Titan International, Inc. (DE)

Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. Second Quarter 2020 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. If you should need any assistance, please dial star zero, and an operator will assist you. It is now my pleasure to turn the floor over to Todd Shoot, Senior Vice President, Investor Relations, and Treasurer for Titan. Mr. Shoot, the floor is yours.

Thank you, Mariana. Good morning and welcome everyone to our second quarter 2020 earnings call. On the call with me today I have Titans Chairman Maury Taylor, our President and CEO Paul Reitz, and David Martin, Senior Vice President and CFO I will begin with a reminder that the results we are about to review were presented in the earnings release issued this morning, along with our Form 10-Q, which was also filed with the Securities and Exchange Commission this morning. As a reminder during the call, we will be discussing certain forward-looking information, including the company's plans and projections for the future that involve risk, uncertainties, and assumptions that could cause our actual results to differ materially from forward-looking information. Additional information concerning factors that either individually or in the aggregate could cause actual results to differ materially from these forward-looking statements can be found in the safe harbor statement included in today's earnings release attached to the company's Form 8-K filed earlier today, as well as our latest Form 10-K and Forms 10-Q, all of which have been filed with the SEC. In addition, today's remarks may refer to non-GAAP financial measures which are intended to supplement but not be a substitute for the most directly comparable GAAP measures. The earnings release which accompanies today's call contains financial and other quantitative information as discussed today as well as a reconciliation of the non-GAAP measures to the most comparable GAAP measures. Today's earnings release is available on the company's website within the investor relations section under news and events. Please note today's call is being recorded. A copy of today's call transcript will be made available on our website. I would now like to turn the call over to Paul.

Thank you, Todd. I hope all of you and your families are staying safe and healthy. I want to start by expressing my appreciation to our global One Titan team for their tremendous efforts and successes during the second quarter. I'm going to start today by going through some business updates from the Q2, and then I'll have our chairman, Maury Taylor, share his thoughts from the board's perspective And then we'll follow up and wrap things up with David going through the financial results. It may have seemed like an eternity ago sitting here today, but Titan started dealing heavily with the COVID-19 around five months ago with our plants in Italy and China. And what then may have looked like a 200-yard dash has now clearly turned into a global marathon. From the start of COVID, we've been heavily focused on the safety of our people while proudly serving our customers. And to this day, we continue to do a good job in both of these crucial areas. Similar to many companies in the industrial space, as we entered this quarter, we expected to encounter challenges unlike anything we've experienced before, and we most certainly did. Our sales levels and order flow patterns were heavily impacted by COVID this quarter, as we experienced a revenue decrease of 27%, but we were able to navigate successfully through this top-line volatility to achieve adjusted EBITDA over $13 million. This exceeded levels sequentially from the first quarter of 2020 and year over year from the second quarter of 2019. Most importantly, our second quarter free cash flow exceeded expectations, coming in around $7 million, and we also increased our cash levels by nearly $20 million from last quarter. Our gross profit was only down $8 million, which resulted in gross profit margins increasing to 10.4% from 9.8% last year. We also applied diligent efforts towards controlling corporate costs and were able to reduce SG&A by over $7 million this quarter compared to last year. Again, altogether, this means on a $100 million drop in sales, we were able to not only keep EBITDA in the ballpark of 2019, but actually grew it a bit to $13.3 million from $12.8 million last year. Across all of our business units, we did a really good job in tackling this difficult situation head-on and taking swift, decisive actions to accomplish what we did this period operationally and also with the balance sheet. We're still clearly in the midst of a difficult COVID pandemic environment, impacted environment. As we all know, this virus has no boundaries, no time limits. Therefore, it's difficult to predict expectations for the second half of this year. Our customers are providing limited visibility to future orders as they quite simply just don't know exactly what's coming down the pipeline. As we scan the limited horizon that we have of our businesses, we are seeing nice improvements coming out of Brazil to start Q3 as compared to the activity from the first half of the year. Looking at the European ag market, in the early part of the second quarter, we really saw customers in parts of Europe, especially Turkey, for example, that had forecasted huge declines in orders. And then throughout Q2, we saw these order decks improve. You know, therefore, relatively speaking, we feel that Europe is performing better than expected and has become fairly stabilized as we enter the second half, but it's still at levels lower than prior year. In the U.S., low horsepower continues to be the headline and lead the charge in North America. This is a good business for us. We certainly do benefit from that. But large ag, which is a major sweet spot for our wheel division, continues to be hampered by soft commodity prices that have trended lower as of late. The continuing challenges from farm economics, combined with the uncertainty from the pandemic, is weighing on commodity prices. It continues to make forecasting in North America ag difficult. One thing we still do believe in, as I think most others do, is that pent-up demand in large ag remains sidelined for the time being, but there will come a point where that pent-up demand does get released into the marketplace. One point I want to add specific to Titan though, as large ag fleets continue to age out, this is a very good situation for our LSW solutions that quite simply can provide a significant upgrade to the performance of a 10-year-old tractor. So overall for ag, we expect our normal seasonality to impact us in the second half, and this is due to plant maintenance. Again, normal scheduled plant maintenance. And then also the holidays that occur in the second half of the year. And then along with the continued uncertainty from the OEM. So again, the second half of the year is difficult at this time to predict across most of the ag space. Looking at the earth-moving construction segment, where our volumes were down 37%, we saw weakness nearly everywhere this quarter, except for road building and our European foundry cast product business. As much as we would like to get more volume into our undercarriage plants, which is primarily earth-moving construction driven for us, we just don't believe there's volume out there to chase at this time, and we've been holding our line on pricing. Therefore, we have and we will remain keenly focused on managing costs in this segment along with headcounts while demand remains depressed in the earth-moving construction segment at this time. To wrap things up, our job at Titan and again at many companies in the industrial space is to keep your company positioned to navigate a volatile COVID-induced environment. In our end markets, the rest of 2020 is clearly difficult to predict with the impact and duration of the pandemic remaining highly uncertain, as well as the potential government actions that would impact the market. I think we do all believe there are government actions that will come into place that will support the market, but again, that still remains highly uncertain. So as we sit here today, we continue to see an unusually high level of drop-in orders. We must remain nimble and flexible to respond to meet these customer needs as we have been doing. Along with managing the operational aspects of the business to handle this volatility, we will remain committed to managing our balance sheet to not only get through the crisis, but position ourselves for future growth. We are doing that successfully through a determined focus on working capital, controlling costs, and generating cash from non-core and underperforming assets. Looking beyond 2020, we believe that the positive changes made within our company this year and in prior years will have a lasting impact, and we also strongly believe in the long-term fundamentals of our end markets as demand will return in due course. I just want to close by stating again my appreciation to the One Titan team and our thousands of employees every day that are around the world working hard to manufacture our products. I'd now like to turn the call over to Maury for his comments.