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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 April 30, 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 |
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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 |
☐ |
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Accelerated filer |
☒ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
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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 May 29, 2020, 22,313,893 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. |
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PART I. |
FINANCIAL INFORMATION
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ITEM 1. |
FINANCIAL STATEMENTS
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Consolidated Balance Sheets |
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Consolidated Statements of Operations |
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Consolidated Statements of Comprehensive Income |
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Consolidated Statements of Stockholders' Equity |
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Consolidated Statements of Cash Flows |
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Notes to Consolidated Financial Statements
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ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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ITEM 4. |
CONTROLS AND PROCEDURES
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PART II. |
OTHER INFORMATION
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ITEM 1. |
LEGAL PROCEEDINGS
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ITEM 1A. |
RISK FACTORS
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ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
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ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES
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ITEM 4. |
MINE SAFETY DISCLOSURES
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ITEM 5. |
OTHER INFORMATION
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ITEM 6. |
EXHIBITS
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Exhibit Index |
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Signatures |
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PART I. — FINANCIAL INFORMATION
ITEM
1.
FINANCIAL STATEMENTS
TITAN MACHINERY INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share data)
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April 30, 2020 |
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January 31, 2020 |
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Assets |
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Current Assets |
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Cash |
$ |
50,835 |
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$ |
43,721 |
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Receivables, net of allowance for expected credit
losses |
76,430 |
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72,776 |
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Inventories |
583,435 |
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597,394 |
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Prepaid expenses and other |
10,626 |
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13,655 |
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Total current assets |
721,326 |
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727,546 |
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Noncurrent Assets |
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Property and equipment, net of accumulated depreciation |
148,293 |
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145,562 |
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Operating lease assets |
84,577 |
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88,281 |
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Deferred income taxes |
3,783 |
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2,147 |
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Goodwill |
2,311 |
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2,327 |
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Intangible assets, net of accumulated amortization |
8,318 |
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8,367 |
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Other |
1,131 |
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1,113 |
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Total noncurrent assets |
248,413 |
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247,797 |
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Total Assets |
$ |
969,739 |
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$ |
975,343 |
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Liabilities and Stockholders' Equity |
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Current Liabilities |
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Accounts payable |
$ |
23,119 |
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$ |
16,976 |
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Floorplan payable |
378,302 |
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371,772 |
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Current maturities of long-term debt |
3,787 |
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13,779 |
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Current operating lease liabilities |
12,320 |
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12,259 |
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Deferred revenue |
29,163 |
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40,968 |
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Accrued expenses and other |
30,726 |
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38,409 |
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Total current liabilities |
477,417 |
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494,163 |
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Long-Term Liabilities |
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Long-term debt, less current maturities |
49,522 |
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37,789 |
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Operating lease liabilities |
84,499 |
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88,387 |
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Deferred income taxes |
3,808 |
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2,055 |
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Other long-term liabilities |
7,415 |
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7,845 |
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Total long-term liabilities |
145,244 |
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136,076 |
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Commitments and Contingencies |
