Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim unaudited consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report, and the audited consolidated financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended January 31, 2020.
Overview
We own and operate a network of full service agricultural and construction equipment stores in the United States and Europe. Based upon information provided to us by CNH Industrial N.V. or its U.S. subsidiary CNH Industrial America, LLC, we are the largest retail dealer of Case IH Agriculture equipment in the world, the largest retail dealer of Case Construction equipment in North America and a major retail dealer of New Holland Agriculture and New Holland Construction equipment in the U.S. We operate our business through three reportable segments: Agriculture, Construction and International. Within each segment, we have four principal sources of revenue: new and used equipment sales, parts sales, service, and equipment rental and other activities.
Demand for agricultural equipment and, to a lesser extent, parts and service support, are impacted by agricultural commodity prices and net farm income. Based on U.S. Department of Agriculture publications, the most recent estimate of net farm income for calendar year 2019 indicated an approximate 11.0% increase as compared to calendar year 2018, and an approximate 3.3% increase in net farm income for calendar year 2020, as compared to calendar year 2019.
For the first quarter of fiscal 2021, our net income was $2.3 million, or $0.10 per diluted share, compared to a fiscal 2020 first quarter loss of $0.4 million, or $0.02 per diluted share. Our adjusted diluted earnings per share was $0.15 for the first quarter of fiscal 2021, compared to $0.02 for the first quarter of fiscal 2020. See the Non-GAAP Financial Measures section below for a reconciliation of adjusted diluted earnings per share to diluted earnings per share, the most comparable GAAP financial measure. Significant factors impacting the quarterly comparisons were:
• Revenue in the first quarter of fiscal 2021 was 11.5% higher than the first quarter of fiscal 2020. Increased revenue from equipment, parts and service was offset by slightly lower rental and other revenue. The higher revenue was driven by increased equipment, parts and service revenue in our Agriculture segment. Some of the increase in the Agriculture segment came from our Northwood location, which was purchased in October 2019.
• Gross profit margin in the first quarter of fiscal 2021 declined to 18.8%, compared to 19.4% for the first quarter of fiscal 2020. The decline in gross profit margin was primarily the result of lower equipment margins and a change in our revenue mix with more revenue generated by our equipment business than our higher margin parts and service businesses in the first quarter of fiscal 2021, as compared to the first quarter last year.
• Floorplan and other interest expense decreased a combined 15.9% in the first quarter of fiscal 2021, as compared to the first quarter last year, primarily due the repayment in full of our senior convertible notes in the second quarter of fiscal 2020.
Impact of the COVID-19 Pandemic on the Company
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, and the President of the United States declared the COVID-19 outbreak as a national emergency. The nature of COVID-19 led to worldwide shutdowns and halting of commercial and interpersonal activity as governments imposed regulations in efforts to control the spread of the pandemic, such as shelter-in-place orders and quarantines. The pandemic is a highly fluid and rapidly evolving situation, and we cannot anticipate with any certainty the length, scope, or severity of such restrictions in each of the markets that we operate. See Item 1A. Risk Factors for more information on possible impacts.
Since the beginning of the COVID-19 pandemic, the safety of our employees and customers has been and continues to be our top concern. At the onset of the pandemic we organized a COVID Task Force to implement safety protocols and to quickly respond to matters, in the event of a positive case at one of our locations.
Even though we are considered an essential business, in response to the COVID-19 pandemic, the company closed its U.S. stores to the public on March 23, 2020 but continued operations through social distancing means in all areas: equipment, parts, service and rental. Beginning May 4, 2020, we began fully reopening our stores to the public, following pandemic safety protocols applicable to the locations. Additionally, our International stores have also been following pandemic safety protocols applicable to each location.
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We believe that each of our business segments will be impacted by the pandemic to varying degrees, although the actual impact will be subject to many variables and uncertainties which are currently unknown and outside of our control.
Agriculture
Overall, COVID-19 has created industry challenges such as lower agriculture commodity prices as demand deterioration and supply chain disruptions are affecting areas such as ethanol, livestock and international trade. We believe that the existing and anticipated lower commodity prices will reduce our equipment sales, but it is difficult to estimate the extent and timing of this impact given all the variables and uncertainties. We believe our parts and service business will be less impacted, as our customers will be experiencing similar levels of wear and tear on their equipment. Also offsetting some of the challenges in the agriculture industry, will be government support programs for our farm customers, such as the recently announced $16 billion Coronavirus Food Assistance Program (CFAP).
