Titan International, Inc. (DE)

Good morning, ladies and gentlemen, and welcome to the Titan International Inc. 4th Quarter 2023 earnings conference call. At this time, all participants have been placed on a listen-only mode and we will open the floor for questions and comments after the presentation. If you need assistance, please disconnect and dial back in and an operator will assist you. It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Investor Relations for Titan. Mr. Snyder, the floor is now yours.

Thank you, Jacqueza. Good morning. I'd like to welcome everyone to Titan's 4th 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 this morning, along with our Form 10-K, 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 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 8-K 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 the company's today's call, contains financial and other quantitative information to be discussed today, as well as the reconciliation of the non-GAAP net 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. As all of you have hopefully seen by now, along with the announcement of our Q4 and year-end earnings this morning, we announced the acquisition of CarlStar. This is an accretive transformative transaction for us. That's a complicated word to try to say. The addition of CarlStar will significantly expand our customer base and product portfolio while also adding key manufacturing and distribution assets. With that in mind, I'm not going to spend as much time as normal on our Q4 and year-end results today, as our business going forward will be substantially different. Instead, I will focus my remarks on the strategic rationale for acquisition of CarlStar, along with some brief discussion of market conditions. Then David will provide comments on our reported results, the financial aspects of the CarlStar transaction, and then of course we'll have time for questions. Instead of calling it a transformative transaction, I should have just said we're really damn excited for the opportunity to make the CarlStar team part of the Titan family. Similar to Titan, CarlStar is a global manufacturer of specialty wheels and tires. The primary end markets for the products are outdoor power equipment, power sports, high-speed trailers, and smaller agriculture equipment. Power sports, trailers, and outdoor power equipment are verticals where Titan has not competed in recent years, so adding CarlStar's product portfolio in those end markets will add some meaningful diversification to our business. In addition, CarlStar maintains strong relationships with a number of key national retailers and commercial servicing dealers. CarlStar has built a one-stop shop and a connection to customers in their three key segments that is unparalleled. Titan has done the same in our key segment, large ag, where we offer an unmatched arsenal of wheels and tires with a strong connection to our customers and end users. Titan and CarlStar are better together, and we're excited to add these new customer relationships and products into Titan's business. It's no secret that agriculture and construction industries are cyclical, so the addition of these more retail-centric categories is something we expect will benefit the consistency of our sales, margins, and profitability over time by reducing some of that cyclicality. CarlStar has simply spent years developing a secret sauce. I'm going to use the word one-stop shop repeatedly because they have done a tremendous job in the three segments where they operate, again, building the secret sauce around this business model. Part of that formation of that secret sauce is CarlStar has built a world-class portfolio, especially areas such as outdoor power equipment, turf, ATV and UTVs, power sports, and high-speed trailers, along with ag products primarily for smaller equipment such as tractors, backhoes, and implements. This portfolio dovetails well with our existing Titan lineup. Although we do have some products in these channels, our Titan's bread and butter has really been innovating the larger wheels and tires that go on the biggest tractors and combines. Going forward, we really think our combined product line will feature the -in-class offerings in these segments. We are pleased, really pleased, to be extending our market leadership there and to be able to offer the product portfolio that I just mentioned. While we are excited for these top-line opportunities with a broad product base, we are really excited about CarlStar's business model that connects their manufacturing and distribution assets with third-party producers in a very effective and efficient manner. CarlStar has a plant strategically located in Meizhu, China that has a long history with an incredible, knowledgeable workforce and access to lower-cost materials. CarlStar's three US facilities, two in Tennessee and one in South Carolina, fit well with our existing production base, which is located primarily throughout