
|
$ |
39,512 |
|
|
Deferred revenue from rental and other contracts |
1,030 |
|
|
1,456 |
|
|
|
$ |
22,716 |
|
|
$ |
40,968 |
|
NOTE 9 - SENIOR CONVERTIBLE NOTES
The Company's
senior convertible notes matured, and the outstanding principal
balance of $45.6 million was repaid in full, on May 1, 2019, as
such there was no interest expense for the three months ended July
31, 2019.
The Company recognized interest expense associated with its senior
convertible notes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended July 31, |
|
|
|
|
|
|
|
|
2020 |
|
2019 |
|
|
|
|
|
|
(in thousands) |
|
|
|
Cash Interest Expense |
|
|
|
|
|
|
|
|
Coupon interest expense |
|
|
|
|
$ |
— |
|
|
$ |
421 |
|
|
Noncash Interest Expense |
|
|
|
|
|
|
|
|
Amortization of debt discount |
|
|
|
|
— |
|
|
350 |
|
|
Amortization of transaction costs |
|
|
|
|
— |
|
|
45 |
|
|
|
|
|
|
|
$ |
— |
|
|
$ |
816 |
|
NOTE 10 - LONG TERM DEBT
The following is a
summary of long-term debt as of July 31, 2020 and
January 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
Sale-leaseback financing obligations, interest rates ranging from
3.4% to 10.3% with various maturity dates through December
2030 |
$ |
17,153 |
|
|
$ |
17,781 |
|
|
Bank Syndicate Agreement - Working Capital Line, interest accrues
at a variable rate on outstanding balances, requires monthly
payments of accrued interest, matures April 2025 |
10,000 |
|
|
10,000 |
|
|
Real estate mortgage bearing interest at 5.11%, payable in annual
installments of $0.3 million, maturing on May 15, 2039, secured by
real estate assets |
6,485 |
|
|
6,827 |
|
|
Equipment financing loan, payable in monthly installments over a
72-month term for each funded tranche, interest rates ranging from
1.7% to 3.89%, secured by vehicle assets |
7,446 |
|
|
7,468 |
|
|
Real estate mortgage bearing interest at 4.62%, payable in monthly
installments of $0.04 million with a final payment at maturity of
$3.4 million, maturing on June 10, 2024, secured by real estate
assets |
4,315 |
|
|
4,416 |
|
|
Real estate mortgage interest accrues at a variable rate of 2.5%
plus 1-month LIBOR, requires monthly payments of accrued interest,
final payment at maturity of $2.0 million, maturing on February 28,
2027, secured by real estate assets |
1,964 |
|
|
— |
|
|
Real estate mortgage bearing interest at 4.4%, payable in monthly
installments of $0.01 million with a final payment at maturity of
$1.0 million, maturing on January 1, 2027, secured by real estate
assets |
1,458 |
|
|
1,489 |
|
|
Equipment financing loan, payable in monthly installments over a
72-month term, bearing interest at 3.94%, secured by vehicle
assets |
1,025 |
|
|
— |
|
|
Real estate mortgage bearing interest at 2.09%, payable in monthly
installments, maturing on June 30, 2026, secured by real estate
assets |
2,339 |
|
|
2,520 |
|
|
Other long-term debt primarily bearing interest at three-month
EURIBOR plus 2.6%, payable in quarterly installments, maturing on
January 31, 2021 |
401 |
|
|
1,067 |
|
|
|
52,586 |
|
|
51,568 |
|
|
Less current maturities |
(3,921) |
|
|
(13,779) |
|
|
|
$ |
48,665 |
|
|
$ |
37,789 |
|
NOTE 11 - DERIVATIVE INSTRUMENTS
The Company holds derivative instruments for the purpose of
minimizing exposure to fluctuations in foreign currency exchange
rates to which the Company is exposed in the normal course of its
operations.
The Company uses
foreign currency forward contracts to hedge the effects of
fluctuations in exchange rates on outstanding intercompany loans.
The Company does not formally designate and document such
derivative instruments as hedging instruments; however, the
instruments are an effective economic hedge of the underlying
foreign currency exposure. Both the gain or loss on the derivative
instrument and the offsetting gain or loss on the underlying
intercompany loan are recognized in earnings immediately, thereby
eliminating or reducing the impact of foreign currency exchange
rate fluctuations
on net income. The Company's foreign currency forward contracts
generally have three-month maturities, maturing on the last day of
each fiscal quarter. No foreign currency contracts were outstanding
as of January 31, 2020. The notional value of outstanding
foreign currency contracts as of July 31, 2020 was $11.0
million.
As of July 31,
2020, the fair value of the Company's outstanding derivative
instruments was not material. Derivative instruments recognized as
assets are recorded in prepaid expenses and other in the
consolidated balance sheets, and derivative instruments recognized
as liabilities are recorded in accrued expenses and other in the
consolidated balance sheets.
