Titan Machinery(TITN) - 2020 Q4 - Annual Report

Part I Business Titan Machinery operates full-service agricultural and construction equipment dealerships in the U.S. and Europe - The company is the largest retail dealer of Case IH Agriculture equipment globally and the largest retail dealer of Case Construction equipment in North America[11] - Operates through three segments: Agriculture, Construction, and International, with a network of 74 stores in the U.S. and 33 in Europe[12][13] Revenue Contribution by Activity (Fiscal Years 2018-2020) | Revenue Source | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | Equipment | 70.3% | 72.1% | 70.8% | | Parts | 17.9% | 16.7% | 17.0% | | Service | 7.6% | 6.9% | 7.4% | | Rental & Other | 4.2% | 4.3% | 4.7% | - Growth strategy focuses on increasing same-store sales and pursuing strategic acquisitions, having completed over 50 dealership acquisitions since January 2003[38][39] Risk Factors The company faces risks from CNH Industrial dependence, market cyclicality, international operations, and ERP system issues - Substantial dependence on CNH Industrial, which supplied approximately 74% of new Agriculture equipment, 70% of new Construction equipment, and 62% of new International equipment in fiscal 2020[80] - Agricultural and construction equipment sales are cyclical and affected by external factors like net farm income, commodity prices, trade policies, and public infrastructure spending[89][90] - The COVID-19 pandemic is identified as a significant risk that could disrupt supply chains, decrease customer demand, and adversely impact business operations and financial condition[93] - International operations, which accounted for 18.1% of fiscal 2020 revenue, expose the company to risks including currency fluctuations, political instability (particularly in Ukraine), and different legal/regulatory environments[101][104] - The company is implementing a new Enterprise Resource Planning (ERP) system, and potential problems with its design or implementation could interfere with business operations and financial reporting[116] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[135] Properties As of January 31, 2020, the company operates 107 equipment stores across the U.S. and Europe, mostly leased Store Count by Segment and Location (as of Jan 31, 2020) | Location | Agriculture | Construction | International | Total | | :--- | :--- | :--- | :--- | :--- | | US States | | | | | | North Dakota | 10 | 5 | — | 15 | | Minnesota | 10 | 3 | — | 13 | | Iowa | 10 | 3 | — | 13 | | Nebraska | 11 | 2 | — | 13 | | South Dakota | 8 | 2 | — | 10 | | Other US | — | 9 | — | 9 | | European Countries | | | | | | Romania | — | — | 12 | 12 | | Ukraine | — | — | 8 | 8 | | Bulgaria | — | — | 7 | 7 | | Germany | — | — | 5 | 5 | | Serbia | — | — | 1 | 1 | | Total | 49 | 25 | 33 | 107 | - The company leases 94 store facilities and owns 13 store facilities (9 in the U.S. and 4 in Germany)[138][140] Legal Proceedings The company is subject to routine legal claims, with no material financial impact expected from their resolution - The company is subject to routine claims and suits, but management believes their resolution will not have a material financial impact[142] Mine Safety Disclosures This item is not applicable to the company - Not applicable[143] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities TITN common stock trades on NASDAQ, has not paid dividends, and underperformed key indices over five years - Common stock is listed on the NASDAQ Stock Market under the symbol "TITN"[149] - The company has not paid dividends and does not anticipate paying them in the foreseeable future, prioritizing expansion and managing debt[150] Stock Performance Comparison (Value of $100 Investment) | Date (Jan 31) | Titan Machinery Inc. | Russell 2000 Index | S&P 500 Retail Index | | :--- | :--- | :--- | :--- | | 2015 | $100.00 | $100.00 | $100.00 | | 2016 | $60.08 | $88.84 | $115.56 | | 2017 | $97.74 | $116.86 | $135.00 | | 2018 | $152.09 | $135.15 | $194.19 | | 2019 | $132.63 | $129.01 | $203.54 | | 2020 | $86.41 | $138.71 | $243.26 | Selected Financial Data Selected financial data shows fiscal 2020 revenue of $1.31 billion and net income of $14.0 million Selected Statement of Operations Data (in thousands, except per share data) | Fiscal Year Ended Jan 31 | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $1,305,171 | $1,261,505 | $1,192,606 | $1,201,697 | $1,355,792 | | Income (Loss) from Operations | $21,332 | $27,481 | $925 | $(2,372) | $(23,110) | | Net Income (Loss) | $13,953 | $12,182 | $(7,049) | $(14,179) | $(37,892) | | Diluted EPS | $0.63 | $0.55 | $(0.32) | $(0.65) | $(1.76) | Selected Balance Sheet Data (in thousands) | As of Jan 31 | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Assets | $975,343 | $792,438 | $760,308 | $771,422 | $1,047,875 | | Floorplan payable | $371,772 | $273,756 | $247,392 | $233,228 | $444,780 | | Total stockholders' equity | $345,104 | $335,311 | $321,855 | $321,179 | $338,349 | - The number of stores at fiscal year-end was 107 in 2020, 104 in 2019, 97 in 2018, 109 in 2017, and 108 in 2016[158] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses fiscal 2020 performance, noting revenue growth, improved gross margin, increased expenses, and liquidity Results of Operations (FY2020 vs. FY2019) Fiscal 2020 revenue increased to $1.31 billion, driven by parts and service, with improved gross margin Revenue by Source (FY2020 