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Stockholders' Equity |
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Common stock, par value $.00001 per share, 45,000 shares
authorized; 22,314 shares issued and outstanding at April 30, 2020;
22,335 shares issued and outstanding at January 31,
2020 |
— |
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— |
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Additional paid-in-capital |
251,051 |
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250,607 |
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Retained earnings |
99,775 |
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97,717 |
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Accumulated other comprehensive loss |
(3,748) |
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(3,220) |
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Total stockholders' equity |
347,078 |
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345,104 |
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Total Liabilities and Stockholders' Equity |
$ |
969,739 |
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$ |
975,343 |
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See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
|
|
|
|
|
2020 |
|
2019 |
|
Revenue |
|
|
|
|
|
|
|
|
Equipment |
|
|
|
|
$ |
218,505 |
|
|
$ |
193,956 |
|
|
Parts |
|
|
|
|
56,614 |
|
|
51,938 |
|
|
Service |
|
|
|
|
25,600 |
|
|
22,831 |
|
|
Rental and other |
|
|
|
|
9,489 |
|
|
9,567 |
|
|
Total Revenue |
|
|
|
|
310,208 |
|
|
278,292 |
|
|
Cost of Revenue |
|
|
|
|
|
|
|
|
Equipment |
|
|
|
|
197,046 |
|
|
173,154 |
|
|
Parts |
|
|
|
|
39,617 |
|
|
36,814 |
|
|
Service |
|
|
|
|
8,345 |
|
|
7,483 |
|
|
Rental and other |
|
|
|
|
6,790 |
|
|
6,941 |
|
|
Total Cost of Revenue |
|
|
|
|
251,798 |
|
|
224,392 |
|
|
Gross Profit |
|
|
|
|
58,410 |
|
|
53,900 |
|
|
Operating Expenses |
|
|
|
|
53,058 |
|
|
52,555 |
|
|
|
|
|
|
|
|
|
|
Impairment of Long-Lived Assets |
|
|
|
|
216 |
|
|
135 |
|
|
|
|
|
|
|
|
|
|
Income from Operations |
|
|
|
|
5,136 |
|
|
1,210 |
|
|
Other Income (Expense) |
|
|
|
|
|
|
|
|
Interest and other income |
|
|
|
|
130 |
|
|
794 |
|
|
Floorplan interest expense |
|
|
|
|
(1,152) |
|
|
(877) |
|
|
Other interest expense |
|
|
|
|
(966) |
|
|
(1,642) |
|
|
Income (Loss) Before Income Taxes |
|
|
|
|
3,148 |
|
|
(515) |
|
|
Provision for (Benefit from) Income Taxes |
|
|
|
|
886 |
|
|
(70) |
|
|
Net Income (Loss) |
|
|
|
|
$ |
2,262 |
|
|
$ |
(445) |
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share: |
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
$ |
0.10 |
|
|
$ |
(0.02) |
|
|
Diluted |
|
|
|
|
$ |
0.10 |
|
|
$ |
(0.02) |
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares: |
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
22,012 |
|
|
21,872 |
|
|
Diluted |
|
|
|
|
22,012 |
|
|
21,872 |
|
See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
|
|
|
|
|
2020 |
|
2019 |
|
Net Income (Loss) |
|
|
|
|
$ |
2,262 |
|
|
$ |
(445) |
|
|
Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
|
|
(528) |
|
|
(771) |
|
|
Comprehensive Income (Loss) |
|
|
|
|
$ |
1,734 |
|
|
$ |
(1,216) |
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
|
2020 |
|
2019 |
|
Operating Activities |
|
|
|
|
Net income (loss) |
$ |
2,262 |
|
|
$ |
(445) |
|
|
Adjustments to reconcile net income (loss) to net cash provided by
(used for) operating activities |
|
|
|
|
Depreciation and amortization |
5,375 |
|
|
6,064 |
|
|
Impairment |
216 |
|
|
135 |
|
|
Deferred income taxes |
117 |
|
|
(316) |
|
|
Stock-based compensation expense |
645 |
|
|
603 |
|
|
Noncash interest expense |
27 |
|
|
401 |
|
|
Noncash lease expense |
2,833 |
|
|
3,062 |
|
|
|
|
|
|
Other, net |
(54) |
|
|
11 |
|
|
Changes in assets and liabilities |
|
|
|
|
Receivables, prepaid expenses and other assets |
(1,125) |
|
|
(5,593) |
|
|
Inventories |
11,941 |
|
|
(78,254) |
|
|
Manufacturer floorplan payable |
(10,669) |
|
|
89,599 |
|
|
Accounts payable, deferred revenue, accrued expenses and other and
other long-term liabilities |
(13,919) |
|
|
(9,289) |
|
|
|
|
|
|
Operating lease liabilities |
(3,091) |
|
|
(3,126) |
|
|
Net Cash Provided by (Used for) Operating Activities |
(5,442) |
|
|
2,852 |
|
|
Investing Activities |
|
|
|
|
Rental fleet purchases |
(3,378) |
|
|
(3,886) |
|
|
Property and equipment purchases (excluding rental
fleet) |
(2,036) |
|
|
(1,604) |
|
|
Proceeds from sale of property and equipment |
313 |
|
|
416 |
|
|
Acquisition consideration, net of cash acquired |
— |
|
|
(2,972) |
|
|
Other, net |
(21) |
|
|
8 |
|
|
Net Cash Used for Investing Activities |
(5,122) |
|
|
(8,038) |
|
|
Financing Activities |
|
|
|
|
Net change in non-manufacturer floorplan payable |
18,781 |
|
|
12,772 |
|
|
|
|
|
|
Proceeds from long-term debt borrowings |
1,112 |
|
|
373 |
|
|
Principal payments on long-term debt and finance leases |
(1,309) |
|
|
(878) |
|
|
Payment of debt issuance costs |
(670) |
|
|
— |
|
|
Other, net |
(200) |
|
|
(492) |
|
|
Net Cash Provided by Financing Activities |
17,714 |
|
|
11,775 |
|
|
Effect of Exchange Rate Changes on Cash |
(36) |
|
|
(3) |
|
|
Net Change in Cash |
7,114 |
|
|
6,586 |
|
|
Cash at Beginning of Period |
43,721 |
|
|
56,745 |
|
|
Cash at End of Period |
$ |
50,835 |
|
|
$ |
63,331 |
|
|
Supplemental Disclosures of Cash Flow Information |
|
|
|
|
Cash paid during the period |
|
|
|
|
Income taxes, net of refunds |
$ |
365 |
|
|
$ |
517 |
|
|
Interest |
$ |
2,262 |
|
|
$ |
1,712 |
|
|
Supplemental Disclosures of Noncash Investing and Financing
Activities |
|
|
|
|
Net property and equipment financed with long-term debt, finance
leases, accounts payable and accrued liabilities |
$ |
2,085 |
|
|
$ |
5,861 |
|
|
Net transfer of assets from (to) property and equipment to (from)
inventories |
$ |
(888) |
|
|
$ |
(371) |
|
|
|
|
|
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 three-month period ended April 30, 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.
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 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 ASU 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.
Following is a summary of allowance for credit losses on trade and
unbilled accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 1, 2020 |
|
Current Expected Credit Loss Provision |
|
Write-offs Charged Against the Allowance |
|
Credit Loss Recoveries Collected |
|
F/X Impact |
|
Balance at April 30, 2020 |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Agriculture |
$ |
181 |
|
|
$ |
14 |
|
|
$ |
5 |
|
|
$ |
40 |
|
|
$ |
— |
|
|
$ |
230 |
|
|
Construction |
1,016 |
|
|
113 |
|
|
71 |
|
|
4 |
|
|
— |
|
|
1,062 |
|
|
International |
1,746 |
|
|
226 |
|
|
133 |
|
|
6 |
|
|
(29) |
|
|
1,816 |
|
|
|
$ |
2,943 |
|
|
$ |
353 |
|
|
$ |
209 |
|
|
$ |
50 |
|
|
$ |
(29) |
|
|
$ |
3,108 |
|
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 ASU did not have a material impact on the
Company's consolidated financial statements.
