Titan Machinery Announces 21% Increase in FY22 Revenue

For the fourth quarter of Fiscal 2022, revenue was $507.6 million, compared to revenue of $436.7 million in the fourth quarter of the prior fiscal year. Equipment revenue was $413.2 million for the fourth quarter of fiscal 2022, compared to $354 million in the fourth quarter of the prior year. Parts revenue was $58.5 million for the fourth quarter of fiscal 2022, compared to $49.8 million in the fourth quarter of the prior year. Revenue from the service was $26.2 million for the fourth quarter of fiscal 2022, compared to $22.9 million in the fourth quarter of the prior year. Rental and other revenue was $9.8 million for the fourth quarter of fiscal 2022, compared to $9.9 million in the fourth quarter of the prior year.

Gross profit for the fourth quarter of fiscal 2022 increased to $94.2 million from $67.7 million in the fourth quarter of the prior year. The Company’s gross profit margin increased to 18.6% in the fourth quarter of fiscal 2022, compared to 15.5% in the fourth quarter of the prior fiscal year. The higher gross profit margin in the current quarter is primarily attributable to strong equipment margins, which were enhanced by increased amounts earned from manufacturer incentives.

Operating expenses were $64.6 million for the fourth quarter of fiscal 2022, compared to $60.5 million in the fourth quarter of the prior year. Operating expenses as a percentage of revenue improved 120 basis points to 12.7% in the fourth quarter of fiscal 2022, compared to 13.9% of revenue in the prior year period, and benefited from the recognition of a $5.7 million pre-tax gain on the sale of the Company’s Montana and Wyoming construction equipment store locations.

Floor plan and other interest expense was $1.4 million for the fourth quarter of fiscal 2022, compared to $1.5 million for the same period last year.

In the fourth quarter of fiscal 2022, net income was $22.4 million, or diluted earnings per share of $0.99, which includes approximately $0.47 of benefits associated with the plan increase incentives, a gain on the sale of Montana and Wyoming construction stores and a partial release of an income tax valuation allowance. This compares to fourth quarter fiscal 2021 net earnings of $0.8 million and earnings per diluted share of $0.03, and adjusted net earnings of $1.9 million and adjusted earnings per diluted share of $0.09.

The Company generated Adjusted EBITDA of $35.9 million in the fourth quarter of Fiscal 2022, compared to $13.7 million in the fourth quarter of Fiscal 2021.

Sector results

Agricultural sector

Revenue for the fourth quarter of fiscal 2022 was $346.3 million, compared to $303.2 million in the fourth quarter of the prior year. Pretax earnings and adjusted pretax earnings for the fourth quarter of fiscal 2022 were $17.7 million, and included a $5.1 million benefit earned from manufacturer incentives. That compares to pretax profit of $7.9 million and adjusted pretax profit of $8 million in the fourth quarter last year.

Construction segment

Revenue for the fourth quarter of fiscal 2022 was $87.9 million, compared to $88.9 million in the fourth quarter of the prior year. While revenues were essentially flat compared to the prior year period, same store sales increased 7.2% primarily due to increased demand for equipment, but were offset by loss of sales contribution from the company’s stores in Arizona following the January 2021 divestiture. Pretax income and adjusted pretax income for the fourth quarter of fiscal 2022 were $9 million and included a gain of $5.7 million associated with the sale of the Montana and Wyoming construction stores. That compares to pre-tax profit of $0.2 million and adjusted pre-tax profit of $0.6 million in the fourth quarter last year.

International sector

Revenue for the fourth quarter of fiscal 2022 was $73.4 million, compared to $44.6 million in the fourth quarter of the prior year. Pretax profit for the fourth quarter of fiscal 2022 was $3.1 million and included a $1.3 million benefit earned from manufacturer incentives. That compares to a pretax loss of $2.9 million in the fourth quarter last year. Adjusted pretax profit for the fourth quarter of fiscal 2022 was $3.1 million, compared to an adjusted pretax loss of $2.7 million in the fourth quarter of the prior year.

Results for the 2022 financial year

Revenue increased 21.3% to $1.7 billion for fiscal 2022. Net income for fiscal 2022 was $66.0 million, or $2.92 per diluted share, compared to $19.4 million, or $0.86 per diluted share, for the prior year. Adjusted net income for fiscal 2022 was $67.3 million, or $2.98 per diluted share, compared to adjusted net income of $24.5 million, or $1.09 per diluted share, for the previous year. The Company generated Adjusted EBITDA of $114.5 million in fiscal 2022, representing an increase of 75.1% from Adjusted EBITDA of $65.4 million in fiscal year 2021.

Balance sheet and cash flow

Cash at the end of the fourth quarter of fiscal 2022 was $146.1 million. Inventory increased to $421.8 million as of January 31, 2022, compared to $418.5 million as of January 31, 2021. This increase in inventory reflects a $16.9 million increase in parts inventory, a decrease new equipment inventories of $10.9 million and a decrease of used equipment inventories of $3.3 million. The floor plan’s outstanding debt was $135.4 million out of a total of $752.0 million of available floor plan credit lines as of January 31, 2022, compared to $161.8 million of outstanding debts on the floor plan as of January 31, 2021.

For the year ended January 31, 2022, the Company’s net cash provided by operating activities was $158.9 million, compared to $173.0 million for the year ended January 31, 2021.

Modeling assumptions for fiscal year 2023

Titan Machinery assumes the following for its fiscal year 2023:

  • Farm income — Increase of 22 to 27%
  • Construction revenue — Down 12-17%
  • International revenue — Down 8 to 13%

Ukrainian geopolitical conflict

Meyer added, “The entire Titan Machinery organization is focused on the well-being of our employees and customers in Ukraine. Our main concern is the safety of our employees, as we are providing support where we can to help them through this difficult situation.

On February 24, 2022, the ongoing conflict between Russia and Ukraine escalated significantly and the Company is actively monitoring the evolving geopolitical situation between Ukraine and Russia and supporting its employees located in the region.

For the fiscal year ended January 31, 2022, the revenues and assets of Titan Machinery Ukraine, its wholly-owned Ukrainian subsidiary, represented less than 5% of the Company’s total revenues and assets and less than 25% of the of our international segment. Inventories and fixed assets (mainly vehicles) as well as trade receivables total approximately $28 million and represent the riskiest assets of this subsidiary. Given the unknown duration of the dispute, the Company is currently making a very small revenue contribution from its Ukraine operations and therefore estimates losses due to unabsorbed expenses at approximately $0.25 per share during the financial year 2023, excluding any impairment of assets that may occur.

Analyst Commentary

RW Baird analyst Mircea (Mig) Dobre said in a March 24 note to investors that the fundamentals of Titan’s business remain strong, with the obvious exception of Ukraine.

“The quarter was slightly lower than expected (excluding one-time items) as some shipments slipped in FY23 given OEM supply chain challenges,” he said. “TITN’s business fundamentals are strong (Ukraine being the obvious exception) with a demand cycle likely to extend into CY24. That said, with exceptionally lean inventory relative to demand and With new equipment volume growth remaining limited, we see limited relative upside potential to prior expectations.

“…The operating environment remains favorable in the agriculture and construction sectors, we also view the continued pruning of low-margin construction stores as a long-term positive, as well as acquisitions underway in the US agricultural space.”