Construction
We believe all revenue categories of equipment, parts, service and rental will be impacted in this segment, with such effects continuing so long as pandemic related macroeconomic stress and uncertainties persist. Examples of such macroeconomic stress include: lower oil prices, higher unemployment, lower GDP, and reduced government spending on infrastructure projects. All of these factors we believe will lead to lower overall U.S. construction spending.
International
In addition to the industry challenges indicated for our Agriculture Segment, International is also being impacted by border shutdowns, timing of equipment shipments and more stringent in-country pandemic regulations. We believe all revenue categories in this segment will experience greater negative impacts than our Agriculture Segment because of these additional challenges along with the general lack of government support programs to our International farm customers.
Acquisitions
Fiscal 2020
On October 1, 2019, we acquired certain assets of Uglem-Ness Co., a single Case IH agriculture equipment store in Northwood, North Dakota. The acquisition continues our strategy of acquiring dealerships in agriculture markets contiguous to our current North American agriculture stores. The service area of Uglem-Ness is contiguous to our existing locations in Grand Forks and Casselton, North Dakota and Ada, Minnesota. The total consideration paid in the acquisition was $10.9 million, which the Company financed through available cash resources and capacity under our existing floorplan payable and other credit facilities. The Northwood, ND dealership is included within our Agriculture segment.
ERP Transition
The Company is in the process of converting to a new Enterprise Resource Planning ("ERP") application. The new ERP application is expected to provide data-driven and mobile-enabled sales and support tools to improve employee efficiency and deliver an enhanced customer experience. The Company currently anticipates a pilot store to be on the new ERP system in the second quarter of the current fiscal year and all stores to be on the new ERP application in the first half of the fiscal year ending January 31, 2022. We have prospectively adjusted the useful life of our current ERP application such that it will be fully amortized upon its estimated replacement date.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are included in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended January 31, 2020. Other than the adoption of the accounting standard for current expected credit loss and the standard for cloud computing described in Note 1 to our consolidated financial statements in this Quarterly Report on Form 10-Q, there have been no changes in our critical accounting policies since January 31, 2020.
Results of Operations
The results presented below include the operating results of any acquisition made during these periods as well as the operating results of any stores closed during these periods, up to the date of the store closure. The period-to-period comparisons included below are not necessarily indicative of future results. Segment information is provided later in the discussion and analysis of our results of operations.
Same-store sales for any period represent sales by stores that were part of the Company for the entire comparable period in the current and preceding fiscal years. We do not distinguish between relocated or recently expanded stores in this
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same-store analysis. Closed stores are excluded from the same-store analysis. Stores that do not meet the criteria for same-store classification are described as excluded stores throughout the Results of Operations section in this Quarterly Report on Form 10-Q.
Comparative financial data for each of our four sources of revenue are expressed below.