the Midwest. The CarlStar locations, in combination with Titan's, form a manufacturing base that can produce an extensive product portfolio that, as I mentioned earlier, is unmatched in our industry while also providing value-added risk mitigation to our valued customers. Complementing that manufacturing platform is CarlStar's -stop-shop operating approach. You're going to keep hearing that word a lot because, from the very beginning, I've been impressed with learning more about their market approach and how they develop this connection to customers. From the outside, I've been watching it for many years, but again, getting to know the team and the processes associated with this -stop-shop, it truly is their secret sauce. We're looking forward to the addition of the 12 distribution centers that are connected via an oppressive sales, inventory and operating planning process. This allows them to deliver products to their customers in a timely manner, regardless of source of origin. Internally managed, their DC locations are in key strategic areas, including the central and southern US, where their domestic manufacturing facilities are, as I'd mentioned previously, and they also get good penetration out on the west coast and up into Canada. Overseas, the acquisition adds a distribution center in Hungary. This is a good opportunity for Titan to expand our existing market penetration there. All in, we like how well CarlStar is vertically integrated and look forward to having these operations in-house. As I noted earlier, CarlStar's business is more retail-orientated than Titan's. Approximately 75% of CarlStar's sales fit within Titan's consumer segment, with the remaining 25% going to ag and construction. Retail and even some smaller ag is less correlated with commodities, and as such, we expect to see our annual revenues going forward have less volatility than they had in the past. As you can see from a strategic perspective, CarlStar is a strong fit with Titan, and we are really eager to start rolling up our sleeves to integrate the operations into Titan's business, but really dive into the growth opportunities that exist for the CarlStar and Titan team as we move forward. David will get into details a bit more in a moment, but I want to highlight the fact that we were able to do this deal at a fair valuation that is around four times adjusted EBITDA. It's a creative and it leaves our balance sheet in good shape. Over the past couple years, the Titan team has worked hard to reduce our leverage, and between that and the modest use of our asset-backed revolver to help fund this acquisition, our post-deal leverage is still a very manageable 1.3 times, and that's based upon pro forma combined company profitability. Before handing it off to David, I do want to touch on market conditions. As many of you have heard from the market leaders in the ag and construction equipment sectors, expectations for 2024 would be best described as conservative or softer. This is really being driven by the expected declines that are taking place in farmer incomes, combined with global uncertainties from grain supply, government actions, and really overall geopolitics. All that's just waiting on current demand. At the same time, the de-stocking dynamic that impacted 2023 has run its course, so we are starting this year with inventories in a more normal state. With that, we expect the ag market activity over the balance of the year will be down as driven by commodity prices. Again, nothing new or shattering with that comment. It's really being driven by the impact, as we've seen in North America from farmer incomes, but we do see 2024 having less impact from the headwind of lagging inventory that has been in the channels throughout 2023. You know, let's not forget amidst the current market noise that North American farmer balance sheets and land values are still very strong. That bodes well for future prospects as compared to cycles from prior decades. Wrapping up, 2023 was a solid year for Titan, and I'm proud of our ability to navigate challenges, serve our customers, and maintain our margins. The plan we put into place a number of years ago centered around our One Titan team has proven itself and is gaining momentum with our dedication, commitment to each other, and relentless focus on serving our customers. I want to thank the Titan team for all their efforts during due diligence to get the Carl Star transaction over the goal line. All that hard work is making our flywheel turn and is showing in our financial performance and our ability to seek growth. In closing, I would like to welcome the Carl Star team to the Titan organization. It's clear they are a really good group of people. They've done an excellent job building Carl Star into the strong business that I talked about earlier. They're world class and serving its customers in its end markets. Titan and Carl Star are better together. With that, I'd like to turn the call over to David now.

