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Titan Machinery's $500 Million Negative Cash Flow

The End is nearing for Titan Machinery (NASDAQ: TITN) as sales and net income have continued to declined and inventories and debt have skyrocketed.

Titan Machinery  has generated Negative Operational Cash Flow of $500 million over the last 19 quarters.

After the close: William Blair Analysts Lowers Price Target on Titan to $10

Titan Machinery (NASDAQ: TITN) closed yesterday at a new 5 year low @ $11.75.

Titan Machinery $150 million convertible note closed at an all time low @ $72.38 w 12.03% yield.


Since the Equities Research Warning on February 1,2013 shares of Titan @ $29.07, the stock has declined 60% while the Standard & Poors 500  Index has advanced 33%. (source: bigchart.com)

Titan filed their FY2015 3rd Quarter 10Q for the period ending October 31,2014 on Wednesday. Included in the SEC disclosure were two footnotes:

•  10.1 footnote  5th Amendment to the Wells Fargo $150 million convertible note 
•  10.2 footnote adjusted covenants Floor Plan debt with CNH Industrial Financing.$450 million

After the close yesterday William Blair Analyst lowered Price target on Titan from $12 to $10.
Pre-market yesterday analyst at Stephens lowered Price Target on Titan.

Wednesday, December 10, 2014

$TITN LOWERS FULL YEAR EPS GUIDANCE to Loss Per Share ($0.02) to ($0.23).

 

From 10Q

NOTE 4—LINES OF CREDIT / FLOORPLAN PAYABLE

Floorplan Lines of Credit

Floorplan payable balances reflect the amount owed for new equipment inventory purchased from a manufacturer and for used equipment inventory, which is primarily purchased through trade-in on equipment sales. Certain of the manufacturers from which the Company purchases new equipment inventory offer financing on these purchases, either offered directly from the manufacturer or through the manufacturers’ captive finance subsidiaries. CNH Industrial America LLC's captive finance subsidiary, CNH Industrial Capital America LLC ("CNH Industrial Capital"), also provides financing of used equipment inventory. The Company also has floorplan payable balances with non-manufacturer lenders for new and used equipment inventory. Changes in manufacturer floorplan payable are reported as operating cash flows and changes in non-manufacturer floorplan payable are reported as financing cash flows in the Company's consolidated statements of cash flows.

As of October 31, 2014, the Company had discretionary floorplan lines of credit for equipment inventory purchases totaling approximately $1.16 billion, which includes a $350.0 million Floorplan Payable Line with a group of banks led by Wells Fargo Bank, National Association ("Wells Fargo"), a $450.0 million credit facility with CNH Industrial Capital, a $225.0 million credit facility with Agricredit Acceptance LLC and the U.S. dollar equivalent of $135.0 million in credit facilities related to our foreign subsidiaries. Floorplan payables relating to these credit facilities totaled approximately $696.9 million of the total floorplan payable balance of $761.2 million outstanding as of October 31, 2014 and $692.8 million of the total floorplan payable balance of $750.5 million outstanding as of January 31, 2014. As of October 31, 2014, the Company had approximately $411.7 million in available borrowings remaining under these lines of credit (net of adjustments based on borrowing base calculations and standby letters of credit under the Wells Fargo credit agreement, and rental fleet financing and other acquisition-related financing arrangements under the CNH Industrial Capital credit agreement). The U.S. floorplan payables carried various interest rates primarily ranging from 2.78% to 4.98%, and the foreign floorplan payables carried various interest rates primarily ranging from 1.59% to 10.50%, as of October 31, 2014.

Effective October 31, 2014, the Company amended its credit facility with Wells Fargo. The amendment, among other things, replaced the consolidated net income financial covenant with a minimum consolidated income before income taxes

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Table of Contents

covenant, calculated as the income before income taxes for the last four quarters, adjusted for certain impairment charges, realignment charges, and foreign currency remeasurement losses resulting from a devaluation of the Ukrainian hryvnia. The minimum income before income tax covenant is $10.0 million for the four quarter period ended October 31, 2014, $5.0 million for the period ended January 31, 2015, $6.0 million for each of the two periods ended April 30, 2015 and July 31, 2015, $10.0 million for each of the two periods ended October 31, 2015 and January 31, 2016, and $15.0 million for each period thereafter. The amendment also modified certain borrowing base advance rates and changed the interest rate margin from 1.5% to 2.625% to 1.5% to 2.875% per annum.

