Titan Machinery Inc. Announces Results for Fiscal Second Quarter Ended July 31, 2022

Rhea-AI Summary

Titan Machinery Inc. (Nasdaq: TITN) reported a strong fiscal Q2 2023, with revenue rising 31.5% to $496.5 million and record EPS of $1.10. The Agriculture segment led the revenue growth, supported by acquisitions. Operating expenses grew but decreased as a percentage of revenue. The company increased its fiscal 2023 EPS guidance to $3.70-$4.00. Gross margin improved to 20.7%, attributed to better equipment margins. Inventory increased to $556.4 million, while cash flow showed net cash used in operations of $21 million.

Positive

• Revenue increased 31.5% to $496.5 million.
• Record quarterly EPS of $1.10, highest in company history.
• Increased EPS guidance for fiscal 2023 to $3.70-$4.00.
• Gross profit margin rose to 20.7%, up from 19.9% year-over-year.
• Agriculture segment revenue jumped 59% to $349 million, aided by acquisitions.

Negative

• Operating expenses increased by $11.8 million to $68.8 million.
• Construction segment revenue declined 13.6% to $70 million year-over-year.

- Revenue for Second Quarter of Fiscal 2023 Increased 31.5% to $496.5 million -

- Record Quarterly EPS of $1.10 for Second Quarter of Fiscal 2023 -

- Increases Fiscal 2023 Modeling Assumptions, Expects Fiscal 2023 EPS in Range of $3.70-$4.00 -

WEST FARGO, N.D., Aug. 25, 2022 (GLOBE NEWSWIRE) -- Titan Machinery Inc. (Nasdaq: TITN), a leading network of full-service agricultural and construction equipment stores, today reported financial results for the fiscal second quarter ended July 31, 2022.

David Meyer, Titan Machinery’s Chairman and Chief Executive Officer, stated, "We are pleased to deliver second quarter earnings per share of $1.10 — which marks the highest quarterly earnings performance in our Company's history. This is the result of our team's unrelenting focus on customer service and operating efficiencies, which have translated to a consolidated pre-tax margin of 6.7%. Each of our operating segments contributed to these results, demonstrating our commitment to drive higher rates of pre-tax margin across our entire organization. Our Agriculture segment continues to perform well, and we expect this momentum to continue through the balance of fiscal 2023 with timely deliveries of inventory. Our Construction segment is also experiencing strong equipment demand and notable strength in parts, service and rental resulting in improved pre-tax margin. And, within our International segment, our business is proving to be resilient, particularly within our Ukraine market, where the farming industry has forged ahead with great resolve amid a very turbulent environment due to the ongoing conflict."

Fiscal 2023 Second Quarter Results

Consolidated Results
For the second quarter of fiscal 2023, revenue increased to $496.5 million compared to $377.6 million in the second quarter last year. Equipment sales were $375.2 million for the second quarter of fiscal 2023, compared to $272.7 million in the second quarter last year. Parts sales were $77.7 million for the second quarter of fiscal 2023, compared to $65.3 million in the second quarter last year. Revenue generated from service was $33.4 million for the second quarter of fiscal 2023, compared to $29.7 million in the second quarter last year. Revenue from rental and other was $10.3 million for the second quarter of fiscal 2023, compared to $9.9 million in the second quarter last year.

Gross profit for the second quarter of fiscal 2023 was $102.7 million, compared to $75.0 million in the second quarter last year. The Company's gross profit margin increased to 20.7% in the second quarter of fiscal 2023, compared to 19.9% in the second quarter last year. Gross profit margin primarily increased due to stronger equipment margins, which were partially offset by revenue mix, with a greater proportion of equipment revenue in the second quarter of fiscal 2023, versus higher margin parts and service revenue, as compared to the second quarter of the prior year.

Operating expenses increased by $11.8 million to $68.8 million for the second quarter of fiscal 2023, compared to $57.1 million in the second quarter last year, primarily due to higher variable expenses on increased revenues, as well as acquisition related expenses on the Heartland Ag Systems transaction that closed earlier this month. Operating expenses as a percentage of revenue decreased 120 basis points to 13.9% for the second quarter of fiscal 2023, compared to 15.1% of revenue in the prior year period.

