• Revenue for Fiscal Third Quarter of 2017 was $332 million
• Company Reduced Used Equipment Inventory through First Nine Months by $86 million or 32%
• Company Completed Previously Announced $24 million Repurchase of Senior Convertible Notes
• Company Updates Full Year Fiscal 2017 Modeling Assumptions

WEST FARGO, N.D., (GLOBE NEWSWIRE) — Titan Machinery Inc. (TITN), a leading network of full-service agricultural and construction equipment stores, today reported financial results for the fiscal third quarter ended October 31, 2016.

Fiscal 2017 Third Quarter Results

Consolidated Results

For the third quarter of fiscal 2017, revenue was $332.3 million, compared to $345 million in the third quarter last year. Equipment sales were $212.2 million for the third quarter of fiscal 2017, compared to $215.7 million in the third quarter last year. Parts sales were $69.3 million for the third quarter of fiscal 2017, compared to $73.8 million in the third quarter last year. Revenue generated from service was $33.8 million for the third quarter of fiscal 2017, compared to $34.1 million in the third quarter last year. Revenue from rental and other was $17 million for the third quarter of fiscal 2017, compared to $21.3 million in the third quarter last year.

Gross profit for the third quarter of fiscal 2017 was $58.4 million, compared to $67.1 million in the third quarter last year. The company’s gross profit margin was 17.6% in the third quarter of fiscal 2017, compared to 19.5% in the third quarter last year. This decrease in gross profit margin was primarily the result of equipment gross margin compression as we accelerated our used equipment inventory reduction efforts through aggressive retailing of our used equipment inventory. Gross profit from parts, service and rental and other for the third quarter of fiscal 2017 was 81.1% of overall gross profit, compared to 73.8% in the third quarter last year, as a result of the lower equipment gross profit.

Operating expenses decreased by $0.4 million to $53.1 million, or 16.0% of revenue, for the third quarter of fiscal 2017, compared to $53.5 million, or 15.5% of revenue, for the third 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 third quarter of fiscal 2017, as compared to the third quarter of fiscal 2016.

Floorplan interest expense was $3.3 million for the third quarter of fiscal 2017, compared to $4.6 million in the third 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 third quarter of fiscal 2017. Other interest expense decreased to $2.2 million in the third quarter of fiscal 2017 from $4.0 million in the third quarter of fiscal 2016, primarily due to a gain of $1.0 million recognized upon the repurchase of $24.2 million of senior convertible notes in September 2016, and to interest savings resulting from this repurchase and the repurchase of $30.1 million of senior convertible notes in April 2016.

In the third quarter of fiscal 2017, net income including non-controlling interest was $0.3 million, or earnings per diluted share of $0.01, compared to a net income including non-controlling interest of $3.5 million, or $0.16 per diluted share for the third quarter of fiscal 2016.

On a non-GAAP basis, adjusted net loss including non-controlling interest for the third quarter of fiscal 2017 was $0.2 million, or $0.01 per diluted share, compared to adjusted net income including non-controlling interest of $4.3 million, or $0.20 per diluted share, for the third quarter of fiscal 2016. The company generated $9.5 million in adjusted EBITDA, compared to $17.5 million in the third quarter of last year. The company includes floorplan interest expense in its adjusted EBITDA calculation.

Segment Results

Agriculture Segment - Revenue for the third quarter of fiscal 2017 was $205.5 million, compared to $211.3 million in the third quarter last year. Pre-tax loss for the third quarter of fiscal 2017 was $1.8 million, compared to pre-tax income of $4.2 million in the third quarter last year.

Construction Segment - Revenue for the third quarter of fiscal 2017 was $80.8 million, compared to $87.0 million in the third quarter last year.  Pre-tax income for the third quarter of fiscal 2017 was $0.1 million, compared to a pre-tax income of $1.4 million in the third quarter last year.

