WEST FARGO, N.D.— Titan Machinery Inc. a leading global equipment dealership with a network of full-service agricultural and construction stores, today reported financial results for the fiscal third quarter ended Oct. 31, 2017.

David Meyer, Titan Machinery’s chairman and chief executive officer, stated, "Overall, third quarter financial results showed solid improvement compared to the prior year as we continue to generate increased equipment margins and drive down our operating and interest expenses. These results are due to a better aligned inventory position, cost savings from our recently implemented restructuring plan, improved customer sentiment in our agriculture segment and continued growth in our international segment.

“Our financial results are also generating a higher absorption rate, which was 92% for the third quarter of fiscal 2018. Additionally, we were pleased with our decrease in used equipment inventory during the first 9 months of fiscal 2018 of $46 million, or 29%. Based on more confident customer sentiment in our agriculture segment and expected improvements in fourth quarter demand, we increased our new agriculture equipment inventory levels during the third quarter."

Fiscal 2018 Third Quarter Results

Consolidated Results
For the third quarter of fiscal 2018, revenue was $330.3 million, compared to $332.3 million in the third quarter last year. Equipment sales were $216 million for the third quarter of fiscal 2018, compared to $212.2 million in the third quarter last year. Parts sales were $64.7 million for the third quarter of fiscal 2018, compared to $69.3 million in the third quarter last year. Revenue generated from service was $31.5 million for the third quarter of fiscal 2018, compared to $33.8 million in the third quarter last year. Revenue from rental and other was $18.1 million for the third quarter of fiscal 2018, compared to $17 million in the third quarter last year.

Gross profit for the third quarter of fiscal 2018 was $61.5 million, compared to $58.4 million in the third quarter last year. The company’s gross profit margin was 18.6% in the third quarter of fiscal 2018, compared to 17.6% in the third quarter last year primarily due to improved equipment margins. Gross profit from parts, service and rental and other for the third quarter of fiscal 2018 was 72.7% of overall gross profit, compared to 81.1% in the third quarter last year.

Operating expenses decreased by $2.8 million to $50.4 million, or 15.2% of revenue, for the third quarter of fiscal 2018, compared to $53.1 million, or 16% of revenue, for the third quarter of last year.  Restructuring efforts that were completed early in the third quarter of fiscal 2018 are expected to continue to reduce operating expenses on a going forward basis.

Floorplan interest expense was $1.9 million for the third quarter of fiscal 2018, compared to $3.3 million in the third quarter of last year. The decrease in floorplan interest expense is primarily due to a decrease in the level of interest-bearing inventory in the third quarter of fiscal 2018.

Restructuring costs were $2.6 million for the third quarter of fiscal 2018. The restructuring costs recognized in the third quarter of fiscal 2018 are the result of the company's restructuring plan that was announced on Feb. 9, 2017 and subsequently led to the consolidation of 15 dealership locations. The company anticipates completing all restructuring activities by the end of fiscal 2018. 

On an adjusted basis, net income including non-controlling interest for the third quarter of fiscal 2018 was $4.4 million, or adjusted earnings per diluted share of $0.20, compared to adjusted net loss including non-controlling interest of $0.2 million, or adjusted loss per diluted share of $0.01, for the third quarter of last year. The company generated $16.2 million in adjusted EBITDA in the third quarter of fiscal 2018, compared to $9.5 million in the third quarter of last year.

Segment Results
Agriculture Segment — Revenue for the third quarter of fiscal 2018 was $186.5 million, compared to $205.5 million in the third quarter last year. Pre-tax income for the third quarter of fiscal 2018 was $4.9 million, compared to pre-tax loss of $1.8 million in the third quarter last year. Adjusted pre-tax income for the third quarter of fiscal 2018 was $5.5 million, compared to adjusted pre-tax loss of $2.3 million in the third quarter last year.

Construction Segment — Revenue for the third quarter of fiscal 2018 was $72.9 million, compared to $80.8 million in the third quarter last year. Revenue for the third quarter of last year included approximately $5.4 million of equipment revenue associated with our aggressive selling efforts through alternative marketing channels for certain aged equipment inventory. Pre-tax loss for the third quarter of fiscal 2018 was $2.4 million, compared to a pre-tax loss of $0.1 million in the third quarter last year. Adjusted pre-tax loss for the third quarter of fiscal 2018 was $0.7 million, compared to adjusted pre-tax income of $0.1 million in the third quarter last year.

International Segment — Revenue for the third quarter of fiscal 2018 was $70.9 million, compared to $45.9 million in the third quarter last year.  The increase in revenue is primarily due to increased equipment revenue as the result of the build out of our footprint, availability of subvention funds and positive crop conditions in certain of our markets.  Pre-tax income for the third quarter of fiscal 2018 was $2.5 million, compared to a pre-tax income of $0.6 million in the third quarter last year.

Fiscal 2018 First 9 Months Results

Revenue was $863.3 million for the first 9 months of fiscal 2018, compared to $895.5 million for the same period last year. Net loss including non-controlling interest for the first 9 months of fiscal 2018 was $8.7 million, or $0.40 per diluted share, compared to net loss of $6.3 million, or $0.27 per diluted share, for the same period last year. On an adjusted basis, net loss including non-controlling interest for the first 9 months of fiscal 2018 was $0.7 million, or $0.03 per diluted share, compared to net loss of $7.6 million, or $0.36 per diluted share, for the same period last year. The company generated $24.7 million in adjusted EBITDA in the first 9 months of fiscal 2018, compared to $15.8 million in the same period last year.

Meyer concluded, "We have made improvements to our cost structure during fiscal 2018 and this is reflected in our improved financial results for the first nine months of this year. We expect continued year over year net income improvements for our fourth quarter of fiscal 2018 as well. As we look ahead to fiscal 2019, we believe our expected cash flow generation from operations combined with our strong balance sheet will position us to take advantage of strategic opportunities and to drive long-term profitability." 

Updating Fiscal 2018 Modeling Assumptions

The company's fiscal 2018 modeling assumptions are as follows:

(1) Includes impact of stores closed as part of our restructuring activities