Floorplan and other interest expense was $1.6 million in the second quarter of fiscal 2023, compared to $1.5 million for the same period last year.

In the second quarter of fiscal 2023, net income was $25.0 million, or earnings per diluted share of $1.10, compared to net income of $11.2 million, or earnings per diluted share of $0.50, for the second quarter of last year.

On an adjusted basis, net income for the second quarter of fiscal 2023 was $25.0 million, or adjusted earnings per diluted share of $1.10, compared to adjusted net income of $12.7 million, or adjusted earnings per diluted share of $0.56, for the second quarter of last year.

The Company generated $40.2 million in adjusted EBITDA in the second quarter of fiscal 2023, compared to $23.5 million in the second quarter of last year.

Segment Results
Agriculture Segment - Revenue for the second quarter of fiscal 2023 was $349.0 million, compared to $219.4 million in the second quarter last year. The sales increase was positively impacted by the acquisitions of Jaycox Implement and Mark's Machinery, which closed in December 2021 and April 2022, respectively. Pre-tax income for the second quarter of fiscal 2023 was $24.9 million, and included a $2.6 million benefit recognized on the expected achievement of annual manufacturer incentives. This compared to $12.1 million of pre-tax income in the second quarter last year.

Construction Segment - Revenue for the second quarter of fiscal 2023 was $70.0 million, compared to $80.9 million in the second quarter last year. While revenue was lower versus the prior year period due to the lost sales contributions from the Company’s fiscal 2022 fourth quarter divestiture of construction stores in Montana and Wyoming and our fiscal 2023 first quarter divestiture of our consumer products store in North Dakota, same-store sales increased 14.9%. Pre-tax income for the second quarter of fiscal 2023 was $3.9 million, and compared to $2.8 million in the second quarter last year.

International Segment - Revenue for the second quarter of fiscal 2023 was $77.6 million, compared to $77.3 million in the second quarter last year, while on a constant currency basis revenue was up $8.8 million or 11.3%. Pre-tax income for the second quarter of fiscal 2023 was $5.9 million. This compares to pre-tax income of $0.4 million in the second quarter last year. Adjusted pre-tax income for the second quarter of fiscal 2023 was $5.9 million, which excludes a negligible adjustment, compared to $1.9 million in the second quarter last year.

Balance Sheet and Cash Flow
Cash at the end of the second quarter of fiscal 2023 was $142.1 million. Inventories increased to $556.4 million as of July 31, 2022, compared to $421.8 million as of January 31, 2022. This inventory increase includes increases in new equipment inventory of $129.9 million and parts inventory of $13.2 million, which is partially offset by a $9.3 million decrease in used equipment inventory. Outstanding floorplan payables were $274.2 million on $743.0 million total available floorplan lines of credit as of July 31, 2022, compared to $135.4 million outstanding floorplan payables as of January 31, 2022.

In the first six months of fiscal 2023, net cash used for operating activities was $21.0 million, compared to net cash provided by operating activities of $28.6 million in the first six months of fiscal 2022.

Additional Management Commentary
Mr. Meyer added, "The integration of our Heartland Ag Systems acquisition is already well underway since closing in early August. Our teams are working hard to efficiently establish a complete distribution model that covers both the farmer and commercial applicator markets. This acquisition provides us the ability to generate significant revenue synergies through equipment packaging opportunities with the commercial applicator customer, and also provides additional avenues of growth as we leverage our expansive parts and service network for the commercial applicator market. We share remarkably similar cultures focused on exceptional customer service and look forward to the Heartland team's future contributions."

“We are in a great position to sustain our sales growth and as a result, we are increasing our modeling assumptions for both revenue and earnings per share for the second half of fiscal 2023. The sustained strength of our financial performance over the past two years reflects a combination of strong macro forces and our efficient operating structure. As we look ahead to fiscal 2024, we believe that these dynamics will continue to support a strong agriculture economy. We expect that equipment availability will remain constrained due to ongoing supply chain challenges of our suppliers, together with new cash crop equipment allocations and shorter pricing windows for fiscal 2024. However, we believe that the industry supply limitations and ongoing strong demand will extend the current favorable agriculture industry cycle and create an opportunity for Titan Machinery to continue demonstrating the strong earnings power of our business.”