vs. FY2019) | Revenue Source | FY 2020 (in thousands) | FY 2019 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Equipment | $917,202 | $909,178 | 0.9% | | Parts | $234,217 | $210,796 | 11.1% | | Service | $99,165 | $86,840 | 14.2% | | Rental and other | $54,587 | $54,691 | (0.2)% | | Total Revenue | $1,305,171 | $1,261,505 | 3.5% | Gross Profit and Margin by Source (FY2020 vs. FY2019) | Source | Gross Profit FY20 (k) | Gross Margin FY20 | Gross Profit FY19 (k) | Gross Margin FY19 | | :--- | :--- | :--- | :--- | :--- | | Equipment | $98,495 | 10.7% | $96,711 | 10.6% | | Parts | $69,027 | 29.5% | $61,181 | 29.0% | | Service | $65,719 | 66.3% | $57,804 | 66.6% | | Rental and other | $17,577 | 32.2% | $15,892 | 29.1% | | Total | $250,818 | 19.2% | $231,588 | 18.4% | - Operating expenses increased by $24.2 million (12.0%) in fiscal 2020, primarily due to ERP transition costs, acquisitions, and costs to support higher business volumes[217] Segment Income (Loss) Before Income Taxes (FY2020 vs. FY2019) | Segment | FY 2020 (in thousands) | FY 2019 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Agriculture | $18,036 | $16,799 | 7.4% | | Construction | $(2,290) | $(4,400) | 48.0% | | International | $504 | $5,160 | (90.2)% | | Total Segment Income | $16,250 | $17,559 | (7.5)% | Non-GAAP Financial Measures The company provides non-GAAP measures like Adjusted Net Income and EBITDA, showing improved fiscal 2020 performance Reconciliation of Net Income to Adjusted Net Income and Adjusted EBITDA (in thousands) | Measure | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Net Income (GAAP) | $13,953 | $12,182 | | Adjustments (pre-tax) | $10,939 | $3,185 | | Tax Effect & Valuation Allowance | $(7,182) | $(636) | | Adjusted Net Income (Non-GAAP) | $17,710 | $14,731 | | | | | | EBITDA (Non-GAAP) | $46,840 | $46,577 | | Adjustments | $6,261 | $3,185 | | Adjusted EBITDA (Non-GAAP) | $53,101 | $49,762 | Reconciliation of Diluted EPS to Adjusted Diluted EPS | Measure | FY 2020 | FY 2019 | | :--- | :--- | :--- | | Diluted EPS (GAAP) | $0.63 | $0.55 | | Total Adjustments | $0.16 | $0.12 | | Adjusted Diluted EPS (Non-GAAP) | $0.79 | $0.67 | Liquidity and Capital Resources Liquidity relies on operations and credit facilities, with $717.0 million in floorplan lines and a new credit agreement - As of Jan 31, 2020, the company had floorplan payable lines of credit totaling $717.0 million, including a $450.0 million facility with CNH Industrial Capital and a $140.0 million line under the Wells Fargo Credit Agreement[238] - The remaining outstanding Senior Convertible Notes ($45.6 million principal) were repaid on their maturity date of May 1, 2019[241][243] - Subsequent to fiscal year-end, on April 3, 2020, the company entered into a new five-year, $250 million credit facility, enhancing liquidity and extending debt maturity[239][528] - Projected capital expenditures for fiscal 2021 are approximately $20.0 million for property and equipment and $15.0 million for the rental fleet[247] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations and foreign currency exposure, particularly UAH - 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[270] - The company is exposed to foreign currency risk from its international operations, with transactional and translational risks. It holds $3.8 million of net monetary assets denominated in Ukrainian hryvnia (UAH) as of Jan 31, 2020[271] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal years 2018-2020 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes or disagreements with its accountants on accounting or financial disclosure - None[532] Controls and Procedures Management and auditors concluded that disclosure controls and internal control over financial reporting were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of January 31, 2020[533] - Management concluded that internal control over financial reporting was effective as of January 31, 2020, a conclusion audited and affirmed by Deloitte & Touche LLP[534][535] Other Information The company reports no other information for this item - None[537] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the proxy statement - Information required by this item is incorporated by reference from the company's 2020 proxy statement[539] Executive Compensation Information on executive compensation is incorporated by reference from the company's 2020 proxy statement - Information required by this item is incorporated by reference from the company's 2020 proxy statement[540] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the proxy statement - Information required by this item is incorporated by reference from the company's 2020 proxy statement[541] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the proxy statement - Information required by this item is incorporated by reference from the company's 2020 proxy statement[542] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the company's 2020 proxy statement - Information required by this item is incorporated by reference from the company's 2020 proxy statement[543] Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K - Lists all financial statements, schedules, and exhibits filed with the Form 10-K[545][546] - Key exhibits include dealer and financing agreements with CNH Industrial, the Third Amended and Restated Credit Agreement, and executive employment agreements[548][550][552] Form 10-K Summary This item is not applicable to the company - Not applicable[555]