Titan Machinery Earnings 2020-07-31

Balance Sheet	Income Statement	Cash Flow
Assets, Equity	Rev, G Profit, Net Income	Ops, Inv, Fin

titn-20200731

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2020

☐ 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)


Delaware						45-0357838
(State or Other Jurisdiction of Incorporation or Organization)						(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:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value per share	TITN	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

As of August 31, 2020, 22,533,401 shares of Common Stock, $0.00001 par value, of the registrant were outstanding.

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TITAN MACHINERY INC.

QUARTERLY REPORT ON FORM 10-Q

Table of Contents


		Page No.
PART I.	FINANCIAL INFORMATION	3
ITEM 1.	FINANCIAL STATEMENTS	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Stockholders' Equity	6
	Consolidated Statements of Cash Flows	7
	Notes to Consolidated Financial Statements	8
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	38
ITEM 4.	CONTROLS AND PROCEDURES	38
PART II.	OTHER INFORMATION	39
ITEM 1.	LEGAL PROCEEDINGS	39
ITEM 1A.	RISK FACTORS	39
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	39
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	39
ITEM 4.	MINE SAFETY DISCLOSURES	39
ITEM 5.	OTHER INFORMATION	39
ITEM 6.	EXHIBITS	39
Exhibit Index		40
Signatures		41

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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)


	July 31, 2020		January 31, 2020

Assets
Current Assets
Cash	$	44,484	$	43,721
Receivables, net of allowance for expected credit losses	75,782		72,776
Inventories	570,680		597,394
Prepaid expenses and other	7,144		13,655


Total current assets	698,090		727,546
Noncurrent Assets
Property and equipment, net of accumulated depreciation	150,496		145,562
Operating lease assets	83,586		88,281
Deferred income taxes	3,337		2,147
Goodwill	2,818		2,327
Intangible assets, net of accumulated amortization	8,568		8,367
Other	1,130		1,113
Total noncurrent assets	249,935		247,797
Total Assets	$	948,025	$	975,343

Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	20,734	$	16,976
Floorplan payable	352,215		371,772

Current maturities of long-term debt	3,921		13,779
Current operating lease liabilities	12,158		12,259
Deferred revenue	22,716		40,968
Accrued expenses and other	38,122		38,409

Total current liabilities	449,866		494,163
Long-Term Liabilities
Long-term debt, less current maturities	48,665		37,789
Operating lease liabilities	83,341		88,387
Deferred income taxes	2,301		2,055
Other long-term liabilities	9,060		7,845
Total long-term liabilities	143,367		136,076
Commitments and Contingencies
Stockholders' Equity
Common stock, par value $.00001 per share, $45,000 shares authorized; $22,553 shares issued and outstanding at July 31, 2020; $22,335 shares issued and outstanding at January 31, 2020	—		—
Additional paid-in-capital	251,587		250,607
Retained earnings	106,175		97,717
Accumulated other comprehensive loss	(2,970)		(3,220)
Total stockholders' equity	354,792		345,104
Total Liabilities and Stockholders' Equity	$	948,025	$	975,343

See Notes to Consolidated Financial Statements

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TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)


	Three Months Ended July 31,						Six Months Ended July 31,
	2020		2019		2020		2019
Revenue
Equipment	$	202,654	$	214,435	$	421,159	$	408,390
Parts	61,454		59,202		118,068		111,140
Service	27,986		26,832		53,586		49,662
Rental and other	11,371		14,512		20,860		24,079
Total Revenue	303,465		314,981		613,673		593,271
Cost of Revenue
Equipment	180,231		190,707		377,278		363,861
Parts	43,032		41,732		82,649		78,546
Service	9,665		8,737		18,010		16,219
Rental and other	7,849		9,778		14,636		16,719
Total Cost of Revenue	240,777		250,954		492,573		475,345
Gross Profit	62,688		64,027		121,100		117,926
Operating Expenses	53,079		54,855		106,137		107,410

Impairment of Long-Lived Assets	—		—		216		135

Income from Operations	9,609		9,172		14,747		10,381
Other Income (Expense)
Interest and other income	562		620		692		1,414
Floorplan interest expense	(901)		(1,399)		(2,054)		(2,276)
Other interest expense	(978)		(966)		(1,944)		(2,607)
Income Before Income Taxes	8,292		7,427		11,441		6,912
Provision for Income Taxes	1,892		1,916		2,779		1,846
Net Income	$	6,400	$	5,511	$	8,662	$	5,066

Earnings per Share:
Basic	$	0.28	$	0.25	$	0.39	$	0.23
Diluted	$	0.28	$	0.25	$	0.39	$	0.23