Fiscal 2023 Modeling Assumptions
The following are the Company's current expectations for fiscal 2023 modeling assumptions.

	Current Assumptions		Previous Assumptions
Segment Revenue
Agriculture(1)	Up 50-55%		Up 37-42%
Construction(2)	Down 5-10%		Down 10-15%
International(3)	Down 0-5%		Down 0-5%
Diluted EPS(4)	$3.70 - $4.00		$2.90 - $3.20
(1) Includes the full year impact of the Jaycox acquisition, which closed in December 2021, the partial year impact of the Mark's Machinery acquisition, which closed in April 2022, and the expected partial year impact of the Heartland acquisition, which closed in August 2022.
(2) Includes the full year impact of the Montana and Wyoming divestiture in January 2022 and the partial year impact of the North Dakota divestiture in March 2022. Adjusting full year fiscal 2022 revenue by approximately $73 million, representing the fiscal 2022 revenue of these divested stores, results in a same-store sales assumption of up approximately 15-20%.
(3) Includes a reduction in revenue of approximately 45% from our Ukrainian subsidiary compared to fiscal 2022.
(4) Includes an estimated loss of approximately $0.05 per share from our Ukrainian subsidiary.

Conference Call and Presentation Information
The Company will host a conference call and audio webcast today at 7:30 a.m. Central time (8:30 a.m. Eastern time). Investors interested in participating in the live call can dial (877) 704-4453 from the U.S. International callers can dial (201) 389-0920. A telephone replay will be available approximately two hours after the call concludes and will be available through Thursday, September 8, 2022, by dialing (844) 512-2921 from the U.S., or (412) 317-6671 from international locations, and entering confirmation code 13732266.

A copy of the presentation that will accompany the prepared remarks on the conference call is available on the Company’s website under Investor Relations at www.titanmachinery.com. An archive of the audio webcast will be available on the Company’s website under Investor Relations at www.titanmachinery.com for 30 days following the audio webcast.

Non-GAAP Financial Measures
Within this release, the Company refers to certain adjusted financial measures, which have directly comparable GAAP financial measures as identified in this release. The Company believes that these non-GAAP financial measures, when reviewed in conjunction with GAAP financial measures, can provide more information to assist investors in evaluating current period performance and in assessing future performance. For these reasons, internal management reporting also includes non-GAAP financial measures. The non-GAAP financial measures in this release include adjustments for Ukraine remeasurement gains/losses and impairment charges. These non-GAAP financial measures should be considered in addition to, and not superior to or as a substitute for, the GAAP financial measures presented in this release and the Company's financial statements and other publicly filed reports. Non-GAAP financial measures presented in this release may not be comparable to similarly titled measures used by other companies. Investors are encouraged to review the reconciliations of adjusted financial measures used in this release to their most directly comparable GAAP financial measures. These reconciliations are attached to this release. The tables included in the Non-GAAP Reconciliations section reconcile adjusted net income (loss), adjusted EBITDA, adjusted diluted earnings (loss) per share, and adjusted income (loss) before income taxes (all non-GAAP financial measures) for the periods presented, to their respective most directly comparable GAAP financial measures.

About Titan Machinery Inc.
Titan Machinery Inc., founded in 1980 and headquartered in West Fargo, North Dakota, owns and operates a network of full service agricultural and construction equipment dealer locations in North America and Europe, servicing farmers, ranchers and commercial applicators. The network consists of US locations in Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, Washington, Wisconsin and Wyoming and its European stores are located in Bulgaria, Germany, Romania, and Ukraine. The Titan Machinery locations represent one or more of the CNH Industrial Brands, including Case IH, New Holland Agriculture, Case Construction, New Holland Construction, and CNH Industrial Capital. Additional information about Titan Machinery Inc. can be found at www.titanmachinery.com.

