Titan International, Inc. (DE)

Good morning, ladies and gentlemen, and welcome to the Titan International Inc. first quarter 2023 earnings conference call. At this time, all participants have been placed in 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, Matt. Good morning. I'd like to welcome everybody to Titan's first quarter 2023 earnings call. On the call with me today are Paul Reitz, 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-Q, 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 release which accompanies today's call contains financial and other quantitative information we discussed today, as well as a reconciliation of the non-GAAP measures to the most comparable GAAP measures. The Q1 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. Over the last few years, we have spoken extensively about the strengths, execution, and impressive performance of our 7,000-plus OneTitan global team. Titan's entrepreneurial spirit guides our vision, strategy, and culture, which leads us to a strong technical connection with our end users of off-road equipment. That transforms itself into significant value for our customers as we consistently engineer and manufacture market-leading products that make off-road equipment perform better. Our financial results for 2021, 22, and the first quarter of 23 illustrate the strength of our One Titan core values and how we have operated effectively in challenging times to meet the needs of our customers to drive strong financial performance. Myself, our board, our employees have always believed that the foundation of our plants, people, products, and entrepreneurial can-do culture is strong at Titan. But if you look back a few years ago, our financial performance and balance sheet were not where they needed to be. At that time, we developed and then implemented a strategic plan to drive growth via product development, improve our portfolio through divestments and by reorganizing several of our businesses and plants to improve profitability, and to fortify and reposition our balance sheet. Flash forward now to 2023, we have executed successfully upon each and every one of these initiatives and have even surpassed many of them. I'd like to take a few minutes and add a little more color to each one of those thoughts. First, we haven't just strengthened our balance sheet, we've transformed it. We did this by significantly reducing net debt, effectively managing working capital, and generating strong cash flow. Our balance sheet has shifted from being a drag to an asset, an asset we believe that can be leveraged to support future growth. We have driven growth. over the past few years by introducing numerous innovative products into the marketplace, which we regularly highlight in our annual reports and on our website to showcase how we help our end users' equipment perform better because they choose to use Titan, Goodyear, or ITM-branded products. Our market-leading LSW wheel tire assemblies continue to increase in popularity, and our patented waffle wheel is growing at a rapid pace in Europe. Our continuing commitment to innovation shows the connection and trust we've developed with our customers, and this will be critical in supporting our future organic growth initiatives. If you look around, we've also divested and restructured underperforming businesses and plants to improve our profitability. For example, we've improved our Australian tire and wheel business. First, we improved its profitability, and then we were able to divest it for $20 million. We have shuttered an unprofitable OTR wheel plant. We've reorganized products and operations of our USOTR tire plant to restore it to profitability and success. And we've improved our TTRC operations to make that an attractive asset in the marketplace. These strategic initiatives helped us successfully tackle the unique challenges of the past few years with the pandemic and supply chains. As we all know, many of these are truly unique events and circumstances we couldn't have planned for But it's the execution against our plan that allowed us to deliver on our commitments, meet the intense demands of our global customers, and rise above the headwinds. But most importantly, during this period, we have enhanced our competitive position. We've grown market share, we've set new heights for financial performance, and we've repositioned the business for long-term success. Despite all these significant improvements to Titan's fundamentals, our stock continues to lag our performance. and trades now at around 3.5 times trailing 12 months adjusted EBITDA. I fully realize, as everybody else on this call does, that stock values are based upon future performance and cash flows. However, it is clear, based on the new heights and performance we achieved, that Titan has built a stronger company for the future. We are going to spend a lot more time talking about this going forward, and I believe it will resonate with you as well. Moving over to our first quarter results now, I'm pleased to report that our adjusted EBITDA was $68 million on healthy sales of $549 million. This is up approximately 2%. That excludes FX and our Australian divestiture that I mentioned earlier. Our gross profit performance was also very good. We managed SG&A effectively, and this led to a strong adjusted EBITDA performance. Our