Three Months Ended April 30,
2020 2019
(dollars in thousands)
Equipment
Revenue $ 218,505 $ 193,956
Cost of revenue 197,046 173,154
Gross profit $ 21,459 $ 20,802
Gross profit margin 9.8 % 10.7 %
Parts
Revenue $ 56,614 $ 51,938
Cost of revenue 39,617 36,814
Gross profit $ 16,997 $ 15,124
Gross profit margin 30.0 % 29.1 %
Service
Revenue $ 25,600 $ 22,831
Cost of revenue 8,345 7,483
Gross profit $ 17,255 $ 15,348
Gross profit margin 67.4 % 67.2 %
Rental and other
Revenue $ 9,489 $ 9,567
Cost of revenue 6,790 6,941
Gross profit $ 2,699 $ 2,626
Gross profit margin 28.4 % 27.4 %
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The following table sets forth our statements of operations data expressed as a percentage of total revenue for the periods indicated:
Three Months Ended April 30,
2020 2019
Revenue
Equipment 70.4 % 69.7 %
Parts 18.3 % 18.7 %
Service 8.3 % 8.2 %
Rental and other 3.1 % 3.4 %
Total Revenue 100.0 % 100.0 %
Total Cost of Revenue 81.2 % 80.6 %
Gross Profit Margin 18.8 % 19.4 %
Operating Expenses 17.1 % 18.9 %
Impairment of Intangible and Long-Lived Assets 0.1 % — %
Restructuring Costs — % — %
Income from Operations 1.7 % 0.4 %
Other Income (Expense) (0.6) % (0.6) %
Income Before Income Taxes 1.0 % (0.2) %
Provision for Income Taxes 0.3 % — %
Net Income 0.7 % (0.2) %
Three Months Ended April 30, 2020 Compared to Three Months Ended April 30, 2019
Consolidated Results
Revenue
Three Months Ended April 30, Increase/ Percent
2020 2019 (Decrease) Change
(dollars in thousands)
Equipment $ 218,505 $ 193,956 $ 24,549 12.7 %
Parts 56,614 51,938 4,676 9.0 %
Service 25,600 22,831 2,769 12.1 %
Rental and other 9,489 9,567 (78) (0.8) %
Total Revenue $ 310,208 $ 278,292 $ 31,916 11.5 %
Total revenue for the first quarter of fiscal 2021 was 11.5% or $31.9 million higher than the first quarter of fiscal 2020 driven by revenue increases in equipment, parts, and service. These increases occurred in our Agriculture and International segments, but were partially offset by lower revenue in our Construction segment. Company-wide same-store sales in the first quarter of fiscal 2021 increased 11.0% versus the comparable period in the fiscal 2020.
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Gross Profit
Three Months Ended April 30, Increase/ Percent
2020 2019 (Decrease) Change
(dollars in thousands)
Gross Profit
Equipment $ 21,459 $ 20,802 $ 657 3.2 %
Parts 16,997 15,124 1,873 12.4 %
Service 17,255 15,348 1,907 12.4 %
Rental and other 2,699 2,626 73 2.8 %
Total Gross Profit $ 58,410 $ 53,900 $ 4,510 8.4 %
Gross Profit Margin
Equipment 9.8 % 10.7 % (0.9) % (8.4) %
Parts 30.0 % 29.1 % 0.9 % 3.1 %
Service 67.4 % 67.2 % 0.2 % 0.3 %
Rental and other 28.4 % 27.4 % 1.0 % 3.6 %
Total Gross Profit Margin 18.8 % 19.4 % (0.6) % (3.1) %
Gross Profit Mix
Equipment 36.7 % 38.6 % (1.9) % (4.9) %
Parts 29.1 % 28.1 % 1.0 % 3.6 %
Service 29.5 % 28.5 % 1.0 % 3.5 %
Rental and other 4.7 % 4.8 % (0.1) % (2.1) %
Total Gross Profit Mix 100.0 % 100.0 %
Gross profit for the first quarter of fiscal 2021 increased 8.4% or $4.5 million, as compared to the same period last year. However, gross profit margin decreased to 18.8% for the first quarter of fiscal 2021, compared to 19.4% for the first quarter of fiscal 2020. The increase in gross profit was due to increased revenues. The decrease in gross profit margins was primarily due to lower equipment margins and a change in revenue mix. We recognized lower equipment margins on our used Agriculture equipment in the current quarter as we accelerated efforts to sell this inventory. Revenue mix decreased our overall gross margin in two ways. First, equipment revenues comprised a larger portion of overall revenues than did our higher margin parts and service business; and second, our total equipment sales mix was more weighted to Agriculture, which generally experiences lower equipment margins than equipment sold in our Construction and International segments.
Our company-wide absorption rate — which is calculated by dividing our gross profit from sales of parts, service and rental fleet by our operating expenses, less commission expense on equipment sales, plus interest expense on floorplan payables and rental fleet debt — increased to 73.2% for the first quarter of fiscal 2021 compared to 67.8% during the same period last year as the increase in gross profit from parts, service, and rental and other in the first quarter of fiscal 2021 more than offset the increase in operating expenses during the period.