Forward Looking Statements
Except for historical information contained herein, the statements in this release are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “potential,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “will,” “plan,” “anticipate,” and similar words and expressions are intended to identify forward-looking statements. These statements are based upon the current beliefs and expectations of our management. Forward-looking statements made in this release, which include statements regarding the Heartland acquisition and modeling assumptions and expected results of operations for the fiscal year ending January 31, 2023 and may include statements regarding Agriculture, Construction, and International segment initiatives and improvements, segment revenue realization, growth and profitability expectations, the performance of our Ukrainian subsidiary within our International segment, inventory availability expectations, leverage expectations, agricultural and construction equipment industry conditions and trends, involve known and unknown risks and uncertainties that may cause Titan Machinery’s actual results in future periods to differ materially from the forecasted assumptions and expected results. The Company’s risks and uncertainties include, among other things, our ability to successfully integrate and realize growth opportunities and synergies in connection with the Heartland acquisition, the risk that we assume unforeseen or other liabilities in connection with the Heartland acquisition and the impact of any conditions or obligations imposed on us under the new Case IH dealer agreements for the commercial application equipment business. In addition, risks also include the impact of the Russia-Ukraine conflict on our Ukrainian subsidiary, the duration, scope and impact of the COVID-19 pandemic on the Company's operations, our substantial dependence on CNH Industrial including CNH Industrial's ability to design, manufacture and allocate inventory to our stores necessary to satisfy our customers' demands, supply chain disruptions impacting our suppliers, including CNH Industrial, the continued availability of organic growth and acquisition opportunities, potential difficulties integrating acquired stores, industry supply levels, fluctuating agriculture and construction industry economic conditions, the success of recently implemented initiatives within the Company’s operating segments, the uncertainty and fluctuating conditions in the capital and credit markets, difficulties in conducting international operations, foreign currency risks, governmental agriculture policies, seasonal fluctuations, the ability of the Company to manage inventory levels, weather conditions, disruption in receiving ample inventory financing, and increased competition in the geographic areas served. These and other risks are more fully described in Titan Machinery’s filings with the Securities and Exchange Commission, including the Company’s most recently filed Annual Report on Form 10-K, as updated in subsequently filed Quarterly Reports on Form 10-Q, as applicable. Titan Machinery conducts its business in a highly competitive and rapidly changing environment. Accordingly, new risks and uncertainties may arise. It is not possible for management to predict all such risks and uncertainties, nor to assess the impact of all such risks and uncertainties on Titan Machinery’s business or the extent to which any individual risk or uncertainty, or combination of risks and uncertainties, may cause results to differ materially from those contained in any forward-looking statement. Other than as required by law, Titan Machinery disclaims any obligation to update such risks and uncertainties or to publicly announce results of revisions to any of the forward-looking statements contained in this release to reflect future events or developments.

Investor Relations Contact:
ICR, Inc.
Jeff Sonnek, jeff.sonnek@icrinc.com
646-277-1263

TITAN MACHINERY INC.
Consolidated Condensed Balance Sheets
(in thousands)
(Unaudited)
	July 31, 2022				January 31, 2022
Assets
Current Assets
Cash	$	142,057			$	146,149
Receivables, net of allowance for expected credit losses		96,369				94,287
Inventories, net		556,383				421,758
Prepaid expenses and other		17,736				28,135
Total current assets		812,545				690,329
Noncurrent Assets
Property and equipment, net of accumulated depreciation		188,964				178,243
Operating lease assets		51,888				56,150
Deferred income taxes		2,239				1,328
Goodwill		9,535				8,952
Intangible assets, net of accumulated amortization		11,480				10,624
Other		1,220				1,041
Total noncurrent assets		265,326				256,338
Total Assets	$	1,077,871			$	946,667
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	28,344			$	25,644
Floorplan payable		274,244				135,415
Current maturities of long-term debt		6,650				5,876
Current operating lease liabilities		9,465				9,601
Deferred revenue		91,819				134,146
Accrued expenses and other		42,856				59,339
Income taxes payable		6,289				4,700
Total current liabilities		459,667				374,721
Long-Term Liabilities
Long-term debt, less current maturities		86,500				74,772
Operating lease liabilities		50,998				55,595
Deferred income taxes		1,991				2,006
Other long-term liabilities		4,438				4,374
Total long-term liabilities		143,927				136,747
Stockholders' Equity
Common stock		—				—
Additional paid-in-capital		255,188				254,455
Retained earnings		225,414				182,916
Accumulated other comprehensive loss		(6,325	)			(2,172	)
Total stockholders' equity		474,277				435,199
Total Liabilities and Stockholders' Equity	$	1,077,871			$	946,667