free cash flow was elevated again at $12 million for this quarter. Working capital continues to be well-managed at an impressive level of 20% of sales. That has been our long-term target set by our board a number of years ago. And all of this drove our net debt down to $273 million this quarter. Quite simply, our financial performance was excellent again this quarter. Our balance sheet further strengthened. And let us not forget, that was on top of very strong 2021 and 2022 performance. Our One Titan team continues to execute well, and I want to thank them for their hard work and commitment. So if you look, we've clearly gotten off to a strong start for this year. Like I said last quarter, and I'll say it again this quarter, it's reasonable to say the overall business climate continues to kick out a fair amount of noise. You look at the macro level, you're getting hit with inflation, consumer confidence, supply chains, geopolitics, and on and on. The biggest factor we face is how our customers are dealing with managing their supply chain inventory, and we are seeing them take actions to reduce levels. This will impact our production levels for a part of 2023. But let us not take our eyes off the bigger picture. The large ag segment is still standing on firm ground with stronger farm income, low grain stocks. There's equipment that's needed to meet new demand. Along with that, there's equipment that's needed to fill used and new dealer inventory. Our undercarriage business had its best year in its long history in 2022, and we're seeing the earth moving and construction segment continue to have a strong, favorable backdrop. Along with a good start in Q1, we're seeing earth moving and construction in a good position for the rest of 2023. Mining aftermarket is poised for growth. Non-residential construction market is in a good place, and it always has the backdrop of infrastructure support behind it. Moving beyond the short term, I do want to provide some framework and context around who we are, what we've done, and where we're going in the future, as I feel this is extremely important to understand. Titan continues to have numerous opportunities to drive growth, the core of which is our ability to win via product development and innovation. We are confident and remain passionately committed to continuing to innovate and bring new products to the market that exceed the demanding expectations of our customers and, of course, the end users. The products we manufacture are essential to the industry and customers that we serve. We have definitely seen that over the last few years. Titan has and does continue to demonstrate its ability to serve as a reliable supplier that can mitigate the risk of supply chains around the world And we do that despite the ongoing dynamic operating conditions that exist. This strong combination of product innovation, operational agility, and a well-positioned global production footprint positions Titanwell for the future so that we can continue to evolve and grow with our customers' needs. I'm going to give just a brief example of what that looks like. We have the evolution in Turkey, and a lot of people may forget that's the world's fifth largest agricultural market. We have launched the Goodyear Farm Tire brand there. It's into that marketplace in a successful manner. And you combine that with the strength of our existing wheel plant in Turkey, it enables us to grow even further because now we can do what Titan does very well. We can deliver wheel tire assemblies to the OEMs. Here at Titan, we have spent decades building a strong collection of brands that support our high-quality wheel, tires, and undercarriage products. We view our brand as the heartbeat of our company. and we work diligently ensuring that they endure in a healthy position into the future. For example, we have improved our cost of quality in North America and our tire business by over 60% over the last four years, from 2019 to 2023 versus the period of 2010 to 2015. This meaningful improvement supports exactly what I just said. It has strengthened our Goodyear and Titan tire brands, It's improved our plant operating costs. It's reduced wasted raw materials. And of course, that's helped from the ESG perspective as well. So let me wrap things up here. In recent years, as I've said many times, our One Titan team has done an exceptional job. We have reached our stated goals. We have tackled challenges to serve our customers. And we have driven improved financial performance. I already stated that I believe our financial performance justifies a trading multiple higher than where we are today. But I also want to emphasize that we believe the floor on our financial performance during the next cyclical downturn is higher than what our historical financial performance would suggest. We have fundamentally changed the business, our competitive position, and our balance sheet, all of which makes us a much more resilient and opportunistic company during short-term down cycles. We will update our investor materials to reflect that and the messages to continue to amplify the message that I'm delivering today to illustrate the positive changes and actions that have taken place at Titan to drive long-term value for our customers and shareholders. With that, I'd now like to turn the call over to Dave.