Friday, June 8, 2018

Titan Machinery Files 10Q Sending Stock to New YTD Low





Securities and Exchange Commission Division of Corporate Finance has commented on Titan Machinery's past Filings, IS it time for them to return? 
Is it Time for FINRA and SEC to start looking at the unusual trading ahead of news in the stock of Titan?
    Titan Machinery laid off 14% of their American workers and closed 15 locations in last year to cut costs. Why did they pay one landlord in April 2018 $3 million to terminate a lease? Would it not have been in the best interest of the shareholders to keep the location? Who was the landlord of that location? was it a related party transaction? who was responsible for signing that lease and when was it signed and what was the term of that lease?
Why didn't they sell the 15 locations? Were all 15 locations worthless? If one location cost $3 million to terminate a lease does that mean all 100 locations are worthless? The company has purchased over 50 acquisitions over last two decades and are closing the stores instead of selling the stores. The company only has $50 million in cash and $395 million in current liabilities as of April 30,2018. But with the Wells Fargo Indenture due May 1,2019, the $68 million note is now moved from long term debt and needs to be added to the current liability of $395 million.


          


 In the Annual Report (10K) there is no mention that the company is in risk of going bankrupt but instead says if they violate covenants that they "would work with lenders" 
 
In 2017 the CEO said company was closing 15 locations to cut cost and laid off a significant amount of employees. This is what Wall Street wanted to hear and the stock SkyRocketed. The CEO sold over $2 million worth of stock with some sales above $21. While the COO has sold 26% of his position at $24 a share. Makes one wonder if the real reason for the store closings was for the stock to go up so they could ring their personal cash registers. The CFO was granted 149% performance Bonus for FY2018 year end.
Also during FY2018 the co-founder of the company who abruptly resigned as the President received the balance of $700,000 of his severance package. (There was no mention whether he and his spouse will still have use of aircraft company has an ownership.)
   Titan Machinery disclosed in their 10Q yesterday for the first time that Equipment revenue is made up of NonCash Consideration of equipment trade ins. How did the NonCash Consideration values contribute to the improved profit margins on the equipment sales figure? Why didn't Deloitte want this disclosed in the past? Was all the Inventory recently liquidated at auctions for a fraction on the dollar originally booked as NonCash Consideration when it was originally accepted in trade ins? what values were given on the trade-ins and how over priced were those assets inflated?  How did the NonCash Considerations effect the BONUSES and Stock Grants that were received by the Officers of the company as reward for reaching Sales milestones over the years. Note: In most recent 10K, The officers received 149% Bonuses.
      TItan Machinery Current Liabilities increased from $320 to $390 million. The Wells Fargo Indenture due May 1,2019 is approximately $70 million and the company only has $50 million cash. Titan generated negative operational cash flow of Negative $27 million in Q1. a decrease of $68 million vs Fy2018 Q1 . with negative cash flow the co may need to Raise Capital via a Debt Underwriting or an equity raise. The interest from more debt will eat any chance of a profit and additional shares thru an issuance of more stock will dilute shareholders.
In its most recent 10Q Titan Machinery disclosed for the first time that they use non cash consideration to account for equipment revenue.
This practice has never been disclosed before.
The company prior to Q filing a week earlier made a press release touting their dramatically improved equipment profit margins.
I question whether the co used non cash consideration to account for equipment revenue in the past? If so, I question the accuracy of prior filings.  The company reported nearly $2 billion in equipment revenue in the past and now equipment rev is less than $1 billion annually.
In the last 18 months the company has had to LIQUIDATE USED EQUIPMENT inventory at a fraction on the dollar to generate enough cash to pay debt and pay off the severance agreement  to their co founder who abruptly resigned as president after a DEF14 A was filed.
If the Used Equipment in the past was accounted for as non cash consideration, is it possible that those trade in values were seriously inflated to record higher revenue at the time, only to have those trade ins eventually sold for discounts at auctions?
there are plenty of other questionable disclosures that i have found and I have included them in my report (there are many links within the report) https://newsgrade.blogspot.com/2018/06/titan-machinery-files-10q-sending-stock.html









Also note, the company admitted that they inflated assets and under reported losses by 50% in a 10Q, but never restated the 10Q.
There are many related party transactions in the disclosure through out the years. Specifically $100 million worth of leases with an outside entity that management has (had) an equity stake in.  
In the company's most recent DEF14A there is a new STOCK OWNERSHIP guideline for Officers and directors stating that the officers and directors NEED to increase their holdings in the stock based on the Price of the common stock as per its dollar value. 
Also in the most recent DEF 14 the Officers received bonuses based on the company's sales benchmarks. Is there a conflict with the non cash considerations values used to figure revenue numbers?
Deloitte Audited Related Fees increased from $25k to $61k  over last last FY. Meanwhile Company sales declined dramatically. 
A co founder of the company who sits on the board is also the underwriter of the public company and receives fees. Adam Smith Investments is an outside entity controlled by this Director and Adam Smith files with SEC as a Promotor.
Company closed 15 locations in last year to cut cost. In latest 10Q they disclosed that in April 2018 they paid $3 million to terminate one lease.  I want to know who owned that location? when was lease signed? what was the term? And what it not have been in the Best interest of shareholders to keep location open?  How did the company cut costs by closing the location when they paid $3 million to terminate the lease?
The company discloses their Used and New Equipment Inventories but don't disclose the breakdown of their USED and New Equipment revenues in their 10Q. They also claim to be in the equipment rental business but according to 10Q only rental revenue came in the USA construction business and almost nil for international and agriculture divisions.  Also note the revenue for the rental segment revenue line over each quarter and then notice how in most recent 10Q the rental profit and margins declined dramatically while sales barely slipped. More importantly the gross profit of the rental business all of a sudden made up significantly less of the gross profit of the four divisions.
International revenue are not broken down by construction and agriculture for some reason. never ever.
Company also has a history of Directors leaving. Six of Eight Directors left within a 2 year period.
Also a local minnesota penny stock brokerage firm called FELTL upgraded the stock a couple years ago stating that Titan would earn over $20 Million in Net Income and gave the stock a $40 plus price target. The company has not earned a profit in over 4 years and have lost over $130 million (aggregate) in that time frame.

There are so many notes I have that you can find in my link.







FY2019 Q1 10Q Highlights:




















Titan Machinery (NASDAQ: TITN $17.34) reported FY2019 Q1 financials last week in a press release on Thursday May 31st pre-market followed by a brief Conference Call.  Titan stock traded volume over 900,000 shares and closed Thursday @ $18.09 down $2.93 (-14%) from Wednesday's close of $21.02.
Yesterday morning Titan Machinery filed FY2019 10Q with the Securities & Exchange Commission and shares hit a New intra day Year To Date low of $17.00 before closing the day @ $17.34, down $0.68  (-3.77%)  for the day.
Since Reaching a 52 week intra-day high on March 29th @ $25.09 the shares are now down $7.75 declining 31% in ten weeks. The S&P 500 Index has gained 5% over the same time frame.

Titan Machinery is a retailer of Agriculture and Construction Equipment based in Midwest USA with International locations in Europe. According to the company's disclosure the company leases their locations. At the current stock price the market capitalization is approximately $400 million.

HIGHLIGHTS OF PRESS RELEASE LAST WEEK prior to today's 10Q (CLICK HERE)

Cliff Notes









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