Weighted Average Common Shares:
Basic	22,118		21,960		22,068		21,917
Diluted	22,119		21,964		22,068		21,922

See Notes to Consolidated Financial Statements

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TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	Three Months Ended July 31,						Six Months Ended July 31,
	2020		2019		2020		2019
Net Income	$	6,400	$	5,511	$	8,662	$	5,066
Other Comprehensive Income
Foreign currency translation adjustments	778		1,012		250		241
Comprehensive Income	$	7,178	$	6,523	$	8,912	$	5,307

See Notes to Consolidated Financial Statements

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TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)

(in thousands)


	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Shares Outstanding	Amount
BALANCE, January 31, 2019	22,218	$	—	$	248,423	$	89,228	$	(2,340)	$	335,311
Cumulative-effect adjustment of adopting ASC 842, Leases	—	—		—		(5,464)		—		(5,464)
Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax	(34)	—		(492)		—		—		(492)
Stock-based compensation expense	—	—		603		—		—		603
Net loss	—	—		—		(445)		—		(445)
Other comprehensive loss	—	—		—		—		(771)		(771)
BALANCE, April 30, 2019	22,184	$	—	$	248,534	$	83,319	$	(3,111)	$	328,742
Cumulative-effect adjustment of adopting ASC 842, Leases	—	—		—		—		—		—
Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax	170	—		—		—		—		—
Stock-based compensation expense	—	—		694		—		—		694
Net Income	—	—		—		5,511		—		5,511
Other comprehensive Income	—	—		—		—		1,012		1,012
BALANCE, July 31, 2019	22,354	—		249,228		88,830		(2,099)		335,959


	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Stockholders' Equity
	Shares Outstanding	Amount
BALANCE, January 31, 2020	22,335	$	—	$	250,607	$	97,717	$	(3,220)	$	345,104
Cumulative-effect adjustment of adopting ASC 326, Credit Loss	—	—		—		(204)		—		(204)
Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax	(21)	—		(201)		—		—		(201)
Stock-based compensation expense	—	—		645		—		—		645
Net income	—	—		—		2,262		—		2,262
Other comprehensive loss	—	—		—		—		(528)		(528)
BALANCE, April 30, 2020	22,314	$	—	$	251,051	$	99,775	$	(3,748)	$	347,078
Cumulative-effect adjustment of adopting ASC 326, Credit Loss	—	—		—		—		—		—
Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax	239	—		—		—		—		—
Stock-based compensation expense	—	—		536		—		—		536
Net income	—	—		—		6,400		—		6,400
Other comprehensive income	—	—		—		—		778		778
BALANCE, July 31, 2020	22,553	—		251,587		106,175		(2,970)		354,792

See Notes to Consolidated Financial Statements

TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Six Months Ended July 31,
	2020		2019
Operating Activities
Net income	$	8,662	$	5,066
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Depreciation and amortization	11,286		13,264
Impairment	216		135
Deferred income taxes	(944)		(251)
Stock-based compensation expense	1,181		1,297
Noncash interest expense	75		407
Noncash lease expense	5,717		6,198

Other, net	(368)		(8)
Changes in assets and liabilities
Receivables, prepaid expenses and other assets	3,347		(2,149)
Inventories	31,885		(140,149)
Manufacturer floorplan payable	(26,726)		128,635
Accounts payable, deferred revenue, accrued expenses and other and other long-term liabilities	(15,140)		(12,362)

Operating lease liabilities	(6,156)		(6,386)
Net Cash Provided by (Used for) Operating Activities	13,035		(6,303)
Investing Activities
Rental fleet purchases	(6,001)		(9,249)
Property and equipment purchases (excluding rental fleet)	(4,472)		(3,101)
Proceeds from sale of property and equipment	489		670
Acquisition consideration, net of cash acquired	(6,790)		(2,972)
Other, net	(20)		14
Net Cash Used for Investing Activities	(16,794)		(14,638)
Financing Activities
Net change in non-manufacturer floorplan payable	7,229		49,937
Principal payments on senior convertible notes	—		(45,644)
Proceeds from long-term debt borrowings	1,112		11,786
Principal payments on long-term debt and finance leases	(2,952)		(1,940)
Payment of debt issuance costs	(670)		—
Other, net	(200)		(492)
Net Cash Provided by Financing Activities	4,519		13,647
Effect of Exchange Rate Changes on Cash	3		66
Net Change in Cash	763		(7,228)
Cash at Beginning of Period	43,721		56,745
Cash at End of Period	$	44,484	$	49,517
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period
Income taxes, net of refunds	$	(228)	$	3,064
Interest	$	4,103	$	4,705
Supplemental Disclosures of Noncash Investing and Financing Activities
Net property and equipment financed with long-term debt, finance leases, accounts payable and accrued liabilities	$	4,645	$	6,133
Net transfer of assets from (to) property and equipment to (from) inventories	$	319	$	(2,995)

