Titan International, Inc. (DE)

Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. Third Quarter 2020 Earnings Conference Call. At this time, all participants have been placed in listen-only mode, and we will open the floor to your questions and comments after the presentation. If you should need 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, Debbie. Good morning and welcome everyone to our third quarter 2020 earnings call. On the call with me today, we have Titan's President and CEO, Paul Reitz, and David Martin, Senior Vice President and CFO. I will begin with the reminder that the results we are about to review were presented in the earnings relief 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 this 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 the 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 8K filed earlier today, as well as our latest Form 10K and Forms 10Q, all of which have been filed with the Securities and Exchange Commission. 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 to be 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. Titan has done a good job again this quarter navigating through the uncertainty and challenges of the pandemic to report another period of solid financial results. We continued on what we achieved in the second quarter with stronger margin performance, good working capital management, and improvements to our balance sheet. Diving into the business, I believe we had a really good quarter on nearly all facets of our business that are within our full control. We did see a top line decrease of nearly 12% compared to last year, as some of our end markets continue to be heavily influenced by the COVID pandemic, along with about half of that decrease coming from the impact of negative currency fluctuations. However, despite this decline in sales, we were able to deliver a 250 basis point increase, and our gross margin percentage to 10.3%. Also, as we've seen throughout this year, we have been and we will remain diligent in managing our controllable costs. This period, excluding the $5 million DICO legal accrual, we were able to reduce SG&A by over 12%. The positive actions by the Titan team throughout all of our businesses resulted in an adjusted EBITDA of $14.2 million, which is an increase over last year's third quarter and this year's second quarter as well. Perhaps most importantly for Titan was the continuing progress we made with our balance sheet, as we increased our cash by $18 million from last quarter and continued to lower our debt. In fact, our net debt represents the lowest level we've had since Q3 2018 and has improved or has been reduced, I should say, by over $85 million over the past 12 months. Our third quarter results demonstrate our solid operational and financial execution in dealing with COVID and obviously the many business-related challenges that go along with that. We now anticipate our full-year adjusted EBITDA to exceed 2019 levels and be in the range of $40 to $44 million. and many more. On that COVID front, we all are experiencing the daily barrage of news which has tilted negative in recent days with the concerns over a second wave that has resulted in additional lockdown measures in parts of Europe and here in the U.S. with increased hospitalizations. There are clearly global business risks associated with this concerning trend that can't be overlooked. However, looking specifically at Titan's end markets We definitely feel there are reasons to be positive as we look towards the near future. So starting right here in North America, over the past couple months, we've seen positive trends in North America act as conditions have continually been on the upswing. We know the last quarter that we're seeing more drop in orders, but that momentum has grown stronger as we now see more firm orders as corn has also been hovering in that $4 range and soybeans have reached multi-year highs. Throw on top of that, All of this leads to net farm income around $103 billion, which is an increase over 20% from last year. Farmer sentiment levels are reflecting this as they are now reaching a five-year high. In addition, there have been solid improvements in the dealer sentiment with 30% of ag dealers now reporting current inventory levels are too low. This is the first time this has occurred since mid-2012. So it's reversing a trend of too much reported inventory for the past eight years. Forest farmers are not going to run out and start freewheeling with their money just because corn is at $4, but there is really good momentum that should be kick-started in the replacement cycle. For example, you're starting to see that in some recent information where 42% of ag dealers already see their sales going up by at least 2% in 2021, with close to 10% of the dealers expecting sales to increase over 8%. Keep in mind, 2020 actual sales levels have exceeded the initial dealer forecast at the start of this year. Moving down to Latin America, I've spoken extensively for good reason about the strong business improvements that have been made in Titan Brazil through the years. Unfortunately, financially speaking, they've been somewhat hidden in our results by the continuous weakening of the REI. Nonetheless, we have made extensive investments in recent years to significantly improve our capacity and key product sizes and just in the past two years we have developed over 60 new products. These actions have paid off well already with increased sales and increased gains in market share as well, but as we enter 2021 with demand at really high levels already, the prior investments positioned Titan Brazil extremely well for the near future. So sliding away from ag over to earth moving and construction, clearly this segment remains challenged. We saw our sales slide 19% this quarter, As I said earlier, though, we've done a good job of managing margins. It's evident in this sector as well, where we were able to push up our margins 180 basis points to over 10% from 8.3% last year. While these market conditions currently remain on the tougher side, there are market signals that are starting to bode well for next year. Dealer inventories are low. Global housing continues to show growth. Plus, we already have Europe unleashing an infrastructure spending bill, obviously using it as a mechanism to rebound from the pandemic, but that's going to put pressure on other governments to feel that they need to do the same as well. Our ITM business, on top of all the changes that are going on in the world that are being induced by the pandemic, our ITM business is well positioned geographically to benefit from the regionalization of supply chains, which will be a continuing trend. Despite these market conditions, in recent months our ICAM business also has been solidly beating our internal forecast as order patterns have consistently improved. With that being said, we do see 2021 as being a rebound year for our undercarriage business, perhaps not as much in the first half, but by the second half, market conditions should demonstrate really good signs of life. We are going to just sit back and ride the market condition improvements to increase our sales. We do expect our efforts in product development within North and South America tire businesses along with what we've done to develop new products in our undercarriage business to drive a fair amount of new business in 2021. You put all these pieces together and it's really starting to form a good foundation with a good backdrop for growth heading into 2021. So sitting here today, we know and we will, we need to keep on positioning Titan to navigate through the pandemic-induced challenges of today's business climate. Over the past six to seven months, our results have indicated our ability to do just that. Along with managing the operational aspects of a very fluid business environment that's being heavily shaped by COVID, we will remain committed to managing our balance sheets to not only get through the crisis, but position ourselves for expected future growth. Looking beyond 2020, we believe that the continuing positive actions here at Titan Our development of new and innovative products combined with the underlying improvements in market conditions should drive good financial improvements and put us in a strong position for the refinancing of our 2023 bonds. I want to close by once again just expressing my appreciation to the One Titan team and our thousands of employees around the world working hard every day to manufacture our products. And so with that, I'd now like to turn the call over to David.