Thank you, Paul, and good morning to everybody on the call. As Paul noted, you know, the acquisition of Carl Star is a transformative deal, as we said. So it is very important to say because of all the things that it brings to Titan and more importantly, the people that come to Titan. So we're very happy to have them as part of the Titan family. Our operations and our financial results going forward will look different than they have up to now. And again, Paul said it, you know, the acquisition multiple was four times and we expect the deal to be immediately accreted, which is certainly something we're excited about. Before I get into more details on that, I will touch on some summary highlights from our fourth quarter and fiscal year 2023 results. A primary thing to emphasize is that these results provide solid evidence that the work we've done to optimize our operations is driving a better, durable gross margin profile. That positions as well to capture the improved profitability over the long term. Full year revenues came in at 1.8 billion for 2023 as compared to 2022 over 2 billion. Our adjusted EBITDA was 205 million. For the fourth quarter, our revenues were 390 million with adjusted EBITDA of 38 million. Our full year gross margins improved 20 basis points from .6% to .8% in 2023 despite the sales being driven down year over year through the stocking and the other economic factors that have impacted our sales this last year. Elaborating on that dynamic a bit further, as one might expect, our margins have typically followed the ag cycle and our goal has always been to aggressively manage our input costs to the extent we can while balancing our product pricing in a way that allows us to earn a fair return on our assets. As a manufacturer, we are naturally impacted by raw material costs for our wheels and tires. With that in mind, over the last several years, we have worked really hard to improve our production and our operations. By controlling the things we can control, we have been able to make durable gains in our cost structure and the result is a higher gross margin floor as our 2023 results show. SG&A expense for the fourth quarter was 32 million compared to 30.5 million in the prior year. With the change due primarily to inflation pressures, especially in employee compensation. For the full year, these expenses totaled 135 million up a modest .6% from 133 million in 2022. That is important given the world that we're living in with inflation and things like that and we're able to really control our costs. R&D expense was 3.1 million for the fourth quarter and 12.5 million for the full year. Those figures compared to 2.8 million and 10.4 million in 2022. They reflect our continued emphasis on prioritizing our R&D investments. We are committing to maintain a -in-class portfolio of products and with farmers increasingly making their decisions based on equipment ROI, our innovations are a significant differentiator for us. Our operating income was 20.7 million for the quarter and 149 million for the full year. Our operating cash flow for the year was 179 million, up .6% from the prior year. We were very pleased to be able to improve our operating cash flow that given the top line headwinds that we experienced throughout the year. This shows the discipline by our global operating and finance teams and significant efforts to focus on working capital and all the things that go into driving cash flow. During the year, we had a couple non-operating events impact the income statement that I'd like to mention. There was an unusually high devaluation of the Argentinian peso relative to the U.S. dollar. As a result, we applied hyperinflation accounting rules to Argentina and Turkey, which had both been designated as hyperinflationary economies in prior years. We did recognize 21 million in foreign exchange losses for the year. We also approved a restructuring plan at one of our European businesses to adjust our cost structure and better position the business to outperform in the future. The cost of the restructuring action was 1.6 million. Both the foreign exchange loss and the restructuring costs were adjusted out of EBITDA net income and EPS within the non-GAAP reconciliation schedule. Our strong cash flow enabled us to make a variety of key investments in the business during 2023, and our capex totaled 61 million for the year, compared to 47 million during the prior year. We also used our cash to fund our share repurchase program, buying back 1 million shares for a total of 13.5 million during the fourth quarter, bringing the total for the year to nearly 2.7 million shares worth nearly 33 million. That leaves us approximately 17 million of available capacity on our program. Over the last several quarters, we have also called out our strong free cash flow and intentions to be judicious in deploying it. Echoing Paul's comments, we are excited to have announced the acquisition of Carl Star this morning. The cost of the acquisition was 296 million, which was composed of 127 million of cash and 169 million of TWI stock in the form of 11.9 of newly issued shares. Importantly, leveraged post-transaction stands at a very manageable 1.3 times net debt to adjusted EBITDA on a pro forma basis. Altogether, we expect our cash flow to adequately fund continued debt reduction along with our share repurchase program and our capital programs. Concurrently with closing, we expanded our ABL from 125 million to 225 million. Terms of the expanded ABL are very similar to the existing facility. We have expanded the guarantors and the related borrowing base to include the domestic and Canadian assets of Carl Star. The pricing on the facility is also similar at the SOFR plus 138 basis points to 185 basis points, depending on our fixed charge coverage ratios from time to time. The facility will extend to 20... I can't even read my paper anymore. The facility will extend to 2028, maturing concurrently with our senior notes. In terms of margins, Carl Star's results the last few years have been relatively consistent with Titan's. And as we noted in the press release, we expect there will be areas where meaningful operating cost energies can be pursued. It's a bit premature to give specific figures, and we anticipate sharing more detailed information as we work through the integration of the two businesses in the coming months. Broadly, with an operating profile similar to Titan, Carl Star is a solid generator of cash, and we expect the combined businesses to produce adequate cash flow to allow us to continue to fund our share repurchase program, while also working down the increase in our ABL borrowing we have taken on today, and investing in the future of the combined companies. Lastly, as we noted in our earnings release, we're not providing fiscal year 2024 guidance at this time. The addition of Carl Star is a significant, transformative acquisition, and with that, we think it's prudent to get down the integration path a little ways, and as we do that, we expect to gain more clarity on what 2024 will look like for our combined operations. As we do so, we will look to provide guidance for the year during our subsequent earnings reports. And thank you for your time this morning and your attention to what matters to Titan. It is a very exciting day for our team. We would like to, I'd like now to turn the call back over to Jaquita, our operator, for the Q&A session.