Operating Expenses
Three Months Ended April 30, Increase/ Percent
2020 2019 (Decrease) Change
(dollars in thousands)
Operating Expenses $ 53,058 $ 52,555 $ 503 (1.0) %
Operating Expenses as a Percentage of Revenue 17.1 % 18.9 % (1.8) % 9.5 %
Our operating expenses in the first quarter of fiscal 2021 increased slightly, as compared to the first quarter of fiscal 2020. Operating expenses as a percentage of revenue decreased to 17.1% in the first quarter of fiscal 2021 from 18.9% in the first quarter of fiscal 2020. The decrease in operating expenses as a percentage of total revenue was due to the increase in total revenue in the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, which positively affected our ability to leverage our fixed operating costs.
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Impairment Charges
Three Months Ended April 30, Increase/ Percent
2020 2019 (Decrease) Change
(dollars in thousands)
Impairment of Long-Lived Assets $ 216 $ 135 $ 81 (60.0)%
We recognized $0.2 million of impairment charges on certain long-lived assets in the first quarter of fiscal 2021 compared to $0.1 million in the first quarter of the prior year.
Other Income (Expense)
Three Months Ended April 30, Increase/ Percent
2020 2019 (Decrease) Change
(dollars in thousands)
Interest income and other income (expense) $ 130 $ 794 $ (664) (83.6) %
Floorplan interest expense (1,152) (877) 275 (31.4) %
Other interest expense (966) (1,642) (676) 41.2 %
Floorplan interest expense increased in the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, primarily as a result of increased levels of interest-bearing inventory in the first quarter of fiscal 2021. The decrease in other interest expense in the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, is primarily the result of our repayment in full of the outstanding balance of our senior convertible notes in May 2019. The decrease in interest income and other income (expense) was primarily due to foreign currency remeasurement losses in Ukraine, resulting from a devaluation of the Ukrainian hyrvnia in the first quarter of fiscal 2021. See the Non-GAAP Financial Measures section below for the impact of these costs on non-GAAP Diluted EPS.
Provision for Income Taxes
Three Months Ended April 30, Increase/ Percent
2020 2019 (Decrease) Change
(dollars in thousands)
Provision for Income Taxes $ 886 $ (70) $ 956 n/m
Our effective tax rate was 28.1 % for the first quarter of fiscal 2021 and 13.6 % for the first quarter of fiscal 2020. Our effective tax rate differs from the domestic federal statutory tax rate due to the mix of domestic and foreign income or losses and the impact of the recognition of valuation allowances on our foreign deferred tax assets, including net operating losses.
Certain financial information for our Agriculture, Construction and International business segments is presented below. “Shared Resources” in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level. Revenue between segments is immaterial.
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Three Months Ended April 30, Increase/ Percent
2020 2019 (Decrease) Change
(dollars in thousands)
Revenue
Agriculture $ 193,627 $ 153,775 $ 39,852 25.9 %
Construction 60,114 70,743 (10,629) (15.0) %
International 56,467 53,774 2,693 5.0 %
Total $ 310,208 $ 278,292 $ 31,916 11.5 %
Income (Loss) Before Income Taxes
Agriculture $ 6,162 $ 1,876 $ 4,286 n/m
Construction (2,873) (2,222) (651) (29.3) %
International (280) 216 (496) n/m
Segment income (loss) before income taxes 3,009 (130) 3,139 n/m
Shared Resources 139 (385) 524 n/m
Total $ 3,148 $ (515) $ 3,663 n/m
Agriculture
Agriculture segment revenue for the first quarter of fiscal 2021 increased 25.9% compared to the first quarter of fiscal 2020. We experienced increases across our equipment, parts and service businesses. Equipment sales were supported by replacement demand, efforts to move used equipment, and delay of customer purchases from the fourth quarter of fiscal 2020 to the current quarter due to the late and difficult harvest conditions in parts of our footprint. Parts and service revenue continued to benefit from an aging customer fleet and challenging operating conditions for our customers. Same-store sales of our Agriculture segment increased 23.3% for the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020. Additionally, our revenues were favorably impacted by the third quarter fiscal 2020 acquisition of Uglem-Ness.
Agriculture segment income before income taxes was $6.2 million for the first quarter of fiscal 2021 compared to $1.9 million for the first quarter of fiscal 2020. The improvement in segment results were due to higher revenues, but were partially offset by increased operating expenses and floorplan interest expense.
