Financial Statements: Confusion and Mystery Are Built Into The Design

Corporate America's dirty little secret: Financial Statements are Rubic Cubes.

 CFO: "I rely on what the auditors and accountants tell me, they told me it was appropriate". 

The District Attorney and SEC will have their accountants and we'll have ours.

 .

New Credit Agreement Requirements Makes Titan Highly Speculative

New Credit Agreement Requirements Makes Titan Highly Speculative

Investors with high risk tolerance looking to make multiples on their investment seek out highly speculative stocks. There are thousands of these stocks available on the over the counter bulletin board and pink sheet market, trading at pennies per share.  Investors are looking at these micro cap stocks that mostly trade below a $10 million market capitalizations and hope the underlying businesses can grow to $100 million valuation one day over the long term.  The common denominator among these stocks is the inability for these businesses to generate enough internal operational cash flow to grow.  These companies are all out seeking financing from Wall Street firms, on both the debt and equity side. Will Titan do another Underwriting soon?

Titan Machinery was a little private reseller of agriculture and construction equipment located in the mid west prior to it successfully going public in December 2007.  

By Titan being a publicly traded company it was able through the years to raise equity and debt to compensate for their inability to generate operational cash flow.  Since February 1,2009 Titan has generated over $517 million in Negative Operational Cash flow.

 

• FY2010 Negative $47 million Operational Cash Flow

•  FY2011 Negative $35 million Operational Cash Flow 

•  (FY2012 Q2) Equity Underwriting 4.2 million shares @ $28.75

•  FY2012 Negative $182 million Operational Cash Flow 

• (FY2013 Q2) Debt Underwriting $150 million Convertible Note 

•  FY2013 Negative  $115 million Operational Cash Flow 

•  FY2014 Negative $82 million Operational Cash Flow

•  FY2015 Q1 Negative $54 million Operational Cash Flow 

Since Wells Fargo has recently made two amendments to the $150 million Credit agreement, Titan’s risk of violating these new covenants has increased substantially. Unlike most high risk micro cap securities that have low market capitalization with high upsides, Titan Machinery trading near $16  per share has an even higher risk with an $330 million downside if it was to default on its note.

Archives

• Most OverPriced Stock Titan Machinery Files Proxy Statement

  Titan Machinery Reports Q1 Loss of ($0.20) 

  Don't Assume Titan Machinery Will Be Profitable because Management Says So

   

Don't Assume Titan Machinery Will Be Profitable because Management Says So

On Yahoo Finance someone asked "What PE Should Titan Machinery Trade At?"

My Answer:

Your question assumes Titan Machinery will even have any earnings in FY 2015.
I question if Titan will even be profitable this year.
In the company's most recent reported Q1 they loss ($0.20) per share. The quarter prior to that ,Q4, they loss money as well.

We can't expect the management's guidance to mean anything.

Management made the following Guidance for FY2014:

• On April 10,2013 gave guidance for FY2014 of $2.00-$2.30.

1 month later on:

• On May 23,2013 guidance for FY2014 was lowered to $1.70-$2.00

3months later on:

• On September 5,2013 guidance was lowered again to $1.20-$1.50

When the year ended on January 31,2014 the FY2014 EPS came in @ $0.78 per share.

Everyone needs to realize that this company has generated a total of negative $434 million of operational cash flow over last 13 quarters combined.

The Management is deceiving the Public by advertising NON GAAP cash flow. The only reason that that insignificant number was positive in this Q1 is because they add the monies they borrowed in the first quarter to cash flow. (that is why they allowed the floor plan debt to go up, so that they can make their NON GAAP cash flow number to be positive, how ridiculous)

 By increasing their net floor plan debt they were able to report a positive NON GAAP C/F number in Q1. Ridiculous? definitely.

Management has an equity interest in Dealer Sites LLC. Titan recently increased their lease agreements with Dealer Sites from $50million to $100 million last year.
Management is making money on properties, (thanks to Titan footing the bills).
Titan pays for insurance and all expenses of the property although it is owned by outside entity owned by management.
In FY 2012 and FY2013 the 10K disclosed the related party dealings in detail. In April's FY2014 10k , Deloitte allowed Titan to omit this disclosure.

It appears to me that CNH was stuffing Titan with inventory these past few years to boost CNH's own revenue/profit numbers (timely with Fiat deal). The relationship with CNH is very Cozy. A large percentage of the inventory that Titan has parked, they are not paying interest on.

Wells Fargo recently amended the convertible note terms for the 3rd time. (tightening the covenants more and more).
Titan's debt/equity for Q1 increased from .70 to .716
 

The other big issue here, is what are these Mutual Fund Analysts (Money Managers) getting paid for? Have you seen what ZACKS has been reporting? another joke.

If you look on Morningstar at the list of institutional holders of both the Equity and the Debt, I wonder how do these decision makers have jobs? It is even more scary that mom and pop are trusting their nest egg monies with these amateurs (and they actually pay these funds to manage their money).

oh boy, Wall Street, what a silly place

List of Institutional Holders  

Archives:

Most OverPriced Stock Titan Machinery Files Proxy Statement

A Review of Securities & Exchange Commissions Comments regarding Titan Machinery Disclosure

Markowski says Titan Machinery Will Be Bankrupt

10K FootNote: Wells Fargo Tightens Debt Agreement (again) on Titan Machinery

Titan Machinery Reports Q1 Loss of ($0.20)

$TITN agriculture equipment sales decline in FY2015 Q1 vs FY2014 Q1

— tom renna (@StockPicker908) June 5, 2014

$TITN trailing twelve month net income ending april 30,2014 is $5 million. Shares are trading near a $400 million market cap. great short

— tom renna (@StockPicker908) June 5, 2014

$TITN trailing twelve month net income ending april 30,2014 is $5 million. Shares are trading near a $400 million market cap. great short

— tom renna (@StockPicker908) June 5, 2014

$TITN Agriculture Adjusted Pre-Tax Income Declined 50% in FY2015 Q1 vs FY2014Q1

— tom renna (@StockPicker908) June 5, 2014

$TITN says "Used Equipment Prices Under Pressure due to Higher Industry Levels of Used Equipment"

— tom renna (@StockPicker908) June 5, 2014

$TITN Q1 equipment margins declines. Gross profit margin was 16.3% in the Q1 fiscal 2015, compared to 16.7% in the first quarterQ1 last yr

— tom renna (@StockPicker908) June 5, 2014

$titn inventory level was $1.12 bil as of April 30, 2014, compared to $1.08 billion as of January 31, 2014.Floorplan interest exp $4.6 mil

— tom renna (@StockPicker908) June 5, 2014

$TITN Current maturities of long-term debt increases by $33 million from Jan 31,14 to April 30,14. Total Current Liabilities $940 million

— tom renna (@StockPicker908) June 5, 2014

$TITN FY15 Q1 Operational Cash FLow : (Negative $54 mil) vs (Neg $6 mil) in FY14 Q1. operational cash flow per share NEG ($2.44) per share

— tom renna (@StockPicker908) June 5, 2014

$TITN FY15 Q1 Operational Cash FLow : (Negative $54 mil) vs (Neg $6 mil) in FY14 Q1. operational cash flow per share NEG ($2.44) per share

— tom renna (@StockPicker908) June 5, 2014

$TITN reports loss $(0.20) per share for Q1 vs Q1 2013 loss of $(0.02).

— tom renna (@StockPicker908) June 5, 2014

$TITN loss $(0.20) for Q1 , analyst expected $(0.06), miss by 14cents

— tom renna (@StockPicker908) June 5, 2014