See Notes to Consolidated Financial Statements

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TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 - BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The quarterly operating results for Titan Machinery Inc. (the “Company”) are subject to fluctuation due to varying weather patterns, which may impact the timing and amount of equipment purchases, rentals, and after-sales parts and service purchases by the Company’s Agriculture, Construction and International customers. Therefore, operating results for the six-month period ended July 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2021. The information contained in the consolidated balance sheet as of January 31, 2020 was derived from the audited consolidated financial statements for the Company for the fiscal year then ended. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2020 as filed with the SEC.

Nature of Business

The Company is engaged in the retail sale, service and rental of agricultural and construction machinery through its stores in the United States and Europe. The Company’s North American stores are located in Arizona, Colorado, Iowa, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Wisconsin and Wyoming, and its European stores are located in Bulgaria, Germany, Romania, Serbia and Ukraine.

Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, and the President of the United States declared the COVID-19 outbreak as a national emergency. The nature of COVID-19 led to worldwide shutdowns and halting of commercial and interpersonal activity as governments imposed regulations in efforts to control the spread of the pandemic, such as shelter-in-place orders and quarantines. The pandemic is a highly fluid and rapidly evolving situation, and we cannot anticipate with any certainty the length, scope, or severity of such restrictions in each of the markets that we operate. See Item 1A. Risk Factors for more information on possible impacts.

Since the beginning of the COVID-19 pandemic, the safety of our employees and customers has been and continues to be our top concern. At the onset of the pandemic we organized a COVID Task Force to implement safety protocols and to quickly respond to matters, in the event of a positive case at one of our locations.

Even though we are considered an essential business, in response to the COVID-19 pandemic, the Company closed its U.S. stores to the public on March 23, 2020 but continued operations through social distancing means in all areas: equipment, parts, service and rental. Beginning May 4, 2020, we began fully reopening our stores to the public, following pandemic safety protocols applicable to the locations. Additionally, our International stores have also been following pandemic safety protocols applicable to each location. By June 2020, all of our stores were open to the public but still maintain pandemic safety protocols.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, particularly related to realization of inventory, impairment of long-lived assets, collectability of receivables, and income taxes.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material accounts, transactions and profits between the consolidated companies have been eliminated in consolidation.

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Recently Adopted Accounting Guidance

In June 2016, the Financial Accounting Standards Board ("FASB") issued a new standard, codified in ASC 326, that modifies how entities measure credit losses on most financial instruments. The new standard replaced the "incurred loss" model with an "expected credit loss" model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the asset. The guidance impacts the Company on its accounts receivable portfolio but specifically excluded receivables from operating lease arrangements and, therefore, the Company’s receivables from rental contracts were not impacted. The guidance also requires new disclosures to allow the users of the financial statements to understand the credit risk inherent in a portfolio and how management monitors the credit quality of the portfolio, management’s estimate of expected credit losses, and changes in the estimate of expected credit losses that have taken place during the reporting period.

The Company adopted the new guidance on February 1, 2020 using a modified retrospective approach and recognized an immaterial cumulative-effect adjustment to retained earnings as of the effective date. The Company identified and updated existing internal controls and procedures to ensure compliance with the new guidance, but such modifications were not deemed to be material to the Company's overall system of internal control. While the adoption of this standard did not have a material impact on the Company's consolidated financial statements, it required changes to the Company's process of estimating expected credit losses on trade receivables. See footnote 4 for further discussion of our accounts receivables.

In February 2018, the FASB issued guidance on the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract, codified in ASC 350-40. This guidance aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. This standard was adopted on February 1, 2020 and was applied using the prospective transition approach. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

Accounting Guidance Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”), which provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. ASU 2020-04 is effective upon issuance and can be applied through December 31, 2022. The Company is currently evaluating its contracts and hedging relationships that reference LIBOR to determine if the Company will adopt the new guidance.