Construction
Construction segment revenue for the first quarter of fiscal 2021 decreased 15.0% compared to the first quarter of fiscal 2020, due to a same-store sales decrease and the sale of the Albuquerque, New Mexico store in the fourth quarter of fiscal 2020. All sources of revenue — equipment, parts, service and rental — declined for the segment’s first quarter of 2021, as compared to the prior year’s first quarter. The overall lower same-store sales are a result of decreased customer sentiment, lower oil prices, and a general slowdown in the economy due to COVID-19.
Our Construction segment loss before income taxes was $2.9 million for the first quarter of fiscal 2021 compared to $2.2 million in the first quarter of fiscal 2020. The increase in segment loss was due to the overall lower revenues, but was partially offset by decreases in operating expenses, as compared to the first quarter of fiscal 2020. The dollar utilization — which is calculated by dividing the rental revenue earned on our rental fleet by the average gross carrying value of our rental fleet (comprised of original equipment costs plus additional capitalized costs) for that period — of our rental fleet decreased from 20.5% in the first quarter of fiscal 2020 to 18.9% in the first quarter of fiscal 2021.
International
International segment revenue and same-store sales, for the first quarter of fiscal 2021 increased 5.0% compared to the first quarter of fiscal 2020. The increase in segment revenue occurred early in the quarter and decreased late in the quarter, due to COVID-19 restrictions and negative impact on customer sentiment.
Our International segment loss before income taxes was $0.3 million for the first quarter of fiscal 2021 compared to segment income of $0.2 million for the same period last year. Increased revenues were more than offset by foreign currency remeasurement losses, resulting from the devaluation of the Ukrainian hryvnia in the first quarter of fiscal 2021.
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Shared Resources/Eliminations
We incur centralized expenses/income at our general corporate level, which we refer to as “Shared Resources,” and then allocate most of these net expenses to our segments. Since these allocations are set early in the year, and a portion is planned to be unallocated, unallocated balances may occur. Shared Resources income before income taxes was $0.1 million for the first quarter of fiscal 2021 compared to a loss before income taxes of $0.4 million for the same period last year.
Non-GAAP Financial Measures
To supplement net income and diluted earnings per share ("Diluted EPS"), both GAAP measures, we present adjusted net income and adjusted Diluted EPS, both non-GAAP measures, which include adjustments for ERP transition costs, Ukraine remeasurement, and impairment charges. We believe that the presentation of adjusted net income and adjusted Diluted EPS is relevant and useful to our management and investors because it provides a measurement of earnings on activities that we consider to occur in the ordinary course of our business. Adjusted net income and adjusted Diluted EPS should be evaluated in addition to, and not considered a substitute for, or superior to, the most comparable GAAP measure. In addition, other companies may calculate these non-GAAP measures in a different manner, which may hinder comparability of our adjusted results with those of other companies.
The following tables reconcile (i) net income, a GAAP measure, to adjusted net income and (ii) Diluted EPS, a GAAP measure, to adjusted Diluted EPS:
Three Months Ended April 30,
2020 2019
(dollars in thousands, except per share data)
Adjusted Net Income
Net Income (Loss) $ 2,262 $ (445)
Adjustments
ERP transition costs 721 1,016
Impairment charges 216 135
Ukraine remeasurement 765 (12)
Total Pre-Tax Adjustments 1,702 1,139
Less: Tax Effect of Adjustments (1) 580 243
Total Adjustments 1,122 896
Adjusted Net Income $ 3,384 $ 451
Adjusted Diluted EPS
Diluted EPS $ 0.10 $ (0.02)
Adjustments (2)
ERP transition costs 0.03 0.05
Impairment charges 0.01 —
Ukraine remeasurement 0.04 —
Total Pre-Tax Adjustments 0.08 0.05
Less: Tax Effect of Adjustments (1) 0.03 0.01
Total Adjustments 0.05 0.04
Adjusted Diluted EPS $ 0.15 $ 0.02
(1) The tax effect of U.S. related adjustments was calculated using a 26% tax rate, determined based on a 21% federal statutory rate and a 5% blended state income tax rate. Included in the tax effect of the adjustments is the tax impact of foreign currency changes in Ukraine of $0.3 million for first quarter fiscal 2021.
(2) Adjustments are net of amounts allocated to participating securities where applicable.
