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 ResultsFor 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 ResultsAgriculture 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 Assumptions Previous Assumptions
Segment Revenue    
Agriculture(1) Up 5-10% Up 0-5%
Construction(2) Down 0-5% Down 5-10%
International Down 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 InformationThe 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.comManaging Partner646-277-1254

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 losses 73,531     72,776  
Inventories 532,746     597,394  
Prepaid expenses and other 8,737     13,655  
Total current assets 656,822     727,546  
Noncurrent Assets      
Property and equipment, net of accumulated depreciation 148,520     145,562  
Operating lease assets 81,401     88,281  
Deferred income taxes 3,787     2,147  
Goodwill 1,433     2,327  
Intangible assets, net of accumulated amortization 7,764     8,367  
Other 1,129     1,113  
Total noncurrent assets 244,034     247,797  
Total Assets $ 900,856     $ 975,343  
       
Liabilities and Stockholders' Equity      
Current Liabilities      
Accounts payable $ 23,433     $ 16,976  
Floorplan payable 287,837     371,772  
Current maturities of long-term debt 4,423     13,779  
Current operating lease liabilities 12,373     12,259  
Deferred revenue 14,708     40,968  
Accrued expenses and other 38,433     38,409  
Total current liabilities 381,207     494,163  
Long-Term Liabilities      
Long-term debt, less current maturities 55,109     37,789  
Operating lease liabilities 80,782     88,387  
Deferred income taxes 5,814     2,055  
Other long-term liabilities 10,376     7,845  
Total long-term liabilities 152,081     136,076  
Stockholders' Equity      
Common stock      
Additional paid-in-capital 252,270     250,607  
Retained earnings 116,087     97,717  
Accumulated other comprehensive loss (789 )   (3,220 )
Total stockholders' equity 367,568     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  
Parts 76,778     70,788     194,846     181,928  
Service 30,696     27,553     84,282     77,215  
Rental and other 12,497     16,609     33,357     40,688  
Total Revenue 360,872     360,936     974,545     954,207  
Cost of Revenue              
Equipment 215,770     219,484     593,048     583,345  
Parts 53,556     49,834     136,205     128,380  
Service 10,254     8,950     28,263     25,170  
Rental and other 8,741     10,894     23,379     27,612  
Total Cost of Revenue 288,321     289,162     780,895     764,507  
Gross Profit 72,551     71,774     193,650     189,700  
Operating Expenses 54,115     58,184     160,252     165,594  
Impairment of Goodwill 1,453         1,453      
Impairment of Intangible and Long-Lived Assets 1,102     51     1,318     186  
Income from Operations 15,881     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 Taxes 13,824     12,409     25,265     19,321  
Provision for Income Taxes 3,912     4,195     6,691     6,041  
Net Income 9,912     8,214     18,574     13,280  
               
Diluted Earnings per Share $ 0.44     $ 0.37     $ 0.83     $ 0.60  
Diluted Weighted Average Common Shares 22,137     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 amortization 17,731     21,061  
Impairment 2,771     186  
Other, net 12,033     12,281  
Changes in assets and liabilities      
Inventories 76,495     (133,929 )
Manufacturer floorplan payable (46,466 )   113,632  
Other working capital (20,324 )   (34,800 )
Net Cash Provided by (Used for) Operating Activities 60,814     (8,289 )
Investing Activities      
Property and equipment purchases (16,205 )   (20,402 )
Proceeds from sale of property and equipment 795     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 leases 909     18,668  
Other, net (909 )   (509 )
Net Cash Provided by (Used for) Financing Activities (40,779 )   34,902  
Effect of Exchange Rate Changes on Cash 268     (183 )
Net Change in Cash (1,913 )   (4,325 )
Cash at Beginning of Period 43,721     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%
Construction 79,030     78,031     1.3%   216,862     232,813     (6.9)%
International 61,217     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%
Construction 1,448     347     n/m   (50 )   (541 )   90.8%
International (2,424 )   2,061     n/m   (3,136 )   2,783     n/m
Segment income before income taxes 12,599     12,667     (0.5)%   23,304     20,554     13.4%
Shared Resources 1,225     (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.