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NOTE 2 - EARNINGS PER SHARE

The following table sets forth the calculation of basic and diluted EPS:


	Three Months Ended July 31,						Six Months Ended July 31,
	2020		2019		2020		2019
	(in thousands, except per share data)
Numerator:
Net income	$	6,400	$	5,511	$	8,662	$	5,066
Allocation to participating securities	(101)		(82)		(129)		(76)
Net income attributable to Titan Machinery Inc. common stockholders	$	6,299	$	5,429	$	8,533	$	4,990
Denominator:
Basic weighted-average common shares outstanding	22,118		21,960		22,068		21,917
Plus: incremental shares from vesting of restricted stock units	1		4		—		5
Diluted weighted-average common shares outstanding	22,119		21,964		22,068		21,922

Earnings Per Share:
Basic	$	0.28	$	0.25	$	0.39	$	0.23
Diluted	$	0.28	$	0.25	$	0.39	$	0.23

Anti-dilutive shares excluded from diluted weighted-average common shares outstanding:
Restricted stock units	—		—		18		—

NOTE 3 - REVENUE

Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to collect in exchange for those goods or services. Sales, value added and other taxes collected from our customers concurrent with our revenue activities are excluded from revenue.

The following tables present our revenue disaggregated by revenue source and segment:


	Three Months Ended July 31, 2020												Three Months Ended July 31, 2019
	Agriculture		Construction		International		Total		Agriculture		Construction	International	Total
	(in thousands)												(in thousands)
Equipment	$	110,601	$	48,478	$	43,575	$	202,654	$	111,212	$

Price	14.54	EPS	0
Shares	22	P/E	29
MCap	325	P/FCF	-39
Net Debt	-17	EBIT	18
TEV	308	TEV/EBIT	17
TTM 2019-10-31, in MM, except price, ratios

10-Q	2020-07-31	Filed 2020-09-04
10-Q	2020-04-30	Filed 2020-06-04
10-K	2020-01-31	Filed 2020-04-07
10-Q	2019-10-31	Filed 2019-12-05
10-Q	2019-07-31	Filed 2019-09-05
10-Q	2019-04-30	Filed 2019-06-06
10-K	2019-01-31	Filed 2019-04-05
10-Q	2018-10-31	Filed 2018-12-06
10-Q	2018-07-31	Filed 2018-09-06
10-Q	2018-04-30	Filed 2018-06-07
10-K	2018-01-31	Filed 2018-04-06
10-Q	2017-10-31	Filed 2017-12-07
10-Q	2017-07-31	Filed 2017-09-07
10-Q	2017-04-30	Filed 2017-06-02
10-K	2017-01-31	Filed 2017-04-07
10-Q	2016-10-31	Filed 2016-12-08
10-Q	2016-07-31	Filed 2016-09-01
10-Q	2016-04-30	Filed 2016-06-02
10-K	2016-01-31	Filed 2016-04-13
10-Q	2015-10-31	Filed 2015-12-07
10-Q	2015-07-31	Filed 2015-09-09
10-Q	2015-04-30	Filed 2015-06-09
10-K	2015-01-31	Filed 2015-04-15
10-Q	2014-10-31	Filed 2014-12-10
10-Q	2014-07-31	Filed 2014-09-09
10-Q	2014-04-30	Filed 2014-06-05
10-K	2014-01-31	Filed 2014-04-11
10-Q	2013-10-31	Filed 2013-12-05
10-Q	2013-04-30	Filed 2013-06-06
10-K	2013-01-31	Filed 2013-04-10
10-Q	2012-10-31	Filed 2012-12-06
10-Q	2012-07-31	Filed 2012-09-10
10-Q	2012-04-30	Filed 2012-06-07
10-K	2012-01-31	Filed 2012-04-11
10-Q	2011-10-31	Filed 2011-12-09
10-Q	2011-07-31	Filed 2011-09-08
10-Q	2011-04-30	Filed 2011-06-09
10-K	2011-01-31	Filed 2011-04-18
10-Q	2010-10-31	Filed 2010-12-09
10-Q	2010-07-31	Filed 2010-09-08
10-Q	2010-04-30	Filed 2010-06-09
10-K	2010-01-31	Filed 2010-04-15

8-K	2020-08-27	Earnings, Exhibits
8-K	2020-06-08
8-K	2020-05-28
8-K	2020-04-03
8-K	2020-03-26
8-K	2019-11-26
8-K	2019-08-27
8-K	2019-06-06
8-K	2019-05-30
8-K	2019-03-27
8-K	2019-02-12
8-K	2018-11-29
8-K	2018-09-17
8-K	2018-08-30
8-K	2018-06-07
8-K	2018-05-31
8-K	2018-03-29
8-K	2018-02-28

EX-31.1	a10qfy21q2ex311.htm
EX-31.2	a10qfy21q2ex312.htm
EX-32.1	a10qfy21q2ex321.htm
EX-32.2	a10qfy21q2ex322.htm

TITN 10Q Quarterly Report

Titan Machinery Earnings 2020-07-31