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Liquidity and Capital Resources
Sources of Liquidity
Our primary sources of liquidity are cash reserves, cash generated from operations, and borrowings under our floorplan payable and other credit facilities. We expect these sources of liquidity to be sufficient to fund our working capital requirements, acquisitions, capital expenditures and other investments in our business, service our debt, pay our tax and lease obligations and other commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future, provided, however, that our borrowing capacity under our credit agreements is dependent on compliance with various covenants as further described in the "Risk Factors" section of our Annual Report in Form 10-K.
Equipment Inventory and Floorplan Payable Credit Facilities
As of April 30, 2020, the Company had floorplan payable lines of credit for equipment purchases totaling $762.0 million, which is primarily comprised of a $450.0 million credit facility with CNH Industrial, a $185.0 million floorplan payable line under the Bank Syndicate Credit Agreement, and a $60.0 million credit facility with DLL Finance.
Our equipment inventory turnover decreased from 1.8 times for the four-quarter period ended April 30, 2019 to 1.6 times for the four-quarter period ended April 30, 2020. The increase in equipment sales volume over the four-quarter period ended April 30, 2020 as compared to the four-quarter period ended April 30, 2019 was offset by an increase in our average equipment inventory over these time periods. Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 24.5% as of April 30, 2020 from 27.9% as of January 31, 2020. The decrease in our equity in equipment inventory is primarily due to the stocking of new equipment inventories during the three months ended April 30, 2020 and the higher level of floorplan financing available on such inventories, and increased borrowing on our floorplan lines of credit.
Long-Term Debt
During the third quarter of fiscal 2020, the Company reclassified the Wells Fargo working capital line of credit outstanding, which had a maturity date of October 28, 2020, from long-term debt to current maturities of long-term debt. During the first quarter of fiscal of 2021, the Company entered into an amended and restated 5-year credit agreement with the Bank Syndicate. Therefore, the working capital line of credit outstanding of $10 million was reclassified from current maturities of long-term debt to long-term debt.
Adequacy of Capital Resources
Our primary uses of cash have been to fund our operating activities, including the purchase of inventories and providing for other working capital needs, meeting our debt service requirements, making payments due under our various leasing arrangements, and funding capital expenditures, including rental fleet assets. Based on our current operational performance, we believe our cash flow from operations, available cash and available borrowing capacity under our existing credit facilities will adequately provide for our liquidity needs for, at a minimum, the next 12 months.
As of April 30, 2020, we were in compliance with the financial covenants under our CNH Industrial and DLL Finance credit agreements and we were not subject to the fixed charge coverage ratio covenant under the Bank Syndicate Credit Agreement as our adjusted excess availability plus eligible cash collateral (as defined therein) was not less than 15% of the lesser of (i) aggregate borrowing base and (ii) maximum credit amount as of April 30, 2020. While not expected to occur, if anticipated operating results were to create the likelihood of a future covenant violation, we would expect to work with our lenders on an appropriate modification or amendment to our financing arrangements.
Cash Flow
Cash Flow Provided by (Used for) Operating Activities
Net cash used for operating activities was $5.4 million for the first three months of fiscal 2021, compared to net cash provided by operating activities of $2.9 million for the first three months of fiscal 2020. The change in net cash provided by (used for) operating activities is primarily the result of a reduction in liabilities for the first three months of fiscal 2021.
We evaluate our cash flow from operating activities net of all floorplan activity and maintaining a constant level of equity in our equipment inventory. Taking these adjustments into account, our adjusted cash flow used for operating activities was $3.6 million for the first three months of fiscal 2021 compared to an adjusted cash flow used for operating activities of $37.4 million for the first three months of fiscal 2020. The adjusted cash flow used for operating activities decreased for the first three months of fiscal 2021, which is primarily the result of increased equipment inventory stocking during the previous
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fiscal year. See the Adjusted Cash Flow Reconciliation below for a reconciliation of adjusted cash flow used for operating activities to the GAAP measure of cash flow used for operating activities.
Cash Flow Used for Investing Activities
Net cash used for investing activities was $5.1 million for the first three months of fiscal 2021, compared to $8.0 million for the first three months of fiscal 2020. The decrease in cash used for investing activities was the result of lower cash outflows for acquisitions and rental fleet purchases, as compared to the first quarter of fiscal 2020.