Unadopted Accounting Guidance
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 April 30, |
|
|
|
|
|
|
|
|
2020 |
|
2019 |
|
|
|
|
|
|
(in thousands, except per share data) |
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
$ |
2,262 |
|
|
$ |
(445) |
|
|
Allocation to participating securities |
|
|
|
|
(32) |
|
|
— |
|
|
Net income (loss) attributable to Titan Machinery Inc. common
stockholders |
|
|
|
|
$ |
2,230 |
|
|
$ |
(445) |
|
|
Denominator: |
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding |
|
|
|
|
22,012 |
|
|
21,872 |
|
|
Plus: incremental shares from vesting of restricted stock
units |
|
|
|
|
— |
|
|
— |
|
|
Diluted weighted-average common shares outstanding |
|
|
|
|
22,012 |
|
|
21,872 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Share: |
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
$ |
0.10 |
|
|
$ |
(0.02) |
|
|
Diluted |
|
|
|
|
$ |
0.10 |
|
|
$ |
(0.02) |
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from diluted weighted-average common
shares outstanding: |
|
|
|
|
|
|
|
|
Restricted stock units |
|
|
|
|
9 |
|
|
8 |
|
|
Shares underlying senior convertible notes |
|
|
|
|
— |
|
|
1,057 |
|
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 April 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture |
|
Construction |
|
International |
|
Total |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment |
$ |
139,749 |
|
|
$ |
34,253 |
|
|
$ |
44,503 |
|
|
$ |
218,505 |
|
|
|
|
|
|
|
|
|
|
Parts |
35,079 |
|
|
11,460 |
|
|
10,075 |
|
|
56,614 |
|
|
|
|
|
|
|
|
|
|
Service |
17,720 |
|
|
6,212 |
|
|
1,668 |
|
|
25,600 |
|
|
|
|
|
|
|
|
|
|
Other |
733 |
|
|
518 |
|
|
104 |
|
|
1,355 |
|
|
|
|
|
|
|
|
|
|
Revenue from contracts with customers
|
193,281 |
|
|
52,443 |
|
|
56,350 |
|
|
302,074 |
|
|
|
|
|
|
|
|
|
|
Rental |
346 |
|
|
7,671 |
|
|
117 |
|
|
8,134 |
|
|
|
|
|
|
|
|
|
|
Total revenues |
$ |
193,627 |
|
|
$ |
60,114 |
|
|
$ |
56,467 |
|
|
$ |
310,208 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture |
|
Construction |
|
International |
|
Total |
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Equipment |
|
|
|
|
|
|
|
|
$ |
107,864 |
|
|
$ |
43,046 |
|
|
$ |
43,046 |
|
|
$ |
193,956 |
|
|
Parts |
|
|
|
|
|
|
|
|
29,976 |
|
|
12,704 |
|
|
9,258 |
|
|
51,938 |
|
|
Service |
|
|
|
|
|
|
|
|
14,985 |
|
|
6,521 |
|
|
1,325 |
|
|
22,831 |
|
|
Other |
|
|
|
|
|
|
|
|
618 |
|
|
593 |
|
|
22 |
|
|
1,233 |
|
|
Revenue from contracts with customers
|
|
|
|
|
|
|
|
|
153,443 |
|
|
62,864 |
|
|
53,651 |
|
|
269,958 |
|
|
Rental |
|
|
|
|
|
|
|
|
332 |
|
|
7,879 |
|
|
123 |
|
|
8,334 |
|
|
Total revenues |
|
|
|
|
|
|
|
|
$ |
153,775 |
|
|
$ |
70,743 |
|
|
$ |
53,774 |
|
|
$ |
278,292 |
|
Unbilled Receivables and Deferred Revenue
Unbilled
receivables amounted to $17.1 million and $13.9 million as of
April 30, 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 $27.9 million and $39.5
million as of April 30, 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 three
months ended April 30, 2020 and 2019, the Company recognized
$29.7 million and $30.5 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 April 30,
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
Trade and unbilled receivables from contracts with
customers |
|
|
|
|
Trade receivables due from customers |
$ |
32,962 |
|
|
$ |
36,400 |
|
|
Trade receivables due from finance companies |
17,388 |
|
|
12,352 |
|
|
Unbilled receivables |
17,076 |
|
|
13,944 |
|
|
Trade and unbilled receivables from rental contracts |
|
|
|
|
Trade receivables |
5,581 |
|
|
7,381 |
|
|
Unbilled receivables |
741 |
|
|
861 |
|
|
Other receivables |
|
|
|
|
Due from manufacturers |
6,565 |
|
|
5,763 |
|
|
Other |
1,346 |
|
|
1,198 |
|
|
Total receivables |
81,659 |
|
|
77,899 |
|
|
Less allowance for expected credit losses |
(5,229) |
|
|
(5,123) |
|
|
Receivables, net of allowance for expected credit
losses |
$ |
76,430 |
|
|
$ |
72,776 |
|
The following table
presents impairment losses on receivables arising from sales
contracts with customers and receivables arising from rental
contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
|
|
|
|
|
2020 |
|
2019 |
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Impairment losses on: |
|
|
|
|
|
|
|
|
Receivables from sales contracts |
$ |
143 |
|
|
$ |
328 |
|
|
|
|
|
|
Receivables from rental contracts |
138 |
|
|
83 |
|
|
|
|
|
|
|
$ |
281 |
|
|
$ |
411 |
|
|
|
|
|
NOTE 5 - INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
New equipment |
$ |
346,703 |
|
|
$ |
358,339 |
|
|
Used equipment |
154,538 |
|
|
157,535 |
|
|
Parts and attachments |
80,294 |
|
|
79,813 |
|
|
Work in process |
1,900 |
|
|
1,707 |
|
|
|
$ |
583,435 |
|
|
$ |
597,394 |
|
NOTE 6 - PROPERTY AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
Rental fleet equipment |
$ |
104,888 |
|
|
$ |
104,133 |
|
|
Machinery and equipment |
22,773 |
|
|
22,682 |
|
|
Vehicles |
51,837 |
|
|
51,850 |
|
|
Furniture and fixtures |
42,043 |
|
|
41,720 |
|
|
Land, buildings, and leasehold improvements |
72,407 |
|
|
70,408 |
|
|
|
293,948 |
|
|
290,793 |
|
|
Less accumulated depreciation |
(145,655) |
|
|
(145,231) |
|
|
|
$ |
148,293 |
|
|
$ |
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 April 30, 2020, the Company determined that a
current period operating loss combined with historical losses of
certain store locations indicated that the long-lived asset group
of the store locations may not be recoverable. The Company
performed an impairment assessment of this asset group and as a
result recognized an impairment charge of $0.2 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 currently anticipates a pilot store to be on the new ERP
system in the second quarter of the current fiscal year and all
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 ERP asset of $1.8 million as of April 30, 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 with a group of banks (the "Bank Syndicate"), that
amended and restated the Company's prior $200.0 million credit
facility, dated October 28, 2015. The Bank Syndicate 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 are subject to base calculations and
reduced by outstanding standby letters of credit and certain
reserves. The Bank Syndicate 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%, (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
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 are up to 0.5% less than the existing margins under the
prior credit facility.
