• Revenue for Fiscal Second Quarter of 2017 was $278 million
  • Company Reduced Used Equipment Inventory, Year-to-Date, by $39 million or 15%
  • Company Updates Full Year Fiscal 2017 Modeling Assumptions

Titan Machinery Inc. reported financial results for the fiscal second quarter ended July 31, 2016.

Fiscal 2017 Second Quarter Results

For the second quarter of fiscal 2017, revenue was $278.3 million, compared to $334.2 million in the second quarter last year. Equipment sales were $173.3 million for the second quarter of fiscal 2017, compared to $221.0 million in the second quarter last year. Parts sales were $58.3 million for the second quarter of fiscal 2017, compared to $62.1 million in the second quarter last year. Revenue generated from service was $31.3 million for the second quarter of fiscal 2017, compared to $32.8 million in the second quarter last year. Revenue from rental and other was $15.4 million for the second quarter of fiscal 2017, compared to $18.3 million in the second quarter last year.

Gross profit for the second quarter of fiscal 2017 was $52.9 million, compared to $62.1 million in the second quarter last year, primarily reflecting a decrease in revenue. The Company's gross profit margin was 19.0% in the second quarter of fiscal 2017, compared to 18.6% in the second quarter last year. This increase in gross profit margin was mainly due to the change in gross profit mix to the Company's higher-margin parts and service businesses. Gross profit from parts, service and rental and other for the second quarter of fiscal 2017 was 76.6% of overall gross profit, compared to 71.2% in the second quarter last year.

Operating expenses decreased by $3.9 million to $51.5 million, or 18.5% of revenue, for the second quarter of fiscal 2017, compared to $55.4 million, or 16.6% of revenue, for the second quarter of last year. The increase in operating expenses as a percentage of revenue was primarily due to the decrease in total revenue in the second quarter of fiscal 2017, as compared to the second quarter of fiscal 2016.

Floorplan interest expense was $3.8 million for the second quarter of fiscal 2017, compared to $4.7 million in the second quarter of fiscal 2016. The decrease in floorplan interest expense is primarily due to a decrease in the average level of interest-bearing inventory in the second quarter of fiscal 2017. Other interest expense decreased to $2.8 million in the second quarter of fiscal 2017 from $3.4 million in the second quarter of fiscal 2016, primarily due to a reduced level of senior convertible notes outstanding as a result of the repurchase of $30.1 million of senior convertible notes in April 2016.

In the second quarter of fiscal 2017, the Company generated $4.7 million in adjusted EBITDA, compared to $9.8 million in the second quarter of last year. The Company includes floorplan interest expense in its EBITDA calculation.

Pre-tax loss for the second quarter of fiscal 2017 was $4.5 million, compared to loss of $0.5 million in the second quarter of last year. Adjusted pre-tax results for the second quarter are as follows:

  • Total Company: Loss of $4.5 million for the second quarter of fiscal 2017, compared to loss of $0.5 million in the second quarter last year.
  • Agriculture segment: Loss of $4.3 million for the second quarter of fiscal 2017, compared to loss of $2.5 million in the second quarter last year.
  • Construction segment: Income of $0.6 million for the second quarter of fiscal 2017, compared to loss of $1.0 million in the second quarter last year.
  • International segment: Loss of $0.2 million for the second quarter of fiscal 2017, compared to income of $1.0 million in the second quarter last year.

Net loss attributable to common stockholders for the second quarter of fiscal 2017 was $2.5 million, or loss per diluted share of $0.12, compared to net income of $0.0 million, or $0.00 per diluted share, for the second quarter of fiscal 2016. Excluding all non-GAAP adjustments, adjusted net loss attributable to common stockholders for the second quarter of fiscal 2017 was $2.5 million, or $0.12 per diluted share, compared to adjusted net income attributable to common stockholders of $0.0 million, or $0.00 per diluted share, for the second quarter of fiscal 2016.

Fiscal 2017 First 6 Months Results

Revenue was $563.2 million for the first six months of fiscal 2017, compared to $687.4 million for the same period last year. Net loss attributable to common stockholders for the first six months of fiscal 2017 was $6.1 million, or $0.29 per diluted share, compared to $6.2 million, or $0.29 per diluted share, for the same period last year. Excluding non-GAAP items, adjusted net loss attributable to common stockholders for the first six months of fiscal 2017 was $7.0 million, or $0.33 per diluted share, compared to $2.9 million, or $0.14 per diluted share, for the same period last year. The Company generated $6.4 million in adjusted EBITDA in the first six months of fiscal 2017, compared to $14.9 million in the same period last year.

Balance Sheet and Cash Flow

The Company ended the second quarter of fiscal 2017 with cash of $51.1 million. The Company's inventory level decreased to $682.0 million as of July 31, 2016, compared to $689.5 million as of January 31, 2016. This inventory decrease includes a $8.5 million reduction in equipment inventory, which reflects a $39.2 million or 14.6% decrease in used equipment inventory, partially offset by a seasonal increase of new equipment inventory of $30.6 million. The Company had $430.8 million outstanding floorplan payables on $953.5 million total discretionary floorplan lines of credit as of July 31, 2016, compared to $444.8 million outstanding as of January 31, 2016. The Company's ratio of total liabilities to tangible net worth improved to 2.0 as of July 31, 2016 from 2.1 as of January 31, 2016 reflecting the lower outstanding floorplan payables and reduced balance of senior convertible notes.

In the first six months of fiscal 2017, the Company's net cash provided by operating activities was $60.4 million on a GAAP basis. The Company evaluates its cash flow from operating activities net of all floorplan payable activity and maintaining a constant level of equity in our equipment inventory. Taking these adjustments into account, adjusted net cash provided by operating activities was $1.1 million in the first six months of fiscal 2017, compared to $4.7 million in first six months of fiscal 2016.

Management Comments

David Meyer, Titan Machinery's Chairman and Chief Executive Officer, stated, "In the second quarter, we focused on managing the controllable aspects of our business to best navigate the challenging operating environment. We continue to concentrate on our inventory reduction, its positive impact on our balance sheet and expect to achieve the $100 million inventory reduction goal for fiscal 2017.  We reduced used inventory in the first half of fiscal 2017 by $39 million or 15%, and through the first six months of this year we exceeded our target by $13 million or 40% on our marketing plan of aged inventory through alternative channels."

Mr. Meyer commented, "We continue to expect to generate positive adjusted operating cash flow for fiscal 2017 as we execute on our inventory reduction plan.  We are updating our annual modeling assumptions, primarily based on the larger than anticipated crop, its impact on commodity prices and the anticipated effect on our customer's demand. Over the past couple years we have made significant improvements to our cost structure and balance sheet, including the repurchase of senior convertible notes in the first quarter of this year. We continue to take the necessary steps to weather the current environment and improve our balance sheet to position us for long-term financial performance and capitalize on future opportunities."

Updated Fiscal 2017 Modeling Assumptions

The Company is updating the modeling assumptions for fiscal 2017 that it believes will provide investors with relevant information about expectations regarding financial results and business trends:

  • Agriculture Same Store Sales Down 17% to 22%
  • Construction Same Store Sales Flat
  • International Same Store Sales Down 7% to 12%
  • Equipment Margins Between 7.2% and 7.8%
  • Adjusted Diluted EPS loss in the second half of fiscal 2017 is expected to be less than the loss in the first half of the year