Absolutely. We would now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. The first question comes from a line of Larry Demirria with William Blair. Your line is now open.

Thanks. Good morning. Congratulations on announcing the deal. Can you, I guess there's no, obviously you just said there's no guidance in 2024. Can you give some color on, you said, you know, Carl Star reduced the cyclicality. What does Carl Star look like in 2024 from where you stand now?

I think David had mentioned his comments. I mean, Carl Star is similar to what we're seeing in Titan and really overall what you're seeing across the complete landscape. So consumer, ag, construction, you know, there is some softness in the market compared to 2023. I think their business, though, is softer for different reasons than what we've seen. They, you know, they are exposed to interest rates being more consumer based. But we've talked about it in our and on some of our segments with smaller tractors in the agriculture space. You know, interest rates have had an impact. So, you know, overall, I don't think there's anything different with Carl Star that's different than Titan. That's different than what you heard from any other release that's been put out there with ag or construction. It's a number of different factors from interest rates to farmer income to geopolitics, government, blah, blah, blah. You can go on and on. So, you know, overall, the the 23 results for Carl Star were exceptional. And, you know, they're going to have another good year in 24. They had a good year in 22. So it's a high quality business. It's been performing well. It's going to continue to perform well. As we've mentioned a number of times, it's a they got a tremendous one stop shop, an exceptional team. And, you know, I think the one thing we should also put on the table and David mentioned synergies, but we really did spend a lot of time on it because our teams are going to have to work together to to really drive down into this. But just growth opportunities. You take Carl Star's capabilities to service the market, combine that with Titan's existing product portfolio in markets where, quite frankly, Carl Star isn't touching right now. As we mentioned, Carl Star's primarily in the U.S., a little bit in Europe. You look at our global manufacturing footprint, what Titan's missing is that one stop shop model, that secret sauce of connecting to the customers through distribution centers in a world class, so we're excited to get in there starting today and learn from the people there and see how we can not only work together here in the markets that we have in front of us, but also in places where opportunities exist for Titan and Carl Star moving better together in the future.

Thanks. And I was going to ask you about the synergies and the manufacturing facilities and ability to leverage them. I guess the first question is, does that go both ways? Can you actually get into their facilities and bring some of your product through and vice versa, maybe down South America? And secondly, I don't know if you can confirm it or not, but it seems like this happened rather quickly. Have we really explored the cost and sales synergies or it just sounds like it came together quickly and we're going to figure that out as we go?