TITAN MACHINERY INC.
Consolidated Condensed Statements of Operations
(in thousands, except per share data)
(Unaudited)
	Three Months Ended July 31,								Six Months Ended July 31,
		2022				2021				2022				2021
Revenue
Equipment	$	375,216			$	272,733			$	731,582			$	548,713
Parts		77,693				65,317				146,255				127,942
Service		33,365				29,676				62,887				57,379
Rental and other		10,269				9,904				16,825				16,300
Total Revenue		496,543				377,630				957,549				750,334
Cost of Revenue
Equipment		323,988				240,332				634,222				484,008
Parts		52,706				46,089				100,015				90,529
Service		11,072				9,771				21,832				19,065
Rental and other		6,078				6,420				10,087				10,737
Total Cost of Revenue		393,844				302,612				766,156				604,339
Gross Profit		102,699				75,018				191,393				145,995
Operating Expenses		68,828				57,074				132,980				113,516
Impairment of Intangible and Long-Lived Assets		—				1,498				—				1,498
Income from Operations		33,871				16,446				58,413				30,981
Other Income (Expense)
Interest and other income		873				654				1,365				1,320
Floorplan interest expense		(245	)			(350	)			(499	)			(768	)
Other interest expense		(1,349	)			(1,118	)			(2,545	)			(2,222	)
Income Before Income Taxes		33,150				15,632				56,734				29,311
Provision for Income Taxes		8,191				4,383				14,235				7,515
Net Income	$	24,959			$	11,249				42,499				21,796
Diluted Earnings per Share	$	1.10			$	0.50			$	1.88			$	0.97
Diluted Weighted Average Common Shares		22,392				22,276				22,357				22,220

TITAN MACHINERY INC.
Consolidated Condensed Statements of Cash Flows
(in thousands)
(Unaudited)
	Six Months Ended July 31,
		2022				2021
Operating Activities
Net income	$	42,499			$	21,796
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		10,987				10,602
Impairment		—				1,498
Other, net		5,122				4,893
Changes in assets and liabilities
Inventories		(137,708	)			(17,166	)
Manufacturer floorplan payable		105,415				56,436
Other working capital		(47,268	)			(49,498	)
Net Cash Provided by (Used for) Operating Activities		(20,953	)			28,561
Investing Activities
Property and equipment purchases		(14,507	)			(19,834	)
Proceeds from sale of property and equipment		1,628				420
Acquisition consideration, net of cash acquired		(7,675	)			—
Other, net		(182	)			12
Net Cash Used for Investing Activities		(20,736	)			(19,402	)
Financing Activities
Net change in non-manufacturer floorplan payable		35,716				(22,731	)
Net proceeds from long-term debt and finance leases		4,536				1,334
Other, net		(689	)			(976	)
Net Cash Provided by (Used for) Financing Activities		39,563				(22,373	)
Effect of Exchange Rate Changes on Cash		(1,966	)			(192	)
Net Change in Cash		(4,092	)			(13,406	)
Cash at Beginning of Period		146,149				78,990
Cash at End of Period	$	142,057			$	65,584

TITAN MACHINERY INC.
Segment Results
(in thousands)
(Unaudited)
	Three Months Ended July 31,											Six Months Ended July 31,
		2022				2021			% Change				2022				2021			% Change
Revenue
Agriculture	$	348,956			$	219,364			59.1	%		$	667,503			$	448,915			48.7	%
Construction		70,022				80,943			(13.5	)%			136,986				149,550			(8.4	)%
International		77,565				77,323			0.3	%			153,060				151,869			0.8	%
Total	$	496,543			$	377,630			31.5	%		$	957,549			$	750,334			27.6	%
Income Before Income Taxes
Agriculture	$	24,895			$	12,067			106.3	%		$	41,344			$	23,292			77.5	%
Construction		3,923				2,815			39.4	%			7,132				2,953			141.5	%
International		5,870				430			n/m				10,195				3,238			n/m
Segment Income Before Income Taxes		34,688				15,312			126.5	%			58,671				29,483			99.0	%
Shared Resources		(1,538	)			320			n/m				(1,937	)			(172	)		n/m
Total	$	33,150			$	15,632			112.1	%		$	56,734			$	29,311			93.6	%