The Bank Syndicate does not obligate the Company to maintain
financial covenants, except in the event that excess availability
(each as defined in the Bank Syndicate) 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 (“FCCR”) of at least 1.10:1.00. The Bank Syndicate
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 matures on April 3,
2025.
The Floorplan Loan under the Bank Syndicate 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 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 April 30, 2020, the Company had floorplan lines of
credit totaling $762.0 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 with the Bank Syndicate, and (iii) a $60.0 million credit
facility with DLL Finance LLC.
As of April 30, 2020 and January 31, 2020, the Company's
outstanding balances of floorplan payables and lines of credit
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
CNH Industrial |
$ |
179,602 |
|
|
$ |
187,690 |
|
|
Bank Syndicate Floorplan Loan |
102,900 |
|
|
— |
|
|
Wells Fargo Floorplan Payable Line |
— |
|
|
82,700 |
|
|
DLL Finance |
30,198 |
|
|
30,657 |
|
|
Other outstanding balances with manufacturers and
non-manufacturers |
65,602 |
|
|
70,725 |
|
|
|
$ |
378,302 |
|
|
$ |
371,772 |
|
As of
April 30, 2020, the interest-bearing U.S. floorplan payables
carried various interest rates ranging primarily from 2.52% to
4.12%, compared to a range of 4.05% to 4.81% as of January 31,
2020. As of April 30, 2020, foreign floorplan payables carried
various interest rates primarily ranging from 0.98% to 6.33%,
compared to a range of 0.86% to 7.66% as of January 31, 2020.
As of April 30, 2020 and January 31, 2020, $201.9 million
and $205.2 million, respectively, of outstanding floorplan payable
were non-interest bearing. As of April 30, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
Deferred revenue from contracts with customers |
$ |
27,889 |
|
|
$ |
39,512 |
|
|
Deferred revenue from rental and other contracts |
1,274 |
|
|
1,456 |
|
|
|
$ |
29,163 |
|
|
$ |
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.
The Company recognized interest expense associated with its senior
convertible notes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
|
|
|
|
|
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 |
|
The effective interest rate of the liability component was equal to
0.0% for the three months ended April 30, 2019.
NOTE 10 - LONG TERM DEBT
The following is a
summary of long-term debt as of April 30, 2020 and
January 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 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 |
$ |
17,469 |
|
|
$ |
17,781 |
|
|
Bank Syndicate - 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 |
6,827 |
|
|
6,827 |
|
|
Equipment financing loan, payable in monthly installments over a
72-month term for each funded tranche, bearing interest at 3.89%,
secured by vehicle assets |
7,350 |
|
|
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 |
4,366 |
|
|
4,416 |
|
|
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 |
1,474 |
|
|
1,489 |
|
|
Real estate mortgage bearing interest at 2.09%, payable in monthly
installments, maturing on June 30, 2026, secured by real estate
assets |
2,396 |
|
|
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 |
3,427 |
|
|
1,067 |
|
|
|
53,309 |
|
|
51,568 |
|
|
Less current maturities |
(3,787) |
|
|
(13,779) |
|
|
|
$ |
49,522 |
|
|
$ |
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
April 30, 2020 was $13.0 million.
As of
April 30, 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 months ended
April 30, 2020 and 2019. Gains and losses are recognized in
interest income and other income (expense) in the consolidated
statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
|
|
|
|
|
2020 |
|
2019 |
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Foreign currency contract gain (loss) |
$ |
(13) |
|
|
$ |
202 |
|
|
|
|
|
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
April 30, 2020 and April 30, 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification |
|
Three Months Ended April 30, 2020 |
|
Three Months Ended April 30, 2019 |
|
|
|
|
|
(in thousands) |
|
|
|
Finance lease cost: |
|
|
|
|
|
|
|
Amortization of leased assets |
|
Operating expenses |
|
|
$ |
392 |
|
|
$ |
376 |
|
|
Interest on lease liabilities |
|
Other interest expense |
|
|
126 |
|
|
139 |
|
|
Operating lease cost |
|
Operating expenses & rental and other cost of
revenue |
|
|
4,463 |
|
|
4,816 |
|
|
Short-term lease cost |
|
Operating expenses |
|
|
80 |
|
|
80 |
|
|
Variable lease cost |
|
Operating expenses |
|
|
635 |
|
|
620 |
|
|
Sublease income |
|
Interest income and other income (expense) |
|
|
(152) |
|
|
(168) |
|
|
|
|
|
|
$ |
5,544 |
|
|
$ |
5,863 |
|
Right-of-use lease
assets and lease liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification |
|
April 30, 2020 |
|
January 31, 2020 |
|
|
|
|
|
(in thousands) |
|
|
|
Assets |
|
|
|
|
|
|
|
Operating lease assets |
|
Operating lease assets |
|
$ |
84,577 |
|
|
$ |
88,281 |
|
|
Finance lease assets(a)
|
|
Property and equipment, net of accumulated depreciation |
|
6,002 |
|
|
6,297 |
|
|
Total leased assets |
|
|
|
$ |
90,579 |
|
|
$ |
94,578 |
|
|
Liabilities |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
Operating |
|
Current operating lease liabilities |
|
$ |
12,320 |
|
|
$ |
12,259 |
|
|
Finance |
|
Accrued expenses and other |
|
1,714 |
|
|
1,708 |
|
|
Noncurrent |
|
|
|
|
|
|
|
Operating |
|
Operating lease liabilities |
|
84,499 |
|
|
88,387 |
|
|
Finance |
|
Other long-term liabilities |
|
3,747 |
|
|
4,103 |
|
|
Total lease liabilities |
|
|
|
$ |
102,280 |
|
|
$ |
106,457 |
|
|
|
|
|
|
|
|
|
(a)Finance
lease assets are recorded net of accumulated amortization of $1.8
million as of April 30, 2020.