International Segment - Revenue for the third quarter of fiscal 2017 was $45.9 million, compared to $46.7 million in the third quarter last year.  Pre-tax income for the third quarter of fiscal 2017 was $0.6 million, compared to pre-tax income of $0.4 million in the third quarter last year.

Fiscal 2017 First Nine Months Results

Revenue was $0.9 billion for the first nine months of fiscal 2017, compared to $1.0 billion for the same period last year. Net loss including noncontrolling interest for the first nine months of fiscal 2017 was $6.3 million, or $0.27 per diluted share, compared to $3.2 million, or $0.13 per diluted share, for the same period last year. On a non-GAAP basis, adjusted net loss including noncontrolling interest for the first nine months of fiscal 2017 was $7.6 million, or $0.36 per diluted share, compared to adjusted net income including noncontrolling interest of $0.9 million, or $0.06 per diluted share, for the same period last year. The company generated $15.8 million in adjusted EBITDA in the first nine months of fiscal 2017, compared to $32.5 million in the same period last year.

Balance Sheet and Cash Flow

The company ended the third quarter of fiscal 2017 with $52.4 million of cash. The company’s inventory level decreased to $607.6 million as of October 31, 2016, compared to $689.5 million as of January 31, 2016. This inventory decrease includes a $77.4 million reduction in equipment inventory, which reflects a $85.9 million or 32% decrease in used equipment inventory, partially offset by an  increase of new equipment inventory of $8.5 million. The company had $372.1 million outstanding floorplan payables on $856.2 million total discretionary floorplan lines of credit as of October 31, 2016, compared to $444.8 million outstanding as of January 31, 2016.

In September 2016, the company repurchased $24.2 million principal amount of its 3.75% senior convertible notes due 2019 for $20.9 million in cash and recognized a $1.0 million pre-tax gain related thereto in the third quarter of fiscal 2017. This gain is not considered in the modeling assumptions discussed below as the company considers it an adjustment to GAAP income (loss). The repurchase in September 2016 is in addition to the company's repurchase of $30.1 million of senior convertible notes in April 2016. The company's ratio of total liabilities to tangible net worth improved to 1.8 as of October 31, 2016 from 2.1 as of January 31, 2016, reflecting the lower outstanding floorplan payables and reduced outstanding balance of senior convertible notes.

In the first nine months of fiscal 2017, the company’s net cash provided by operating activities was $74.4 million, compared to $198.8 million in the first nine months of fiscal 2016. 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 $34.4 million in the first nine months of fiscal 2017, compared to $32.9 million in first nine months of fiscal 2016.

Management Comments

David Meyer, Titan Machinery’s chairman and chief executive officer, stated, "During the third quarter our agricultural customers experienced high crop yields and, despite continued low commodity prices, the yields improved customer sentiment, which created an opportunity to increase equipment sales. We took this opportunity to accelerate our used equipment reduction efforts by aggressively retailing our used equipment inventory during the third quarter.  In total, we have successfully reduced our used equipment inventory by $86 million in the first nine months of fiscal 2017. " 

Meyer commented, "As we begin the final quarter of fiscal 2017 and look toward next year, we are confident that we are taking the right steps to position our business for long-term profitable growth and continue to execute on our initiatives to improve our balance sheet and generate cash flow from operating activities.  We are now on track to exceed our previous inventory reduction goal by 25% and to end fiscal 2017 with a total reduction for the year of $125 million in equipment inventory.  Our initiatives have enabled us to repurchase over $50 million of senior convertible notes in the current fiscal year, including $24 million in the third quarter, which helped further improve our ratio of total liabilities to tangible net worth to 1.8 at the end of the third quarter.  We remain optimistic about long-term agriculture trends, and believe that we will be positioned to take advantage of future opportunities to drive improved financial performance."

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 13% to 18%
• Construction Same Store Sales Flat
• International Same Store Sales Down 7% to 12%
• Equipment Margins Between 6.2% and 6.8%
• Adjusted Diluted loss per share in the second half of fiscal 2017 is expected to be less than the loss in the first half of the year ⁽¹⁾

Source: Titan Machinery