Titan Machinery Inc. (Nasdaq: TITN) ("Titan" or the "Company"), a leading network of full-service agricultural and construction equipment stores, today reported financial results for the fiscal first quarter ended April 30, 2024.

"Our first quarter results reflected an industry-wide transition to a more challenging market environment, characterized by softening demand and excess supply of inventory in many product categories as OEM delivery timelines returned to normal and as new sales converted to used trade-ins," stated Bryan Knutson, Titan Machinery's President and Chief Executive Officer. "Lower net farm income and the extended duration of higher interest rates are impacting farmer sentiment and influencing farmers' equipment purchasing decisions across our geographic footprint. As the cycle progresses, our entire team remains focused on advancing our customer care strategy to ensure we have the service capacity available to meet our customers' needs, controlling the aspects of the business that we can such as our fixed overhead and managing our inventory to align with demand. We believe that the combination of these levers will allow us to generate significantly improved financial results versus the prior cycle, and demonstrate the numerous strategic improvements we've made to our business over the past several years."

Consolidated Results

For the first quarter of fiscal 2025, revenue increased to $628.7 million compared to $569.6 million in the first quarter of last year. Equipment revenue was $468.1 million for the first quarter of fiscal 2025, compared to $429.4 million in the first quarter last year. Parts revenue was $108.2 million for the first quarter of fiscal 2025, compared to $96.6 million in the first quarter last year. Revenue generated from service was $45.1 million for the first quarter of fiscal 2025, compared to $34.9 million in the first quarter last year. Revenue from rental and other was $7.3 million for the first quarter of fiscal 2025, compared to $8.7 million in the first quarter last year.

Gross profit for the first quarter of fiscal 2025 was $121.8 million, compared to $118.6 million in the first quarter last year. The Company's gross profit margin was 19.4% in the first quarter of fiscal 2025, compared to 20.8% in the first quarter last year. The year-over-year decrease in gross profit margin in the first quarter was primarily due to lower equipment margins which is being driven by higher levels of inventory and softening demand.

Operating expenses were $99.2 million for the first quarter of fiscal 2025, compared to $81.3 million in the first 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 15.8% for the first quarter of fiscal 2025, compared to 14.3% of revenue in the first quarter last year.

Floorplan interest expense and other interest expense aggregated to $9.5 million in the first quarter of fiscal 2025, compared to $2.5 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 first quarter of fiscal 2025, net income was $9.4 million, or earnings per diluted share of $0.41, compared to net income of $27.0 million, or earnings per diluted share of $1.19, for the first quarter of last year. The main drivers of the decrease in profitability were lower equipment gross margins and incremental floorplan interest expense.

The Company generated $23.9 million in EBITDA in the first quarter of fiscal 2025, compared to $43.6 million generated in the first quarter of last year.

Segment Results

Agriculture Segment - Revenue for the first quarter of fiscal 2025 was $447.7 million, compared to $423.2 million in the first quarter last year. Revenue growth of 5.8% was led by same-store growth of 4.3%, and was also supported by contributions from the acquisition of Scott Supply, Co. in January 2024. Revenue growth was limited by softening of demand for equipment purchases due to the expected decline of net farm income this growing season. Pre-tax income for the first quarter of fiscal 2025 was $13.0 million, compared to $24.2 million in the first quarter of the prior year.

Construction Segment - Revenue for the first quarter of fiscal 2025 was $71.5 million, compared to $72.0 million in the first quarter last year. The slight decline in segment revenue was primarily a product of modest growth in equipment sales that were offset by lower parts sales. Pre-tax income for the first quarter of fiscal 2025 was $0.3 million, compared to $4.5 million in the first quarter last year.

Europe Segment - Revenue for the first quarter of fiscal 2025 was $65.1 million, compared to $74.4 million in the first quarter last year; foreign currency fluctuations accounted for a $0.6 million increase in revenue. Net of the effect of these foreign currency fluctuations, revenue decreased $10.0 million, or 13.4%. The year-over-year decrease in revenue was driven by a softening of new equipment demand, which was only partially offset by growth in parts and service revenue. Pre-tax income for the first quarter of fiscal 2025 was $1.4 million, compared to pre-tax income of $6.4 million in the first quarter of the prior year.

Australia Segment - Revenue for the first quarter of fiscal 2025 was $44.4 million and pre-tax loss for the first quarter of fiscal 2025 was $0.5 million.

Balance Sheet and Cash Flow

Cash at the end of the first quarter of fiscal 2025 was $35.7 million. Inventories increased to $1.4 billion as of April 30, 2024, compared to $1.3 billion as of January 31, 2024. This change in inventory reflects increases of $105.5 million and $27.1 million in new equipment and used equipment inventories respectively, partially offset by a decrease of $7.6 million in parts inventory. Outstanding floorplan payables were $1.0 billion on $1.4 billion total available floorplan and working capital lines of credit as of April 30, 2024, compared to $893.8 million outstanding floorplan payables as of January 31, 2024.

For the first three months ended April 30, 2024, the Company's net cash used for operating activities was $32.4 million, compared to net cash used for operating activities of $77.7 million for the first three months ended April 30, 2023. This decrease in usage of operating cash flow was primarily driven by favorable timing of collection of receivables as compared to the prior year first quarter. Net cash provided by financing activities decreased year over year by $55.1 million in the first three months of fiscal year 2025 to $43.1 million. This decrease was entirely driven by a $50.8 million decrease in non-manufacturer floorplan payables, which represents the Company's other credit lines including its Bank Syndicate Agreement.

Additional Management Commentary

Mr. Knutson continued, "We remain focused on serving our customers who feed and build the world while navigating the declining market environment. In consideration of the incrementally softer demand than we initially anticipated, we are updating our full year modeling assumptions for revenue, and also modifying our underlying assumptions for equipment margins and floorplan interest expense. We are laser focused on utilizing the tools at our disposal to improve our inventory levels as efficiently as possible to ensure we are well positioned moving forward."

In a note to investors, RW Baird analysts had the following to say:

We have argued for more than a year that TITN will experience meaningful margin compression as equipment supply increases, the updated guidance reflects that; what concerns us is that equipment margins are now towards decade lows before inventory is truly destocked and before real compression in volumes flow through the P&L. Furthermore, we see rising risk from used equipment prices which add another layer of potential margin compression. FY26 sets up as another year of top-line and potentially margin compression, the stock should continue to struggle as a result.

Lastly, TITN’s inability to destock in 2HCY24 suggests CNH production cuts are not sufficient (another guidance cut coming?), DE could emerge into 2025 with a much leaner channel with meaningful implications for relative fundamental and stock performance.

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