Maturities of lease
liabilities as of April 30, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
Finance |
|
|
|
|
|
Leases |
|
Leases |
|
Total |
|
Fiscal Year Ended January 31, |
|
(in thousands) |
|
|
|
|
|
2021 (remainder) |
|
$ |
13,393 |
|
|
$ |
1,609 |
|
|
$ |
15,002 |
|
|
2022 |
|
16,887 |
|
|
1,851 |
|
|
18,738 |
|
|
2023 |
|
15,748 |
|
|
1,206 |
|
|
16,954 |
|
|
2024 |
|
14,824 |
|
|
476 |
|
|
15,300 |
|
|
2025 |
|
13,691 |
|
|
393 |
|
|
14,084 |
|
|
2026 |
|
13,539 |
|
|
312 |
|
|
13,851 |
|
|
Thereafter |
|
33,624 |
|
|
1,083 |
|
|
34,707 |
|
|
Total lease payments |
|
121,706 |
|
|
6,930 |
|
|
128,636 |
|
|
Less: Interest |
|
24,887 |
|
|
1,469 |
|
|
26,356 |
|
|
Present value of lease liabilities |
|
$ |
96,819 |
|
|
$ |
5,461 |
|
|
$ |
102,280 |
|
The
weighted-average lease term and discount rate as of April 30,
2020 are as follows:
|
|
|
|
|
|
|
|
April 30, 2020 |
|
Weighted-average remaining lease term (years): |
|
|
Operating leases |
7.7 |
|
Financing leases |
5.3 |
|
Weighted-average discount rate: |
|
|
Operating leases |
6.1 |
% |
|
Financing leases |
9.8 |
% |
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 April 30, 2020 and
January 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
Rental fleet equipment |
$ |
104,888 |
|
|
$ |
104,133 |
|
|
Less accumulated depreciation |
39,814 |
|
|
42,076 |
|
|
|
$ |
65,074 |
|
|
$ |
62,057 |
|
NOTE 14 - FAIR VALUE MEASUREMENTS
As of April 30, 2020 and January 31, 2020, the fair value
of the Company's foreign currency contracts, which are either
assets or liabilities measured at fair value on a recurring basis,
was not material. These foreign currency contracts were valued
using a discounted cash flow analysis, an income approach,
utilizing readily observable market data as inputs, which is
classified as a Level 2 fair value measurement.
The Company also valued certain long-lived assets at fair value on
a non-recurring basis as of April 30, 2020 and
January 31, 2020 as part of its long-lived asset impairment
testing. The estimated fair value of such assets as of
April 30, 2020 and January 31, 2020 was $0.4 million
and $2.8 million, respectively. Fair value was estimated
through an income approach incorporating both observable and
unobservable inputs, and are deemed to be Level 3 fair value
inputs. The most significant unobservable inputs include forecasted
net cash generated from the use of the assets and the discount rate
applied to such cash flows to arrive at a fair value estimate. In
addition, in certain instances the Company estimated the fair value
of long-lived assets to approximate zero as no future cash flows
were assumed to be generated from the use of such assets and the
expected value to be realized upon disposition was deemed to be
nominal.
The Company also has financial instruments that are not recorded at
fair value in the consolidated balance sheets, including cash,
receivables, payables and long-term debt. The carrying amounts of
these financial instruments approximated their fair values as of
April 30, 2020 and January 31, 2020. Fair value of these
financial instruments was estimated based on Level 2 fair value
inputs.
NOTE 15 - INCOME TAXES
Our effective tax
rate was 28.1% for the three months ended April 30, 2020
compared to an effective tax rate of 13.6% for the three months
ended April 30, 2019. Our effective tax rate differs from the
domestic federal statutory tax rate due to the mix of domestic and
foreign income or losses and the impact of the recognition of
valuation allowances on our foreign deferred tax assets, including
net operating losses.
NOTE 16 - BUSINESS COMBINATIONS
On
January 1, 2019, the Company, through its German subsidiary,
acquired certain assets of ESB Agrartechnik GmbH ("ESB"). ESB is a
full-service agriculture equipment dealership in Eastern Germany.
Our acquisition of ESB further expanded our presence in the German
market. The total consideration transferred for the acquired
business was $3.0 million paid in cash. This acquisition was
recognized in the fiscal year ended January 31, 2020 as the
acquisition occurred within our International segment in which all
entities maintain a calendar year reporting period.
On October 1, 2019,
the Company acquired certain assets of Uglem-Ness Co. The acquired
business consists of one Case IH agriculture equipment store in
Northwood, North Dakota. The service area is contiguous to the
Company's existing locations in Grand Forks and Casselton, North
Dakota and Ada, Minnesota. The total consideration transferred for
the acquired business was $10.9 million paid in cash,
including the acquired real estate, which was finalized in January
2020 for $2.1 million.
