Titan International, Inc. (DE)

Good morning, ladies and gentlemen, and welcome to Titan International Inc. First Quarter 2022 Earnings Call and Webcast. 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 assistance, please dial star zero and an operator will assist you. It is now my pleasure to turn the floor over to Todd Schute, Senior Vice President, Investor Relations and Treasurer for Titan. Mr. Schute, the floor is yours.

Thank you, Sam. Good morning and welcome everyone to our first quarter 2022 earnings call. On the call today we also have Titans President and CEO Paul Reitz and Titans Senior Vice President and CFO David Martin. I will begin with the reminder that the results we are about to review were presented in the earnings release issued yesterday, along with our Form 10-Q, which was also filed with the Securities and Exchange Commission yesterday. 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 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 within the safe harbor statement included in the earnings release attached to the company's form 8K filed earlier. 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 to be discussed today, as well as a reconciliation of the non-GAAP measures to the most comparable GAAP measures. A Q1 earnings release is available on the company's website within the investor relations section under news and events. Please note a replay of this presentation will be available soon after the call within the investor relations section on the company's website and a copy of today's call transcript will be made available on our website as well. In addition, our latest quarterly investor presentation is available on our website currently. I would now like to turn the call over to Paul.

Thanks, Todd. Good morning, everyone. A couple months ago in early March, we released strong results and expectations for 2022 that really illustrated the progress we have made as a company in recent years. I have to start off today's call by saying our first quarter took that ball and ran with it hard, as our results were excellent this quarter and really a good way to start 2022. We posted Q1 revenue of $556 million, which was our highest for a quarter since early 2013. The top line growth was well supported with strong flow through into operating gains as our gross margins improved to 15.6%. That led to our Q1 adjusted EBITDA coming in at 57 million, up over 30 million from last year. Our adjusted EPS came in at 44 cents a share compared to seven last year. Again, it was a very good first quarter for the Titan team. David will share more financial information, and I'm now going to switch gears over to the market landscape. With our year-end results, we stated that we believe there were numerous positive aspects going for our business and end markets that were lining up well for 2022 and beyond that. We continue to believe that is the case, and our first quarter results and 2022 order book provide support, along with a number of other market factors that I'd like to point out. Let's start off by looking at commodity prices that remain at high levels and are well supported with global supply-demand dynamics that bodes well for future prices The strong commodity prices combined with supportive government programs have positioned balance sheets for the global farmer in a really good place. These economic factors combined with an aged fleet, along with continually low, historically low equipment inventory levels, especially for used equipment and large ag, really create a robust demand environment for the foreseeable future. So elaborating further on that, these market forces combined with delays in order deliveries from the OEMs as they work through some production challenges, really provide support and momentum for a multi-year demand cycle. I've spoken previously about surveys related to the ag sector, and I'm sure a lot of you follow them as well. So, I want to take just a quick minute and comment on some of those recent surveys that have shown a drop in farmer sentiment. I want to state that I believe those surveys should not be viewed as a reduction in overall demand levels at this time, but rather they should be seen as a result of OEMs pushing out end users' orders and also the spike in farmer input costs such as fertilizers. If you look at the factors I mentioned previously that provide strong longer-term support, that really those surveys are not necessarily designed to catch. They're really grabbing the short-term noise and the responders' mindset at that moment of they're giving their responses. So looking at the OEM market, we do believe that we're really in a good position with our order book and really where things are trending for, again, 2022 and beyond. So if you now switch over to the aftermarket, We are still reflecting a strong demand environment for replacement tires amidst the shortages that you're seeing in available equipment, along with really the strength of our LSW products. You know, we've mentioned that many times that LSW can make existing equipment perform better. So if you look further down the road, it still does not appear likely that 2022 OEM production levels are going to put much of a dent in the low dealer inventories, especially in large ag. So you're looking at 2023 before meaningful inventory replenishment could take place, and unmet 2022 retail demand will just keep carrying forward into future years. Again, the point being with that, there are a good number of positive forces in the ag sector, and it appears this positive ag wave is going to keep flowing. And while we can be viewed as an ag-driven company, let me switch gears over to earth moving and construction. It represents 35% of our sales, and of course, it's where our undercarriage business is a major global player. We stated last quarter and still believe that our EMC segment continues to look promising as you have the expected infrastructure investments that will kick into gear this year, next year, and further down the road. They will continue to provide support, further support to the demand levels that remain strong at current times. We continue to see demand and orders are at really good levels, but similar to the ag OEMs, there is production pressure to meet those current orders. So I think we sit in a very good position where that demand cycle will just have a longer tail to it. When discussing the EMC segment, we often speak about our ITM undercarriage business and its strengths as a company. I do want to take a second, though, and touch base on our Bryan, Ohio plan. In the past, this plant was nearly 100% EMC, and we have previously stated that we have shifted away from producing supergiant tires, except in some low-risk cases where we know the customer and the application are appropriate. Then over the past few years, our team has really worked hard to transform Brian's strong production capabilities into a mix of construction, earth-moving, and now ag. In fact, in recent months, Brian's plant production has been right around the 50% ag level. driven by that continuing growth of our large LSW products and the launch of our new agri-edge line. This transformation in Bryan has ushered in a solid improvement in their financial performance. Along with the continuing investments we will make to increase our LSW capacity in North America, we are also investing to improve our efficiencies in construction and forestry to ensure that our Bryan, Ohio plant keeps moving forward in a positive direction. Our 10Q provides an update on Titan's Russian operations. I would like to state here that Titan understands the gravity of the crisis in Ukraine and has contributed to organizations supporting those humanitarian needs. We also understand the struggle that millions around the world are facing from escalating food costs and food shortages, and we are doing our part in the ag world to help with that troubling situation. So wrapping things up here, on a global basis, our Titan team will continue to be there to meet our customers' growing expectations. We have an impressive and extensive global production footprint that is staffed with exceptional people that day in, day out are producing quality, innovative products. Based on the strength of our Q1 performance and really the solid market landscape that we see, we have now increased our 2022 expectations and are expecting full-year net sales to be above $2.1 billion, with adjusted EBITDA to be around $200 million. I also want to add that the improved expectations have driven an expected increase in our free cash flow to the range of $55 to $65 million. This updated outlook is a nice increase over our previous expectations, but I do want to say that we do put a lot of effort in our forecasting process. These positive updates are not because our finance team is just guessing or sandbagging with the forecast. But it really reflects the tremendous job our Titan team is doing, battling through whatever challenges are put in front of us and our ability to keep moving forward to improve our business and really be there to take care of our customers' and end users' needs. I do want to add that there's a lot of things that we've done through the years that have put us in this position where we can raise expectations. In recent years, we've made structural changes to our company by improving or eliminating underperforming businesses. We have restructured our product portfolio to remove inefficient and negative margin products while continuing to introduce market-leading, innovative products that connect us to the end user and, like I've said many times, make equipment perform better with our LSW. We have implemented intelligence into our pricing models that are able to handle a constantly changing landscape. And overall, our plants and our production teams have consistently implemented changes that improved our efficiencies and really our overall quality rate. But perhaps most importantly, our One Titan team has been exceptional time and time again in dealing with the challenges while we continue to move our business forward. I want to take a moment just to share the fact that we recently published our first comprehensive sustainability report. It's now available on our website. We have been on our own ESG journey for some time now, and it's important to share our progress. We have a strong commitment to continuous improvement at Titan, and we fully understand our impact on the world when it comes to not only the environment, but also our workplaces and the communities within where we operate. With that, I would now like to turn the call over to David.