Yeah, it's a good question on the manufacturing footprint. I mean, there are opportunities there, like you said in your question, to leverage their plants more effectively, to leverage ours more effectively. We did get a chance to walk around their facilities, so it did happen fairly quickly, the transaction we announced today. But I also want to say that we did a lot of due diligence over the last couple of months. We've been around their plants, the legal and financial teams that work endlessly, getting comfortable with the business. So I would say it's now going forward, is learning more about their people and their processes, their strengths, combining that with our strengths. But then like you said in your first question, Larry, we do need to spend some time getting around to their manufacturing locations and give them a chance to see ours too. Let those dots connect and the light bulbs turn on and see what their team starts thinking when they see our capabilities and what our team sees their capabilities. And so I think it's an exciting time. But yeah, to your point, this all came together quickly. We're pleased to announce it today. We think the timing is right. Let's get going. But we certainly have some opportunities out there that we're going to continue to explore and take us a little bit of time to kind of articulate it more clearly back to the investor base.

Thanks. And just a last quick question, any customer overlap to speak of?

Mainly our businesses are very complimentary. And I think to answer the customer question, you have to look at the product. So because of the differential in the products, the overlap is insignificant to start with. But then where we do overlap with the same customers, the products are different. There are some customers in smaller ag. To be honest with you, we really don't overlap. We kind of go different directions here and there. I think we both know each other's business well enough that even where we do have similar products, the overlap at that particular customer is fairly well contained. And so to answer your question, these businesses are highly complimentary with a little bit of overlap. Starting at 730 this morning, our teams were getting on the phone with customers and making that first call to any of those overlap customers together. So what we want to do is say to our customers, we're in this together. You've got a combined stronger company. But at the same time, we're still going to continue to service you in the same effective manners and processes that Titan built and Carlstar built and not try to change that. So I think the customer base should see this in a favorable manner. And again, to answer your question, very little overlap when you combine both products and customers. Again, some overlap in each, but when you look at them from a matrix standpoint, very little overlap in both.

Okay, I'll jump back in. Thanks and good luck.

All right. Thanks, Larry.

Thank you. The next question comes from a line of Steve Farazani with Sadohti. Your line is now open.

Morning, Paul. Morning, David. Obviously, you've been very busy and a lot to cover on the call this morning. A couple more questions on Carlstar. You know, your advantage has always been you're operating in relatively niche markets with less competition. Can you compare the competitive landscape for Carlstar? It looks like a fairly similar margin profile?

Yeah, it's a good question, Steve. And that's something that the early due diligence, the biggest hurdle we had to get over is probably related to your question right there. We needed to be comfortable that their margin profile and the competitive landscape and how they operate in their markets was similar to ours. I mean, we as Titan have built our business around being very connected to the customers with an extensive product portfolio that can risk mitigate our customers in a way that no competitor can. Carlstar has that exact same model in the three primary segments they serve. They have a product portfolio that's exceptional. They're very connected to their customer. Their margin profile is good. They understand pricing in the marketplace extremely well. As I've mentioned a number of times, that secret sauce they have with the process that connects their forecast to their inventory, to their distribution centers, to their manufacturing. Their customers rely on Carlstar in a significant way. So they have a profile that's very similar to Titan's. Truthfully, in the segments they operate, there's no competitor that can do it across all three spectrums like they can. So if you look at Titan, what we do with wheels and tires in Ag, there's nobody that can do wheels and tires like we do. And if you look at the three primary segments for Carlstar, it's very similar that there is not a competitor that can do what they do with this one stop shop across all three segments. So a lot of similarities that are complementary. Again, Titan and Carlstar are better together.

Great. That's helpful. I have to ask this, Paul, and it's really a question for them more than it would be for you. But given how you've described this business, why would you sell it for four times EBITDA?

