Titan Machinery Inc. ("Titan" or the "Company"), a leading network of full-service agricultural and construction equipment stores, reported Aug. 29, 2024, the financial results for the fiscal second quarter ended July 31, 2024.

"As previously announced, our second quarter results reflect the challenging market conditions that are impacting farmer sentiment and agriculture equipment sales," commented Bryan Knutson, Titan Machinery's President and Chief Executive Officer. "In response to these market dynamics, we have been executing on the strategies we outlined: actively managing our inventory levels with a focus on used equipment, implementing targeted cost control measures, and further emphasizing our customer care initiatives to drive growth in our higher-margin parts and service businesses. The efficiencies and process improvements we've integrated into our business model since the last industry downturn are enhancing our ability to effectively manage through the current cycle and positioning us well to emerge stronger when market conditions improve. The improvements in our business, in conjunction with healthier industry dynamics, support our expectation that we will experience a more condensed contractionary period versus the previous cycle."

In a note to investors following Titan's earnings call, Baird analyst Mig Dobre said, "It’s hard to see how FY26 (calendar 2025) will not be much tougher for TITN as pressure from destocking will likely couple with further new equipment demand erosion (and thus the need to accept lower margins on sales/increase incentives).

"What remains to be seen is how the OEM (CNH) will approach TITN’s destock in the level of support (financing, pricing) they will provide; thus far all Ag OEMs have been firm on maintaining price discipline; being able to stick by that decision as destocking starts to occur will be key for both OEMs and dealers."

Fiscal 2025 Second Quarter Results

For the second quarter of fiscal 2025, revenue was $633.7 million compared to $642.6 million in the second quarter of last year. Equipment revenue was $465.2 million for the second quarter of fiscal 2025, compared to $480.1 million in the second quarter last year. Parts revenue was $109.8 million for the second quarter of fiscal 2025, compared to $108.5 million in the second quarter last year. Revenue generated from service was $47.3 million for the second quarter of fiscal 2025, compared to $42.5 million in the second quarter last year. Revenue from rental and other was $11.4 million for the second quarter of fiscal 2025, compared to $11.5 million in the second quarter last year.

Gross profit for the second quarter of fiscal 2025 was $112.4 million, compared to $133.4 million in the second quarter last year. The Company's gross profit margin was 17.7% in the second quarter of fiscal 2025, compared to 20.8% in the second quarter last year. The year-over-year decrease in gross profit margin was primarily due to lower equipment margins which are being driven by higher levels of inventory and softening demand.

Operating expenses were $95.2 million for the second quarter of fiscal 2025, compared to $88.8 million in the second quarter last year. The year-over-year increase was led by additional operating expenses due to acquisitions that have taken place in the past year. Operating expense as a percentage of revenue was 15.0% for the second quarter of fiscal 2025, compared to 13.8% of revenue in the second quarter last year.

Floorplan interest expense and other interest expense aggregated to $13.0 million in the second quarter of fiscal 2025, compared to $3.7 million for the same period last year, with the increase primarily due to a higher level of interest-bearing inventory, including the usage of existing floorplan capacity to finance the O'Connors acquisition.

In the second quarter of fiscal 2025, net loss was $4.3 million, or loss per diluted share of $0.19, compared to net income of $31.3 million, or earnings per diluted share of $1.38, for the second quarter of last year. As previously announced, second quarter of fiscal 2025 results included a one-time, non-cash sale-leaseback financing expense of approximately $8.3 million or $0.36 per diluted share; excluding this impact, adjusted net income was $4.0 million and adjusted earnings per diluted share was $0.17.

The Company generated $9.1 million in EBITDA in the second quarter of fiscal 2025, compared to $50.4 million generated in the second quarter of last year. Excluding the impact from the aforementioned one-time, non-cash sale-leaseback financing expense, adjusted EBITDA was $20.2 million in the second quarter of fiscal 2025.

Segment Results

Agriculture Segment - Revenue for the second quarter of fiscal 2025 was $424.0 million, compared to $469.1 million in the second quarter last year. The decrease was primarily due to a same-store sales decrease of 11.2%, partially offset by contributions from the acquisition of Scott Supply, Co. in January 2024. The revenue decrease resulted from a softening of demand for equipment purchases due to lower farmer sentiment which is being driven by the decline of net farm income and sustained high interest rates. Pre-tax income for the second quarter of fiscal 2025 was $0.6 million, compared to $33.0 million in the second quarter of the prior year. Included in the results for the second quarter of fiscal 2025, was a $6.1 million one-time, non-cash sale-leaseback expense.

Construction Segment - Revenue for the second quarter of fiscal 2025 was $80.2 million, compared to $82.9 million in the second quarter last year. Pre-tax loss for the second quarter of fiscal 2025 was $4.9 million, compared to pre-tax income of $5.2 million in the second quarter last year. Included in the results for the second quarter of fiscal 2025, was a $5.1 million one-time, non-cash sale-leaseback expense.

Europe Segment - Revenue for the second quarter of fiscal 2025 was $68.1 million, compared to $90.6 million in the second quarter last year; which includes a $0.6 million decrease in revenue from foreign currency fluctuations. Net of the effect of these foreign currency fluctuations, revenue decreased $21.9 million, or 24.1%. The year-over-year decrease in revenue was driven by the softening of new equipment demand, which was impacted by a decrease in global commodity prices, sustained high interest rates, and drought conditions in Eastern Europe. Pre-tax loss for the second quarter of fiscal 2025 was $2.3 million, compared to pre-tax income of $5.6 million in the second quarter of the prior year.

Australia Segment - Revenue for the second quarter of fiscal 2025 was $61.3 million and pre-tax income for the second quarter of fiscal 2025 was $1.4 million.

Balance Sheet and Cash Flow

Cash at the end of the second quarter of fiscal 2025 was $31.2 million. Inventories increased to $1.5 billion as of July 31, 2024, compared to $1.3 billion as of January 31, 2024. This change in inventory reflects increases of $194.4 million and $31.9 million in new equipment and used equipment inventories respectively, partially offset by a decrease of $1.9 million in parts inventory. Outstanding floorplan payables were $1.2 billion on $1.5 billion total available floorplan and working capital lines of credit as of July 31, 2024, compared to $893.8 million outstanding floorplan payables as of January 31, 2024.

For the six months ended July 31, 2024, the Company's net cash used for operating activities was $47.4 million, compared to net cash used for operating activities of $122.7 million for the six months ended July 31, 2023. This decrease in the usage of cash for operating activities was primarily driven by an increase in the amount drawn on manufacturing floorplan payables and a favorable collection of outstanding receivables, which was partially offset by the decrease in net income for the first six months of fiscal 2025 compared to the prior year period. For the first six months ended July 31, 2024, net cash provided by financing activities for $62.4 million, representing a year over year decrease of $119.4 million. The decrease was primarily driven by higher floorplan indebtedness incurred during the first six months of fiscal 2024.

Additional Management Commentary

Mr. Knutson continued, "We recently updated our full year fiscal 2025 modeling assumptions in conjunction with the announcement of our preliminary fiscal second quarter results. In response to the softening of retail demand amid a difficult backdrop of significantly lower net farm income, we have implemented a more aggressive strategy to catalyze sales and reduce our inventories. This strategy requires compression of our near-term equipment margins, and we believe these deliberate actions will help shorten the impact of this contractionary cycle on our performance, and accelerate our return to a more normalized margin profile as the industry cycle progresses."

The Company's current expectations for fiscal 2025 modeling assumptions are unchanged from what was disclosed in our pre-release earlier this month.

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