Titan International, Inc. (DE)

The conference call will begin momentarily. Again, please remain holding. The conference call will begin momentarily. Good morning, ladies and gentlemen, and welcome to the Titan International Incorporated fourth quarter 2022 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 assistance, please dial star zero and an operator will assist you. It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Analysis for Titan. Mr. Snyder, the floor is yours.

Thank you, Forum. Good morning. I'd like to welcome everyone to Titan's fourth quarter 2022 earnings call. On the call with me today are Paul Wright, Titan's president and CEO, and David Martin, Titan's 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 yesterday, along with our form 10-K, which was also filed with the Securities and Exchange Commission. 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 risks, 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 10K and Forms 10Q, 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 released which accompanies today's call contains financial and other quantitative information to be discussed today. as well as the reconciliation of the non-GAAP measures to the most comparable GAAP measures. The Q4 earnings release is available on the company's website. A replay of this presentation, a copy of today's transcript, and the company's latest quarterly investor presentation will all be available soon after the call on Titan's website. I would now like to turn the call over to Paul.

Thanks, Alan, and good morning, everyone. The Titan team closed out 2022 in excellent fashion with fourth quarter results that pushed us up over the top for record performance in terms of sales, profitability, and cash flow. How did we get to this point? It really comes from our Global One Titan team that continues to be energized by working relentlessly to engineer and manufacture our market-leading products that simply make off-road equipment perform better. Really our vision and strategy as a company is formed by that premise and it serves as our guiding light throughout our organization. A core concept of achieving on our vision and meeting the needs of our customers is through our strong technical connection to end users of off-road equipment, especially in agriculture. At Titan, we have a culture here that is centered around living and learning by playing in the sandbox with end users and really understanding their needs and then bringing that information back into our organization. With that important knowledge, we then let our product and technical engineers run fast and develop and also our operational teams manufacture these market-leading products, and that really creates a cool place for an exciting place to work. This entrepreneurial culture, this is at the root of our company's foundation and has been for decades. We combined with our strong technical and manufacturing know-how, this flows vigorously throughout our day-to-day activities and is the backbone of the company that we are today. Moving over to our financial results, we simply had an exceptional year. Our revenue reached $2.17 billion, 22% higher than last year, but actually 27% higher if you exclude FX and our Australian divestiture. Along with strong demand in our end markets, this demonstrates our team's ability to recruit, train, and retain people to grow volumes in a difficult labor market. Our 2022 gross profit hit 16.6%. That led to an adjusted EBITDA of $253 million, which is a record year for Titan. We managed our cost structure effectively as well with our SG&A coming in a little over 7% of sales and only $2.5 million higher than last year in this inflationary environment that we live in. Looking at the fourth quarter, we closed the year out well with $510 million in revenue. That's up 4.5%. and also the first time we have ever surpassed $500 million in Q4. As a reminder, this quarter is a period that is always impacted by holidays and plant maintenance shutdowns, so it's good to see our team get through that noise effectively to record gross margin of 15%, which compares to 12.8% last year. That led to our Q4 EBITDA of $53 million, which is our best fourth quarter in history. So overall, from nearly every angle you can look at, All of our business units had an excellent 2022. And I would personally and sincerely like to thank our global team for their efforts in recent years to achieve these accomplishments that I just had the honor of highlighting. I want to move over to our balance sheet now and spend a few minutes on the critical progress we've made there. You know, a few years ago, David and I spoke quite a bit that one of our top priorities was to fortify our balance sheet. And the two of us and the rest of our team really did a good job getting our management team around the world focused on that objective. And over the past few years, we've done what we set out to accomplish. In 2022, Titan generated $114 million in free cash flow. That's enabled us to achieve net debt leverage of 1.1 times. You know, if you look back a few years ago, our working capital was around 27% of sales. Our board, I do recall those days where our board put an objective in front of us to get below 20%, and we've done that for the past couple years now. Most importantly over the past few years of fortifying our balance sheet, we never stopped investing in product development and innovation as I noted earlier. This is the heart of the culture that what makes us tick, and we do not take our foot off that pedal. Therefore, by being strategic with our investments, exiting and improving unprofitable businesses, and by having a motivated workforce moving in the same direction, over the past few years we have executed at a high level to take care of our customers during these challenging times, and we've propelled our financial results to new levels, and we've also accomplished our crucial goal of fortifying our balance sheet. So now looking towards 2023, it is reasonable to say the overall business climate kicks out a fair amount of noise at the macro level these days. However, when you look at our primary end markets, we are encouraged and believe they are still standing on firmer ground, especially the large ag segment. The recent USDA report illustrates that corn and soybean supply demand factors, along with low stocks, will bring good pricing levels into 2024 at a minimum. That will play a positive role in farmers' decisions about purchasing equipment, especially when they're going to get their hands on the latest precision ag technologies, and not to mention getting their hands on our LSWs. The strong farmer income for recent years combined with that pent-up large equipment demand is really still lingering from that supply chain and labor disruptions over the past couple years. This, along with continuing low levels of available used equipment, All continues to bode very well for 2023 large ag demand. Flipping over and looking at small ag, it appears that inventory is starting to normalize to pre-COVID levels, along with the effects of some inflation slowing down demand in smaller horsepower ranges. These factors, along with OEMs drawing down their internal inventory, leads us to seeing a tapering of small ag demand in 2023. But again, it's still a good, strong segment for our company. Moving over to earth moving and construction, our businesses in this segment finished the year really strong. In fact, ITM, our undercarriage business, had the best quarter in its long history. We see earth moving and construction in a good position to start 2023 with mining aftermarket poised for good growth with solid commodity prices in place and the construction market having the backdrop of some infrastructure support kicking in at points throughout this year. So we look at this as, again, a continuation of a strong 2022 to start off 2023. So if you circle back again to 2022, it's an exceptional year for the Titan team and the customers we proudly serve. As we turn that page into this year, we expect our financial performance to remain at a high level based on the overall healthy market conditions in our end markets. Farmers will continue to be supported by strong income levels, and they have cash to spend on equipment and tires. Weather conditions have been unpredictable, and that bodes very well for our LSWs that continue to be the perfect solution for farmers looking to battle through those tough conditions or simply looking to make their equipment perform better and more efficient. Therefore, we do see our aftermarket demand continuing to remain robust. We also expect to see certain OEMs drawing down their internal inventory levels. That will make for a bit of a wild ride. So coming off a record 2022, we see 23 as another strong year for Titan. And as the year progresses, we're looking to provide more information about our forecasted performance, but we're not going to provide a broad range of expectations on today's call. In closing, it's really cool to see the quality and innovative products we build around the world every day. It makes for a fun and exciting place to work and be, as I mentioned earlier. We also really, as a company, strive on the fact that our products play an important role in meeting the evolving needs of our customers and, more specifically, the end users. Along with that, we have a strong footprint of manufacturing locations that are able to mitigate the supply chain risks that exist in today's complicated world. We continue to believe the key elements are in place to drive continued positive momentum for Titan. So with that, I'd like to turn the call over to David now.