In
connection with the acquisition, the Company acquired from CNH
Industrial and certain other manufacturers equipment and parts
inventory previously owned by Uglem-Ness Co. Upon acquiring such
inventories, the Company was offered floorplan financing by the
manufacturer. In total, the Company acquired inventory and
recognized a corresponding financing liability of $7.4 million. The
recognition of these inventories and the associated financing
liabilities are not included as part of the accounting for the
business combination.
Purchase Price Allocation
Each of the above acquisitions has been accounted for under the
acquisition method of accounting, which requires the Company to
estimate the acquisition date fair value of the assets acquired and
liabilities assumed. The accounting for all business combinations
was complete as of January 31, 2020. The following table presents
the aggregate purchase price allocations for all acquisitions
completed as of January 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020 |
|
|
|
|
(in thousands) |
|
Assets acquired: |
|
|
|
|
|
|
|
|
Receivables |
|
|
$ |
440 |
|
|
Inventories |
|
|
6,466 |
|
|
|
|
|
|
Property and equipment |
|
|
3,810 |
|
|
Intangible assets |
|
|
1,973 |
|
|
Goodwill |
|
|
1,198 |
|
|
|
|
|
|
|
|
|
13,887 |
|
|
|
|
|
|
|
Liabilities assumed: |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
Net assets acquired |
|
|
$ |
13,887 |
|
|
|
|
|
|
|
Goodwill recognized by segment: |
|
|
|
|
Agriculture |
|
|
$ |
699 |
|
|
Construction |
|
|
— |
|
|
International |
|
|
499 |
|
|
Goodwill expected to be deductible for tax purposes |
|
|
$ |
1,198 |
|
The recognition of
goodwill in the above business combinations arose from the
acquisition of an assembled workforce and anticipated synergies
expected to be realized. For the business combinations occurring
during the twelve months ended January 31, 2020, the Company
recognized a customer relationship intangible asset of $0.2
million, a non-competition intangible asset of $0.1 million,
and a distribution rights intangible asset of $1.6 million. The
customer relationship and non-competition assets will be amortized
over periods ranging from three to five years. The distribution
rights assets are indefinite-lived intangible assets not subject to
amortization. The Company estimated the fair value of the
intangible assets using a multi-period excess earnings model, an
income approach. Acquisition related costs were not material for
fiscal year ended January 31, 2020, and have been expensed as
incurred and recognized as operating expenses in the consolidated
statements of operations.
NOTE 17 - CONTINGENCIES
On October 11,
2017, the Romania Competition Council (“RCC”) initiated an
administrative investigation of the Romanian Association of
Manufacturers and Importers of Agricultural Machinery (“APIMAR”)
and all its members, including Titan Machinery Romania. The RCC's
investigation involves whether the APIMAR members engaged in
anti-competitive practices in their sales of agricultural machinery
not involving European Union ("EU") subvention funding programs, by
referring to the published sales prices governing EU subvention
funded transactions, which prices are mandatorily disclosed to and
published by AFIR, a Romanian government agency that oversees the
EU subvention funding programs in Romania. The investigation is in
a preliminary stage and the Company is currently unable to predict
its outcome or reasonably estimate any potential loss that may
result from the investigation.
The Company is also
engaged in other legal proceedings incidental to the normal course
of business. Due to their nature, such legal proceedings involve
inherent uncertainties, including but not limited to, court
rulings, negotiations between
affected parties and governmental intervention. Based upon the
information available to the Company and discussions with legal
counsel, it is the Company's opinion that the outcome of these
various legal actions and claims will not have a material impact on
the financial position, results of operations or cash flows. These
matters, however, are subject to many uncertainties, and the
outcome of any matter is not predictable with
assurance.
NOTE 18 - SEGMENT INFORMATION
The Company has three reportable segments: Agriculture,
Construction and International. Revenue between segments is
immaterial. The Company retains various unallocated
income/(expense) items and assets at the general corporate level,
which the Company refers to as “Shared Resources” in the table
below. Shared Resources assets primarily consist of cash and
property and equipment.
Certain financial information for each of the Company’s business
segments is set forth below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
|
|
|
|
|
2020 |
|
2019 |
|
|
|
|
|
|
(in thousands) |
|
|
|
Revenue |
|
|
|
|
|
|
|
|
Agriculture |
|
|
|
|
$ |
193,627 |
|
|
$ |
153,775 |
|
|
Construction |
|
|
|
|
60,114 |
|
|
70,743 |
|
|
International |
|
|
|
|
56,467 |
|
|
53,774 |
|
|
Total |
|
|
|
|
$ |
310,208 |
|
|
$ |
278,292 |
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
|
|
|
|
|
|
|
Agriculture |
|
|
|
|
$ |
6,162 |
|
|
$ |
1,876 |
|
|
Construction |
|
|
|
|
(2,873) |
|
|
(2,222) |
|
|
International |
|
|
|
|
(280) |
|
|
216 |
|
|
Segment income (loss) before income taxes |
|
|
|
|
3,009 |
|
|
(130) |
|
|
Shared Resources |
|
|
|
|
139 |
|
|
(385) |
|
|
Total |
|
|
|
|
$ |
3,148 |
|
|
$ |
(515) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 30, 2020 |
|
January 31, 2020 |
|
|
(in thousands) |
|
|
|
Total Assets |
|
|
|
|
Agriculture |
$ |
436,040 |
|
|
$ |
444,942 |
|
|
Construction |
272,402 |
|
|
275,645 |
|
|
International |
192,966 |
|
|
191,513 |
|
|
Segment assets |
901,408 |
|
|
912,100 |
|
|
Shared Resources |
68,331 |
|
|
63,243 |
|
|
Total |
$ |
969,739 |
|
|
$ |
975,343 |
|
NOTE 19 - SUBSEQUENT EVENTS
On January 31,
2020, the Company entered into a definitive purchase agreement to
acquire HorizonWest Inc., which owns a three store CaseIH
agriculture dealership complex in Scottsbluff and Sidney, Nebraska
and Torrington, Wyoming. In its most recent fiscal year,
HorizonWest generated revenue of approximately $26 million.