The following table
sets forth the gains and losses recognized in income from the
Company’s derivative instruments for the three and six months ended
July 31, 2020 and 2019. Gains and losses are recognized in
interest income and other income (expense) in the consolidated
statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
Six Months Ended July 31, |
|
|
|
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
(in thousands) |
|
|
|
|
|
|
|
Foreign currency contract gain |
$ |
202 |
|
|
$ |
166 |
|
|
$ |
189 |
|
|
$ |
368 |
|
NOTE 12 - ACCUMULATED OTHER COMPREHENSIVE INCOME
(LOSS)
The
following is a summary of the changes in accumulated other
comprehensive income (loss), by component, for the periods ended
July 31, 2020 and July 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment |
|
Net Investment Hedging Gain |
|
Total Accumulated Other Comprehensive Income (Loss) |
|
|
(in thousands) |
|
|
|
|
|
Balance, January 31, 2020 |
$ |
(5,931) |
|
|
$ |
2,711 |
|
|
$ |
(3,220) |
|
|
Other comprehensive loss |
(528) |
|
|
— |
|
|
(528) |
|
|
Balance, April 30, 2020 |
(6,459) |
|
|
2,711 |
|
|
(3,748) |
|
|
Other comprehensive income |
778 |
|
|
— |
|
|
778 |
|
|
Balance, July 31, 2020 |
$ |
(5,681) |
|
|
$ |
2,711 |
|
|
$ |
(2,970) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment |
|
Net Investment Hedging Gain |
|
Total Accumulated Other Comprehensive Income (Loss) |
|
|
(in thousands) |
|
|
|
|
|
Balance, January 31, 2019 |
$ |
(5,051) |
|
|
$ |
2,711 |
|
|
$ |
(2,340) |
|
|
Other comprehensive loss |
(771) |
|
|
— |
|
|
(771) |
|
|
Balance, April 30, 2019 |
(5,822) |
|
|
2,711 |
|
|
(3,111) |
|
|
Other comprehensive income |
1,012 |
|
|
— |
|
|
1,012 |
|
|
Balance, July 31, 2019 |
$ |
(4,810) |
|
|
$ |
2,711 |
|
|
$ |
(2,099) |
|
NOTE 13 - LEASES
As Lessee
The Company, as
lessee, leases certain of its dealership locations, office space,
equipment and vehicles under operating and financing classified
leasing arrangements. The Company has elected to not record leases
with a lease term at commencement of 12 months or less on the
consolidated balance sheet; such leases are expensed on a
straight-line basis over the lease term. Many real estate lease
agreements require the Company to pay the real estate taxes on the
properties during the lease term and require that the Company
maintain property insurance on each of the leased premises. Such
payments are deemed to be variable lease payments as the amounts
may change during the term of the lease. Certain leases include
renewal options that can extend the lease term for periods of one
to ten years. Most real estate leases grant the Company a right of
first refusal or other options to purchase the real estate,
generally at fair market value, either during the lease term or at
its conclusion. In most cases, the Company has not included these
renewal and purchase options within the measurement of the
right-of-use asset and lease liability. Most often the Company
cannot readily determine the interest rate implicit in the lease
and thus applies its incremental borrowing rate to capitalize the
right-of-use asset and lease liability. The Company estimates its
incremental borrowing rate by incorporating considerations of lease
term, asset class and lease currency and geographical market. The
Company's lease agreements do not contain any material non-lease
components, residual value guarantees or material restrictive
covenants.
The Company
subleases a small number of real estate assets to third-parties,
primarily dealership locations for which it has ceased operations.
All sublease arrangements are classified as operating
leases.
The components of
lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31, |
|
|
|
Six Months Ended July 31, |
|
|
|
|
|
Classification |
|
2020 |
|
2019 |
|
2020 |
|
2019 |
|
|
|
|
|
(in thousands) |
|
|
|
(in thousands) |
|
|
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets |
|
Operating expenses |
|
$ |
389 |
|
|
$ |
331 |
|
|
$ |
781 |
|
|
$ |
707 |
|
|
Interest on lease liabilities |
|
Other interest expense |
|
117 |
|
|
139 |
|
|
242 |
|
|
278 |
|
|
Operating lease cost |
|
Operating expenses & rental and other cost of
revenue |
|
4,325 |
|
|
4,725 |
|
|
8,788 |
|
|
9,541 |
|
|
Short-term lease cost |
|
Operating expenses |
|
110 |
|
|
80 |
|
|
190 |
|
|
160 |
|
|
Variable lease cost |
|
Operating expenses |
|
735 |
|
|
715 |
|
|
1,370 |
|
|
1,335 |
|
|
Sublease income |
|
Interest income and other income (expense) |
|
(131) |
|
|
(154) |
|
|
(283) |
|
|
(321) |
|
|
|
|
|
|
$ |
5,545 |
|
|
$ |
5,836 |
|
|
$ |
11,088 |
|
|
$ |
11,700 |
|
Right-of-use lease
assets and lease liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification |
|
July 31, 2020 |
|
January 31, 2020 |
|
|
|
|
|
(in thousands) |
|
|
|
Assets |
|
|
|
|
|
|
|
Operating lease assets |
|
Operating lease assets |
|
$ |
83,586 |
|
|
$ |
88,281 |
|
|
Finance lease assets(a)
|
|
Property and equipment, net of accumulated depreciation |
|
8,027 |
|
|
6,297 |
|
|
Total leased assets |
|
|
|
$ |
91,613 |
|
|
$ |
94,578 |
|
|
Liabilities |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
Operating |
|
Current operating lease liabilities |
|
$ |
12,158 |
|
|
$ |
12,259 |
|
|
Finance |
|
Accrued expenses and other |
|
4,038 |
|
|
1,708 |
|
|
Noncurrent |
|
|
|
|
|
|
|
Operating |
|
Operating lease liabilities |
|
83,341 |
|
|
88,387 |
|
|
Finance |
|
Other long-term liabilities |
|
3,398 |
|
|
4,103 |
|
|
Total lease liabilities |
|
|
|
$ |
102,935 |
|
|
$ |
106,457 |
|
|
|
|
|
|
|
|
|
(a)Finance
lease assets are recorded net of accumulated amortization of $2.2
million as of July 31, 2020 and $1.5 million as of
January 31, 2020.