TITAN MACHINERY INC.
Non-GAAP Reconciliations
(in thousands, except per share data)
(Unaudited)
		Three Months Ended July 31,								Six Months Ended July 31,
			2022				2021				2022			2021
Adjusted Net Income
Net Income		$	24,959			$	11,249			$	42,499		$	21,796
Adjustments
Impairment charges			—				1,498				—			1,498
Ukraine remeasurement (gain) / loss (1)			21				(53	)			315			(183	)
Total Adjustments			21				1,445				315			1,315
Adjusted Net Income		$	24,980			$	12,694			$	42,814		$	23,111
Adjusted Diluted EPS
Diluted EPS		$	1.10			$	0.50			$	1.88		$	0.97
Adjustments (2)
Impairment charges			—				0.07				—			0.07
Ukraine remeasurement (gain) / loss (1)			—				(0.01	)			0.01			(0.01	)
Total Adjustments			—				0.06				0.01			0.06
Adjusted Diluted EPS		$	1.10			$	0.56			$	1.89		$	1.03
Adjusted Income Before Income Taxes
Income Before Income Taxes		$	33,150			$	15,632			$	56,734		$	29,311
Adjustments
Impairment charges			—				1,498				—			1,498
Ukraine remeasurement (gain) / loss			21				(53	)			315			(183	)
Total Adjustments			21				1,445				315			1,315
Adjusted Income Before Income Taxes		$	33,171			$	17,077			$	57,049		$	30,626
Adjusted Income Before Income Taxes - International
Income (Loss) Before Income Taxes		$	5,870			$	430			$	10,195		$	3,238
Adjustments
Impairment charges			—				1,498				—			1,498
Ukraine remeasurement (gain) / loss			21				(53	)			315			(183	)
Total Adjustments			21				1,445				315			1,315
Adjusted Income Before Income Taxes		$	5,891			$	1,875			$	10,510		$	4,553
Adjusted EBITDA
Net Income		$	24,959			$	11,249			$	42,499		$	21,796
Adjustments
Interest expense, net of interest income			1,283				1,049				2,392			2,100
Provision for income taxes			8,191				4,383				14,235			7,515
Depreciation and amortization			5,781				5,395				10,987			10,602
EBITDA			40,214				22,076				70,113			42,013
Adjustments
Impairment charges			—				1,498				—			1,498
Ukraine remeasurement (gain) / loss			21				(53	)			315			(183	)
Total Adjustments			21				1,445				315			1,315
Adjusted EBITDA		$	40,235			$	23,521			$	70,428		$	43,328
(1) Due to the income tax valuation allowance on the Ukrainian and German subsidiaries, there are no tax adjustments of the Ukraine remeasurement (gain)/loss for the periods ending July 31, 2022 and 2021 or the impairment charge for the periods ending July 31, 2021.
(2) Adjustments are net of amounts allocated to participating securities where applicable.

FAQ

What were Titan Machinery's Q2 2023 earnings results?

Titan Machinery reported revenue of $496.5 million and EPS of $1.10 for Q2 2023.

How did Titan Machinery's revenue change in Q2 2023?

Revenue increased by 31.5% compared to Q2 2022.

What is Titan Machinery's EPS guidance for fiscal 2023?

The company raised its EPS guidance for fiscal 2023 to a range of $3.70-$4.00.

What were the key segments driving Titan Machinery's revenue growth?

The Agriculture segment significantly boosted revenue, growing 59% year-over-year.

What challenges did Titan Machinery face in Q2 2023?

The Construction segment saw a revenue decline due to divestitures of certain stores.