The Company closed on the acquisition on May 4, 2020. The total
purchase price was $6.9 million, which does not include the
$2.7 million of associated inventory that the Company
concurrently purchased from CNH Industrial under standard terms.
Due to the limited time since the date of the acquisition, it is
impracticable for the Company to make certain business combination
disclosures at this time as the Company is still gathering
information that is necessary for the required business combination
disclosures. The net assets acquired consist primarily of working
capital and fixed assets.
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with our
interim unaudited consolidated financial statements and related
notes included in Item 1 of Part I of this Quarterly Report,
and the audited consolidated financial statements and related notes
thereto and Management’s Discussion and Analysis of Financial
Condition and Results of Operations contained in our Annual Report
on Form 10-K for the fiscal year ended January 31,
2020.
Overview
We own and operate a network of full service agricultural and
construction equipment stores in the United States and Europe.
Based upon information provided to us by CNH Industrial N.V.
or its U.S. subsidiary CNH Industrial America, LLC, we are the
largest retail dealer of Case IH Agriculture equipment in the
world, the largest retail dealer of Case Construction equipment in
North America and a major retail dealer of New Holland Agriculture
and New Holland Construction equipment in the U.S. We operate our
business through three reportable segments: Agriculture,
Construction and International. Within each segment, we have four
principal sources of revenue: new and used equipment sales, parts
sales, service, and equipment rental and other
activities.
Demand for agricultural equipment and, to a lesser extent, parts
and service support, are impacted by agricultural commodity prices
and net farm income. Based on U.S. Department of Agriculture
publications, the most recent estimate of net farm income for
calendar year 2019 indicated an approximate 11.0% increase as
compared to calendar year 2018, and an approximate 3.3% increase in
net farm income for calendar year 2020, as compared to calendar
year 2019.
For the first quarter of fiscal 2021, our net income was $2.3
million, or $0.10 per diluted share, compared to a fiscal 2020
first quarter loss of $0.4 million, or $0.02 per diluted share. Our
adjusted diluted earnings per share was $0.15 for the first quarter
of fiscal 2021, compared to $0.02 for the first quarter of fiscal
2020. See the Non-GAAP Financial Measures section below for a
reconciliation of adjusted diluted earnings per share to diluted
earnings per share, the most comparable GAAP financial measure.
Significant factors impacting the quarterly comparisons
were:
•Revenue
in the first quarter of fiscal 2021 was 11.5% higher than the first
quarter of fiscal 2020. Increased revenue from equipment, parts and
service was offset by slightly lower rental and other revenue. The
higher revenue was driven by increased equipment, parts and service
revenue in our Agriculture segment. Some of the increase in the
Agriculture segment came from our Northwood location, which was
purchased in October 2019.
•Gross
profit margin in the first quarter of fiscal 2021 declined to
18.8%, compared to 19.4% for the first quarter of fiscal 2020. The
decline in gross profit margin was primarily the result of lower
equipment margins and a change in our revenue mix with more revenue
generated by our equipment business than our higher margin parts
and service businesses in the first quarter of fiscal 2021, as
compared to the first quarter last year.
•Floorplan
and other interest expense decreased a combined 15.9% in the first
quarter of fiscal 2021, as compared to the first quarter last year,
primarily due the repayment in full of our senior convertible notes
in the second quarter of fiscal 2020.
Impact of the COVID-19 Pandemic on the Company
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.
We believe that each of our business segments will be impacted by
the pandemic to varying degrees, although the actual impact will be
subject to many variables and uncertainties which are currently
unknown and outside of our control.
Agriculture
Overall, COVID-19 has created industry challenges such as lower
agriculture commodity prices as demand deterioration and supply
chain disruptions are affecting areas such as ethanol, livestock
and international trade. We believe that the existing and
anticipated lower commodity prices will reduce our equipment sales,
but it is difficult to estimate the extent and timing of this
impact given all the variables and uncertainties. We believe our
parts and service business will be less impacted, as our customers
will be experiencing similar levels of wear and tear on their
equipment. Also offsetting some of the challenges in the
agriculture industry, will be government support programs for our
farm customers, such as the recently announced $16 billion
Coronavirus Food Assistance Program (CFAP).
Construction
We believe all revenue categories of equipment, parts, service and
rental will be impacted in this segment, with such effects
continuing so long as pandemic related macroeconomic stress and
uncertainties persist. Examples of such macroeconomic stress
include: lower oil prices, higher unemployment, lower GDP, and
reduced government spending on infrastructure projects. All of
these factors we believe will lead to lower overall U.S.
construction spending.
International
In addition to the industry challenges indicated for our
Agriculture Segment, International is also being impacted by border
shutdowns, timing of equipment shipments and more stringent
in-country pandemic regulations. We believe all revenue categories
in this segment will experience greater negative impacts than our
Agriculture Segment because of these additional challenges along
with the general lack of government support programs to our
International farm customers.
Acquisitions
Fiscal 2020
On October 1, 2019,
we acquired certain assets of Uglem-Ness Co., a single Case IH
agriculture equipment store in Northwood, North Dakota. The
acquisition continues our strategy of acquiring dealerships in
agriculture markets contiguous to our current North American
agriculture stores. The service area of Uglem-Ness is contiguous to
our existing locations in Grand Forks and Casselton, North Dakota
and Ada, Minnesota. The total consideration paid in the acquisition
was $10.9 million, which the Company financed through available
cash resources and capacity under our existing floorplan payable
and other credit facilities. The Northwood, ND dealership is
included within our Agriculture segment.
