Titan Machinery(TITN) - 2019 Q4 - Annual Report

PART I Business Titan Machinery operates agricultural and construction equipment dealerships in the U.S. and Europe, generating revenue from equipment, parts, services, and rentals - The company operates through three reportable segments: Agriculture, Construction, and International, with a network of 74 stores in the U.S. and 30 in Europe[12][13] Revenue Sources for Fiscal Year 2019 | Revenue Source | FY2019 % of Total Revenue | | :--- | :--- | | Equipment Sales | 72.1% | | Parts Sales | 16.7% | | Repair & Maintenance Services | 6.9% | | Rental & Other | 4.3% | - Titan Machinery is heavily reliant on CNH Industrial, which supplied approximately 72% of new equipment sold across all segments in fiscal 2019[38] - The company's growth strategy involves increasing same-store sales and pursuing strategic acquisitions to consolidate the fragmented dealership market[34] Risk Factors Key risks include heavy reliance on CNH Industrial, cyclical market demand, international operational challenges, high debt levels, and intense competition - A majority of the business depends on CNH Industrial for equipment, parts, financing, and marketing support, with adverse changes posing severe harm to Titan Machinery[75][76][77] - Sales are affected by market factors beyond the company's control, including cyclical demand in agriculture tied to net farm income and in construction tied to economic conditions and commodity prices[84][85] - International operations, accounting for 18.4% of FY2019 revenue, expose the company to risks like currency fluctuations, political instability, and diverse legal environments[95][96] - The company's indebtedness, including floorplan financing and Senior Convertible Notes, could limit financial flexibility, with restrictive covenants potentially leading to debt acceleration upon breach[99][101][102] - Effective inventory management is critical, as equipment inventory represents over 50% of total assets, with over-supply or inaccurate valuation negatively impacting margins and profitability[91][93] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[121] Properties As of January 31, 2019, the company operates 104 equipment stores, predominantly leased, with its corporate headquarters also under lease Store Count by Segment as of January 31, 2019 | Segment | U.S. Stores | European Stores | Total Stores | | :--- | :--- | :--- | :--- | | Agriculture | 48 | 0 | 48 | | Construction | 26 | 0 | 26 | | International | 0 | 30 | 30 | | Total | 74 | 30 | 104 | - The company leases 120 facilities with various expiration dates through January 2031, including its corporate headquarters in West Fargo, ND[124][127] Legal Proceedings The company is involved in ordinary course legal claims, generally covered by insurance and not expected to materially impact financial results - The company is involved in ordinary course legal claims and suits, which are generally covered by insurance and are not expected to have a material impact[128] Mine Safety Disclosures This section is not applicable to the company - Not applicable[129] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common stock trades on NASDAQ under "TITN"; no dividends paid or anticipated, with performance compared to market indices - The company's common stock is traded on the NASDAQ under the symbol "TITN"[136] - The company has not paid dividends and does not expect to in the foreseeable future, prioritizing expansion and debt service[137] Stock Performance Comparison (Value of $100 Investment) | Date | Titan Machinery Inc. | Russell 2000 Index | S&P 500 Retail Index | | :--- | :--- | :--- | :--- | | Jan 31, 2014 | $100.00 | $100.00 | $100.00 | | Jan 31, 2015 | $86.69 | $103.05 | $118.75 | | Jan 31, 2016 | $52.09 | $91.56 | $137.22 | | Jan 31, 2017 | $84.72 | $120.42 | $160.31 | | Jan 31, 2018 | $131.84 | $139.27 | $230.59 | | Jan 31, 2019 | $114.97 | $132.95 | $241.71 | Selected Financial Data Five-year financial summary shows FY2019 return to profitability with $1.26 billion revenue and $12.2 million net income, alongside store count changes Five-Year Selected Statement of Operations Data (in thousands, except per share data) | Metric | FY 2019 | FY 2018 | FY 2017 | FY 2016 | FY 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $1,261,505 | $1,192,606 | $1,201,697 | $1,355,792 | $1,882,430 | | Gross Profit | $231,588 | $215,300 | $213,729 | $205,914 | $308,384 | | Income (Loss) from Operations | $27,481 | $925 | $(2,372) | $(23,110) | $723 | | Net Income (Loss) | $12,182 | $(7,049) | $(14,179) | $(37,892) | $(32,157) | | Diluted EPS | $0.55 | $(0.32) | $(0.65) | $(1.76) | $(1.51) | Five-Year Selected Balance Sheet Data (in thousands) | Metric | Jan 31, 2019 | Jan 31, 2018 | Jan 31, 2017 | Jan 31, 2016 | Jan 31, 2015 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Assets | $792,438 | $760,308 | $771,422 | $1,047,875 | $1,325,614 | | Total Liabilities | $457,127 | $438,453 | $450,243 | $709,526 | $947,255 | | Total Stockholders' Equity | $335,311 | $321,855 | $321,179 | $338,349 | $378,359 | - The company's store count ended fiscal 2019 at 104, a net increase of 7 stores during the year, following a net decrease of 12 stores in fiscal 2018[146] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses FY2019 financial performance, noting a 5.8% revenue increase to $1.26 billion and a return to $12.2 million net income, supported by cost controls and sufficient liquidity Results of Operations FY2019 saw a 5.8% revenue increase to $1.26 billion and a return to $12.2 million net income, driven by equipment sales and improved margins Consolidated Revenue by Source (FY2019 vs. FY2018) | Revenue Source | FY 2019 (in thousands) | FY 2018 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Equipment | $909,178 | $844,768 | 7.6% | | Parts | $210,796 | $203,231 | 3.7% | | Service | $86,840 | $88,794 | (2.2)% | | Rental and other | $54,691 | $55,813 | (2.0)% | | Total Revenue | $1,261,505 | $1,192,606 | 5.8% | Segment Income (Loss) Before Income Taxes (FY2019 vs. FY2018) | Segment | FY 2019 (in thousands) | FY 2018 (in thousands) | | :--- | :--- | | Agriculture | $16,799 | $(3,678) | | Construction | $(4,400) | $(7,278) | | International | $5,160 | $2,205 | | Total Segment Income (Loss) | $17,559 | $(8,751) | - The improvement in FY2019 results was driven by higher equipment gross profit margins, increased sales volume, operating expense savings from the Fiscal 2018 Restructuring Plan, and lower interest expense[209][211][219] - In FY2018, the company implemented a restructuring plan, closing 15 stores, which led to $10.5 million in restructuring costs but resulted in decreased operating expenses compared to FY2017[168][230] Liquidity and Capital Resources Liquidity is sufficient from operations and credit facilities, with $640.0 million in floorplan lines and $45.6 million Senior Convertible Notes maturing in May 2019 - Primary liquidity sources are cash from operations and borrowings under floorplan payable and other credit facilities[253] - As of January 31, 2019, the company had total floorplan payable lines of credit of $640.0 million, including a $400.0 million facility with CNH Industrial Capital and a $140.0 million line with Wells Fargo[255] - The remaining $45.6 million principal balance of the Senior Convertible Notes matures on May 1, 2019, with sufficient liquidity expected to satisfy this obligation[258] Contractual Obligations as of January 31, 2019 (in thousands) | Obligation Type | Total | Less Than 1 Year | 1 to 3 Years | 3 to 5 Years | More Than 5 Years | | :--- | :--- | :--- | :--- | :--- | :--- | | Long-term debt | $44,782 | $6,211 | $11,427 | $8,070 | $19,074 | | Senior convertible notes | $46,065 | $46,065 | $— | $— | $— | | Operating lease | $158,566 | $20,117 | $36,780 | $33,260 | $68,409 | | Purchase obligations | $5,317 | $1,849 | $2,941 | $527 | $— | | Total | $254,730 | $74,242 | $51,148 | $41,857 | $87,483 | Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations, potentially impacting pre-tax earnings by $1.2 million for a 1% rate increase, and foreign currency exposure - The company is exposed to interest rate risk on its variable rate debt, where a 1% increase in interest rates would decrease pre-tax earnings by approximately $1.2 million[291] - Foreign currency exchange rate risk exists due to European operations, encompassing transactional risk from foreign-denominated assets/liabilities and translational risk from converting financial statements to U.S. dollars[292][293] Financial Statements and Supplementary Data This section presents audited consolidated financial statements for FY2019-FY2017, including balance sheets, operations, and cash flows, with FY2019 reporting $792.4 million total assets and $1.26 billion revenue Consolidated Balance Sheet Highlights (in thousands) | Account | Jan 31, 2019 | Jan 31, 2018 | | :--- | :--- | | Total Current Assets | $640,892 | $599,146 | | Total Assets | $792,438 | $760,308 | | Total Current Liabilities | $420,452 | $328,289 | | Total Liabilities | $457,127 | $438,453 | | Total Stockholders' Equity | $335,311 | $321,855 | Consolidated Statement of Operations Highlights (in thousands) | Account | FY 2019 | FY 2018 | FY 2017 | | :--- | :--- | :--- | :--- | | Total Revenue | $1,261,505 | $1,192,606 | $1,201,697 | | Gross Profit | $231,588 | $215,300 | $213,729 | | Income (Loss) from Operations | $27,481 | $925 | $(2,372) | | Net Income (Loss) | $12,182 | $(7,049) | $(14,179) | Consolidated Statement of Cash Flows Highlights (in thousands) | Account | FY 2019 | FY 2018 | FY 2017 | | :--- | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $46,605 | $95,812 | $140,997 | | Net Cash Used for Investing Activities | $(25,832) | $(24,589) | $(9,125) | | Net Cash Used for Financing Activities | $(16,727) | $(71,466) | $(167,976) | | Net Change in Cash | $3,349 | $245 | $(36,314) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None[551] Controls and Procedures As of January 31, 2019, management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of January 31, 2019[552] - Management concluded that internal control over financial reporting was effective as of January 31, 2019, based on the COSO framework[553] Other Information The company reports no other information for this item - None[556] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement - Information required by this item is incorporated by reference from the registrant's 2019 Annual Meeting of Stockholders proxy statement[558] Executive Compensation Information on executive compensation is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement - Information required by this item is incorporated by reference from the registrant's 2019 Annual Meeting of Stockholders proxy statement[559] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement - Information required by this item is incorporated by reference from the registrant's 2019 Annual Meeting of Stockholders proxy statement[560] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement - Information required by this item is incorporated by reference from the registrant's 2019 Annual Meeting of Stockholders proxy statement[561] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2019 Annual Meeting of Stockholders proxy statement - Information required by this item is incorporated by reference from the registrant's 2019 Annual Meeting of Stockholders proxy statement[562] PART IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K report - This item lists all financial statements, schedules (such as Schedule II—Valuation and Qualifying Accounts), and exhibits filed with the annual report[564][565] Form 10-K Summary This section is not applicable - Not applicable[573]