Cash Flow Provided by Financing Activities
Net cash provided by financing activities was $17.7 million for the first three months of fiscal 2021 compared to $11.8 million for the first three months of fiscal 2020. For both periods, net cash provided by financing activities was impacted by increased non-manufacturer floorplan payables associated with seasonal inventory stocking.
Adjusted Cash Flow Reconciliation
We consider our cash flow from operating activities to include all equipment inventory financing activity regardless of whether we obtain the financing from a manufacturer or other source. GAAP requires the cash flows associated with non-manufacturer floorplan payables to be recognized as financing cash flows in the consolidated statement of cash flows. We consider equipment inventory financing with both manufacturers and other sources to be part of the normal operations of our business. We also evaluate our cash flow from operating activities by assuming a constant level of equity in our equipment inventory. Our equity in our equipment inventory reflects the portion of our equipment inventory balance that is not financed by floorplan payables. Our adjustment to maintain a constant level of equity in our equipment inventory is equal to the difference between our actual level of equity in equipment inventory at each period-end as presented in the consolidated balance sheets compared to the actual level of equity in equipment inventory at the beginning of the fiscal year. We refer to this measure of cash flow as Adjusted Cash Flow.
Our equity in equipment inventory decreased to 24.5% as of April 30, 2020 from 27.9% as of January 31, 2020, and decreased to 23.6% as of April 30, 2019 from 34.4% as of January 31, 2019.
Adjusted Cash Flow is a non-GAAP financial measure. We believe that the presentation of Adjusted Cash Flow is relevant and useful to our investors because it provides information on activities we consider to be the normal operation of our business, regardless of financing source and level of financing for our equipment inventory. The following table reconciles net cash provided by (used for) operating activities, a GAAP measure, to adjusted net cash provided by (used for) operating activities and net cash provided by (used for) financing activities, a GAAP measure, to adjusted net cash provided by (used for) financing activities.
Net Cash Provided by (Used for) Operating Activities Net Cash Provided by (Used for) Financing Activities
Three Months Ended April 30, 2020 Three Months Ended April 30, 2019 Three Months Ended April 30, 2020 Three Months Ended April 30, 2019
(in thousands) (in thousands)
Cash Flow, As Reported $ (5,442) $ 2,852 $ 17,714 $ 11,775
Adjustment for Non-Manufacturer Floorplan 18,781 12,772 (18,781) (12,772)
Adjustment for Constant Equity in Equipment Inventory (16,907) (52,996) — —
Adjusted Cash Flow $ (3,568) $ (37,372) $ (1,067) $ (997)
Certain Information Concerning Off-Balance Sheet Arrangements
As of April 30, 2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Forward-looking statements are contained in this Quarterly Report on Form 10-Q, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in our Annual Report on Form 10-K for the year ended
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January 31, 2020, and in other materials filed or to be filed by the Company with the Securities and Exchange Commission (and included in oral statements or other written statements made or to be made by the Company).
Forward-looking statements are statements based on future expectations and specifically may include, among other things, statements relating to our expectations regarding exchange rate and interest rate impact on our business, the impact of farm income levels on customer demand for agricultural equipment and services, the impact of oil prices on market demand for equipment and services, the impact of the COVID-19 pandemic on our business, the general market conditions of the agricultural and construction industries, equipment inventory levels, discussion of the anticipated implementation date of our new ERP system, and our primary liquidity sources, and the adequacy of our capital resources. Any statements that are not based upon historical facts, including the outcome of events that have not yet occurred and our expectations for future performance, are forward-looking statements. The words “potential,” “believe,” “estimate,” “expect,” “intend,” “may,” “could,” “will,” “plan,” “anticipate,” and similar words and expressions are intended to identify forward-looking statements. Such statements are based upon the current beliefs and expectations of our management. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, the duration, scope and impact of the COVID-19 pandemic on the Company's operations and business, adverse market conditions in the agricultural and construction equipment industries, and those matters identified and discussed under the section titled “Risk Factors” in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q. Although we are not aware of any other factors, aside from those discussed in our Form 10-K, that we currently anticipate will cause our forward-looking statements to differ materially from our future actual results, or materially affect the Company’s financial condition or future results, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially adversely affect our business, financial condition and/or operating results.
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