ERP Transition
The Company is in the process of converting to a new Enterprise
Resource Planning ("ERP") application. The new ERP application is
expected to provide data-driven and mobile-enabled sales and
support tools to improve employee efficiency and deliver an
enhanced customer experience. The Company currently anticipates a
pilot store to be on the new ERP system in the second quarter of
the current fiscal year and all 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.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are included in the
Management's Discussion and Analysis of Financial Condition and
Results of Operations
section of our Annual Report on Form 10-K for the fiscal year ended
January 31, 2020. Other than the adoption of the accounting
standard for current expected credit loss and the standard for
cloud computing described in Note 1 to our consolidated financial
statements in this Quarterly Report on Form 10-Q, there have been
no changes in our critical accounting policies since
January 31, 2020.
Results of Operations
The results presented below include the operating results of any
acquisition made during these periods as well as the operating
results of any stores closed during these periods, up to the date
of the store closure. The period-to-period comparisons included
below are not necessarily indicative of future results. Segment
information is provided later in the discussion and analysis of our
results of operations.
Same-store sales for any period represent sales by stores that were
part of the Company for the entire comparable period in the current
and preceding fiscal years. We do not distinguish between relocated
or recently expanded stores in this
same-store analysis. Closed stores are excluded from the same-store
analysis. Stores that do not meet the criteria for same-store
classification are described as excluded stores throughout the
Results of Operations section in this Quarterly Report on
Form 10-Q.
Comparative financial data for each of our four sources of revenue
are expressed below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
|
|
|
|
|
2020 |
|
2019 |
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
Equipment |
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
$ |
218,505 |
|
|
$ |
193,956 |
|
|
Cost of revenue |
|
|
|
|
197,046 |
|
|
173,154 |
|
|
Gross profit |
|
|
|
|
$ |
21,459 |
|
|
$ |
20,802 |
|
|
Gross profit margin |
|
|
|
|
9.8 |
% |
|
10.7 |
% |
|
Parts |
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
$ |
56,614 |
|
|
$ |
51,938 |
|
|
Cost of revenue |
|
|
|
|
39,617 |
|
|
36,814 |
|
|
Gross profit |
|
|
|
|
$ |
16,997 |
|
|
$ |
15,124 |
|
|
Gross profit margin |
|
|
|
|
30.0 |
% |
|
29.1 |
% |
|
Service |
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
$ |
25,600 |
|
|
$ |
22,831 |
|
|
Cost of revenue |
|
|
|
|
8,345 |
|
|
7,483 |
|
|
Gross profit |
|
|
|
|
$ |
17,255 |
|
|
$ |
15,348 |
|
|
Gross profit margin |
|
|
|
|
67.4 |
% |
|
67.2 |
% |
|
Rental and other |
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
$ |
9,489 |
|
|
$ |
9,567 |
|
|
Cost of revenue |
|
|
|
|
6,790 |
|
|
6,941 |
|
|
Gross profit |
|
|
|
|
$ |
2,699 |
|
|
$ |
2,626 |
|
|
Gross profit margin |
|
|
|
|
28.4 |
% |
|
27.4 |
% |
The following table sets forth our statements of operations data
expressed as a percentage of total revenue for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
|
|
|
|
|
2020 |
|
2019 |
|
Revenue |
|
|
|
|
|
|
|
|
Equipment |
|
|
|
|
70.4 |
% |
|
69.7 |
% |
|
Parts |
|
|
|
|
18.3 |
% |
|
18.7 |
% |
|
Service |
|
|
|
|
8.3 |
% |
|
8.2 |
% |
|
Rental and other |
|
|
|
|
3.1 |
% |
|
3.4 |
% |
|
Total Revenue |
|
|
|
|
100.0 |
% |
|
100.0 |
% |
|
Total Cost of Revenue |
|
|
|
|
81.2 |
% |
|
80.6 |
% |
|
Gross Profit Margin |
|
|
|
|
18.8 |
% |
|
19.4 |
% |
|
Operating Expenses |
|
|
|
|
17.1 |
% |
|
18.9 |
% |
|
|
|
|
|
|
|
|
|
Impairment of Intangible and Long-Lived Assets |
|
|
|
|
0.1 |
% |
|
— |
% |
|
Restructuring Costs |
|
|
|
|
— |
% |
|
— |
% |
|
Income from Operations |
|
|
|
|
1.7 |
% |
|
0.4 |
% |
|
Other Income (Expense) |
|
|
|
|
(0.6) |
% |
|
(0.6) |
% |
|
Income Before Income Taxes |
|
|
|
|
1.0 |
% |
|
(0.2) |
% |
|
Provision for Income Taxes |
|
|
|
|
0.3 |
% |
|
— |
% |
|
Net Income |
|
|
|
|
0.7 |
% |
|
(0.2) |
% |
Three Months Ended April 30, 2020 Compared to Three Months
Ended April 30, 2019
Consolidated Results
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended April 30, |
|
|
|
Increase/ |
|
Percent |
|
|
2020 |
|
2019 |
|
(Decrease) |
|
Change |
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
Equipment |
$ |
218,505 |
|
|
$ |
193,956 |
|
|
$ |
24,549 |
|
|
12.7 |
% |
|
Parts |
56,614 |
|
|
51,938 |
|
|
4,676 |
|
|
9.0 |
% |
|
Service |
25,600 |
|
|
22,831 |
|
|
2,769 |
|
|
12.1 |
% |
|
Rental and other |
9,489 |
|
|
9,567 |
|
|
(78) |
|
|
(0.8) |
% |
|
Total Revenue |
$ |
310,208 |
|
|
$ |