Maturities of lease
liabilities as of July 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
Finance |
|
|
|
|
|
Leases |
|
Leases |
|
Total |
|
Fiscal Year Ended January 31, |
|
(in thousands) |
|
|
|
|
|
2021 (remainder) |
|
$ |
8,852 |
|
|
$ |
3,404 |
|
|
$ |
12,256 |
|
|
2022 |
|
17,004 |
|
|
1,873 |
|
|
18,877 |
|
|
2023 |
|
16,028 |
|
|
1,226 |
|
|
17,254 |
|
|
2024 |
|
15,097 |
|
|
493 |
|
|
15,590 |
|
|
2025 |
|
13,961 |
|
|
402 |
|
|
14,363 |
|
|
2026 |
|
13,804 |
|
|
311 |
|
|
14,115 |
|
|
Thereafter |
|
34,698 |
|
|
1,084 |
|
|
35,782 |
|
|
Total lease payments |
|
119,444 |
|
|
8,793 |
|
|
128,237 |
|
|
Less: Interest |
|
23,945 |
|
|
1,357 |
|
|
25,302 |
|
|
Present value of lease liabilities |
|
$ |
95,499 |
|
|
$ |
7,436 |
|
|
$ |
102,935 |
|
The
weighted-average lease term and discount rate as of July 31,
2020 are as follows:
|
|
|
|
|
|
|
|
July 31, 2020 |
|
Weighted-average remaining lease term (years): |
|
|
Operating leases |
7.6 |
|
Financing leases |
5.1 |
|
Weighted-average discount rate: |
|
|
Operating leases |
6.1 |
% |
|
Financing leases |
9.7 |
% |
As Lessor
The
Company rents equipment to customers, primarily in the Construction
segment, on a short-term basis. Our rental arrangements generally
do not include minimum, noncancellable periods as the lessee is
entitled to cancel the arrangement at any time. Most often, our
rental arrangements extend for periods ranging from a few days to a
few months. We maintain a fleet of dedicated rental assets within
our Construction segment and, within all segments, may also provide
short-term rentals of certain equipment inventory assets. Certain
rental arrangements may include rent-to-purchase options whereby
customers are given a period of time to exercise an option to
purchase the related equipment at an established price with any
rental payments paid applied to reduce the purchase
price.
All of the
Company's leasing arrangements as lessor are classified as
operating leases. Rental revenue is recognized on a straight-line
basis over the rental period. Rental revenue includes amounts
charged for loss and damage insurance on rented equipment. In most
cases, our rental arrangements include non-lease components,
including delivery and pick-up services. The
Company accounts for these non-lease components separate from the
rental arrangement and recognizes the revenue associated with these
components when the service is performed. The Company has elected
to exclude from rental revenue all sales, value added and other
taxes collected from our customers concurrent with our rental
activities. Rental billings most often occur on a monthly basis and
may be billed in advance or in arrears, thus creating unbilled
rental receivables or deferred rental revenue amounts. The Company
manages the residual value risk of its rented assets by (i)
monitoring the quality, aging and anticipated retail market value
of our rental fleet assets to determine the optimal period to
remove an asset from the rental fleet, (ii) maintaining the quality
of our assets through on-site parts and service support and (iii)
requiring physical damage insurance of our lessee customers. We
primarily dispose of our rental assets through the sale of the
asset by our retail sales force.
Revenue generated
from leasing activities is disclosed, by segment, in Note 3. The
following is the balance of our dedicated rental fleet assets of
our Construction segment as of July 31, 2020 and
January 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 31, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
Rental fleet equipment |
$ |
101,856 |
|
|
$ |
104,133 |
|