Effective October 31, 2014, the Company also amended its credit facility with CNH Industrial Capital. The amendment, amongst other things, replaced the minimum debt service ratio financial covenant with a minimum fixed charge coverage ratio financial covenant of not less than 1.25:1.00, and added or modified related definitions.

Working Capital Line of Credit

As of October 31, 2014, the Company had a $112.5 million working capital line of credit under the credit facility with Wells Fargo. The Company had $75.6 million and $47.8 million outstanding on its working capital line of credit as of October 31, 2014 and January 31, 2014, respectively. Amounts outstanding are recorded as long-term debt, within long-term liabilities on the consolidated balance sheets, as the Company does not have an obligation to repay amounts borrowed within one year.

NOTE 5—SENIOR CONVERTIBLE NOTES

The Company’s 3.75% Senior Convertible Notes issued on April 24, 2012 (“Convertible Notes”) consisted of the following:

	October 31, 2014				January 31, 2014
	(in thousands except conversion rate and conversion price)
Principal value	$	150,000			$	150,000
Unamortized debt discount	(18,544		)		(21,107		)
Carrying value of senior convertible notes	$	131,456			$	128,893
Carrying value of equity component, net of deferred taxes	$	15,546			$	15,546
Conversion rate (shares of common stock per $1,000 principal amount of notes)	23.1626
Conversion price (per share of common stock)	$	43.17

     

The Company recognized interest expense associated with its Senior Convertible Notes as follows:

	Three Months Ended October 31,								Nine Months Ended October 31,
	2014				2013				2014				2013
	(in thousands)								(in thousands)
Cash Interest Expense
Coupon interest expense	$	1,406			$	1,406			$	4,219			$	4,219
Noncash Interest Expense
Amortization of debt discount	864				806				2,563				2,392
Amortization of transaction costs	135				131				402				391
	$	2,405			$	2,343			$	7,184			$	7,002

As of October 31, 2014, the unamortized debt discount will be amortized over a remaining period of approximately 4.5 years. As of October 31, 2014 and January 31, 2014, the if-converted value of the Senior Convertible Notes does not exceed the principal balance. The effective interest rate of the liability component was equal to 7.0% for each of the statements of operations periods presented.

$TITN LOWERS FULL YEAR EPS GUIDANCE to Loss Per Share ($0.02) to ($0.23).

Titan Machinery Inc. Announces Results for Fiscal Third Quarter Ended October 31, 2014

 

$TITN LOWERS FULL YEAR EPS GUIDANCE to Loss Per Share ($0.02) to ($0.23)...YIKES
— tom renna (@StockPicker908) December 10, 2014

$TITN Q3 2015 AGRICULTURAL SALES declined -25% vs Q3 2014 AG SALES......($95 million decline)
— tom renna (@StockPicker908) December 10, 2014

$TITN Q3 2015 SALES declined -16% vs Q3 2014......($95 million decline)
— tom renna (@StockPicker908) December 10, 2014

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Tom Renna

Tom Renna began his professional career on Wall Street 25 years ago after graduating Rutgers University. In 2005 Tom founded Equities Research LLC, a small boutique investment research firm where he provides market research analysis and consulting services to both Issuers (private and public) and Wall Street professionals. Tom’s experience as an investment banker, financial advisor, institutional equity broker, bond broker, entrepreneur and director of a public company gives him the unique ability to see all sides of Wall Street. Tom provides invaluable insight to both issuers and investors, from the novice to top Wall Street executives. In 1997 Tom was an original owner of Newsgrade Corporation, a private online publishing company that annually generated millions of timely and actionable automated unique stories that were streaming on Bloomberg Terminals for institutional investors. By 2003 Tom had become Managing Director of National Sales for Stockdiagnostics.com, a subsidiary of Newsgrade that he helped to create. Tom has made some of the top long and short calls over the last 25 years on Wall Street and his work has been mentioned on CNBC TV among other financial news sources.  email Tom directly: thomasrenna@gmail.com.  908 477 4796 USA