Titan Machinery(TITN) - 2020 Q2 - Quarterly Report

Table of Contents PART I. FINANCIAL INFORMATION Financial Statements Unaudited Q2 2019 financial statements reflect total assets of $1.03 billion, increased revenue to $315.0 million, and net income of $5.5 million, influenced by inventory growth and ASC 842 adoption Consolidated Balance Sheets As of July 31, 2019, total assets increased to $1.03 billion, primarily due to higher inventories and new operating lease assets from ASC 842 adoption, alongside a rise in total liabilities Consolidated Balance Sheet Highlights (in thousands) | Account | July 31, 2019 | January 31, 2019 | Change | | :--- | :--- | :--- | :--- | | Total Assets | $1,029,196 | $792,438 | +$236,758 | | Inventories | $629,246 | $491,091 | +$138,155 | | Operating lease assets | $95,432 | $— | +$95,432 | | Total Liabilities | $693,237 | $457,127 | +$236,110 | | Floorplan payable | $451,934 | $273,756 | +$178,178 | | Operating lease liabilities (Current & Long-Term) | $105,432 | $— | +$105,432 | | Senior convertible notes | $— | $45,249 | -$45,249 | | Total stockholders' equity | $335,959 | $335,311 | +$648 | Consolidated Statements of Operations For Q2 2019, total revenue increased 6.0% to $315.0 million, with gross profit and net income also rising, reflecting strong sales across segments Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | YoY Change | Six Months 2019 | Six Months 2018 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $314,981 | $297,231 | +6.0% | $593,271 | $540,946 | +9.7% | | Gross Profit | $64,027 | $58,901 | +8.7% | $117,926 | $106,459 | +10.8% | | Income from Operations | $9,172 | $10,547 | -13.0% | $10,381 | $11,378 | -8.8% | | Net Income | $5,511 | $5,180 | +6.4% | $5,066 | $3,566 | +42.1% | | Diluted EPS | $0.25 | $0.23 | +8.7% | $0.23 | $0.16 | +43.8% | Consolidated Statements of Cash Flows For the six months ended July 31, 2019, net cash used in operations improved to $6.3 million, primarily due to inventory increases, while financing activities provided cash offsetting investing uses Cash Flow Summary for Six Months Ended July 31 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net Cash Used for Operating Activities | $(6,303) | $(14,087) | | Net Cash Used for Investing Activities | $(14,638) | $(5,309) | | Net Cash Provided by Financing Activities | $13,647 | $15,717 | | Net Change in Cash | $(7,228) | $(3,723) | Notes to Consolidated Financial Statements Key notes detail ASC 842 adoption, segment revenue, a German acquisition, an antitrust investigation contingency, and a corrected immaterial prior period error - The company adopted the new lease accounting standard ASC 842 on February 1, 2019, resulting in the recognition of $100.5 million in operating lease assets and $98.3 million in operating lease liabilities on the balance sheet[22][24][25] - On January 1, 2019, the Company acquired German agriculture equipment dealership ESB Agrartechnik GmbH for $3.0 million in cash, resulting in $0.5 million of goodwill[68] - The company is under investigation by the Romania Competition Council (RCC) regarding potential anti-competitive practices, but the outcome or potential loss cannot be estimated[72] - An immaterial error in prior period financial statements related to the elimination of internal parts and service transactions was identified and corrected, with no impact on gross profit, net income, or EPS for the three and six months ended July 31, 2018[77][78] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 fiscal 2020 revenue growth, margin improvements offset by rising operating expenses, decreased interest costs, and sufficient liquidity for the next 12 months Results of Operations Q2 revenue grew 6.0% driven by Agriculture and Construction, with improved gross margin offset by a 15.2% increase in operating expenses, impacting operating income Revenue by Segment - Q2 Comparison (in thousands) | Segment | Q2 2019 Revenue | Q2 2018 Revenue | % Change | | :--- | :--- | :--- | :--- | | Agriculture | $165,692 | $151,877 | +9.1% | | Construction | $84,039 | $77,521 | +8.4% | | International | $65,250 | $67,833 | -3.8% | | Total | $314,981 | $297,231 | +6.0% | Income Before Taxes by Segment - Q2 Comparison (in thousands) | Segment | Q2 2019 Income | Q2 2018 Income | % Change | | :--- | :--- | :--- | :--- | | Agriculture | $6,177 | $4,960 | +24.5% | | Construction | $1,334 | $(30) | n/m | | International | $505 | $3,726 | -86.4% | | Total Segment Income | $8,016 | $8,656 | -7.4% | - Operating expenses increased by $7.2 million (15.2%) in Q2 2020 compared to Q2 2019, primarily due to the AGRAM acquisition, ERP transition costs, and higher costs to support increased business volumes[97] - Floorplan and other interest expenses decreased by a combined 43.9% in Q2 2020, mainly due to lower levels of interest-bearing inventory and the full repayment of senior convertible notes in May 2019[83][99] Non-GAAP Financial Measures The company presents non-GAAP adjusted net income and diluted EPS, excluding specific one-time costs, to provide a clearer view of core business performance Reconciliation of GAAP to Non-GAAP Diluted EPS | | Three Months Ended July 31, | Six Months Ended July 31, | | :--- | :--- | :--- | | | 2019 | 2018 | 2019 | 2018 | | Diluted EPS (GAAP) | $0.25 | $0.23 | $0.23 | $0.16 | | ERP transition costs | $0.08 | $— | $0.13 | $— | | Loss on repurchase of senior convertible notes | $— | $0.03 | $— | $0.03 | | Restructuring and impairment charges | $— | $0.03 | $— | $0.03 | | Tax Effect of Adjustments | $(0.02) | $(0.01) | $(0.03) | $(0.01) | | Adjusted Diluted EPS (Non-GAAP) | $0.31 | $0.28 | $0.33 | $0.21 | Liquidity and Capital Resources The company's liquidity is supported by cash, operating cash flow, and $640.0 million in credit facilities, with senior convertible notes fully repaid, ensuring adequate resources for the next 12 months - Primary sources of liquidity are cash reserves, cash from operations, and borrowings under floorplan and other credit facilities[132] - As of July 31, 2019, the company had floorplan payable lines of credit totaling $640.0 million[133] - The company's senior convertible notes matured and the outstanding principal balance of $45.6 million was repaid in full on May 1, 2019, using available cash and borrowing capacity[136] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations and foreign currency exposure, particularly the Ukrainian hryvnia, which are managed through various strategies - A one percentage point increase in interest rates would decrease pre-tax earnings and cash flow by approximately $1.8 million over a 12-month period[155] - The company is exposed to foreign currency risk, particularly from its Ukrainian subsidiary's net monetary assets denominated in Ukrainian hryvnia (UAH), which could be impacted by political or economic instability[156] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by the report[158] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[159] PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any material litigation, though it handles various claims in the ordinary course of business - The company is not currently a party to any material litigation[160] Risk Factors This section refers the reader to the 'Risk Factors' discussed in the company's Annual Report on Form 10-K for the fiscal year ended January 31, 2019, for a detailed discussion of potential risks - The report directs investors to review the Risk Factors section of the Form 10-K for the fiscal year ended January 31, 2019[161] [Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECU RITIES%20AND%20USE%20OF%20PROCEEDS) There were no unregistered sales of equity securities during the period - None[162] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL financial statements - Exhibits filed include CEO/CFO certifications and XBRL data files[169]