I don't even know if I can answer that one. Let me try to get a response from them and we'll get back to you on that one. Look, I will give you some color on it. Again, I don't want to speak on behalf of them. It's a great opportunity for Titan's shareholders, employees, and customers, along with Carlstar, their employees, their customers. And I think the Carlstar investor group, it's a tremendous private equity business. They have a long-standing reputation. They saw value in becoming a shareholder of Titan. They believed in Titan, they believed in Carlstar, but they also believed in the power of the two companies together. If you look at the deal structure, and I'll let David comment more about that, by using cash and stock, we looked at this as a great opportunity and a win-win for both Titan and Carlstar's investors, customers, employees. I think on behalf of the owners of Carlstar, which again are tremendous people, they will be having a board seat at Titan, they just believed in the power of the two companies combined.

There's not much more to say than that. It's a fair allocation of that, and obviously they believed in the upside of the combination and took a significant amount of stock as part of this deal. So, you look at it that way, I think it'll prove out to be a lot of value to them as well.

Right. That's helpful, thanks for that. Just because we do have to model it, can you give any idea of the seasonality of that business compared to yours, and then geographic distribution?

Yeah, I'll take both of those questions, Steve. It's interesting, they tend to have an early part of the year similar to ours in terms of the spring planting and then also power sports seasons and things like that. They have a little bit bigger first half than second half, but I wouldn't say it's that significant though. It's not really that different. You can look at quarter to quarter as being fairly similar, but just a little bit more in the first half than the second half. Geographic dispersion is mostly North America. I

can get one more in. Okay, go ahead. Obviously you ended the year, given the really strong free cash flow with a very significant cash balance. You're expanding the ABL, but it seems like, and I know we're getting into a softer year, it seems like you could pay down pretty quickly. And you haven't been paying down debt lately, you've built that up. How are you thinking about that?

I think over time we'll be able to generate the cash in the US to pay down the debt. We haven't fully mapped it out in terms of how quickly that will happen. There were some working capital adjustments at the closing that we paid for that will come back to us and we'll be able to pay down debt in the first half for that. Over the second half we'll be judicious in how we do that and also maintaining our capabilities to invest in the business and continue our share repurchase program.

Thanks, Paul. Thanks, David.

Thank

you.

Thank you. The next question comes from the line of Tom Carr with Zach's Investment. Your line is now open.

Good morning, guys. Hey, good morning, Tom. I was going to comment, I was going to comment, you guys should start an investment business, buying something at four times that's either time. I think the Carl Star has been covered, but is it a less capital intensive business than the legacy business just because of the size of the products? And then secondly on that, you talked about similar margin profiles. Is the gross margin similar in the 15% range?

Yeah, I'll cover both of those, Tom. I, the first one, well, I'll actually take the second one first. The, on the margin profile, it's slightly accretive to Titan's margins. They do maintain operating, you know, those distribution centers would tend to be more operating cost, you know, a little bit higher there. So you end up having a deep, a deep down margin that's very similar, you know, over, you know, I think ours has been averaging about 10%. So it's about the same. So that pretty much covers the profile of that. What, and your first question, I can't remember it now.

It's a less capital intensive business than the, just because of

the size of it. Yeah, the size of the business, obviously with the products that they produce is smaller. They've been maintaining around 2% of sales, which is, you know, not dissimilar to Titan. We've been a little bit higher than that, but about 2% of sales.

Okay, all right. And I know you guys aren't going to give guidance, but I'm going to try anyway. So we can, going forward or year to date with the inventory problem solved, we wouldn't expect massive 20 to 30% declines. That's number one, if I could pick around that. Number two, even with the softness we're seeing with farmer income, can we still maintain the gross margins in that 15% range do you think this year?

Yes, on the margin profile, we were over 16% in fiscal year 2023 on our gross margins and we expect to be able to be in a similar ballpark going forward as well. Given all the things we talked about, how we operate, the discipline that we have in managing our input costs and so forth in our pricing, and so everything should be pretty intact with that. Now, again, on the pressure side, Paul can address the overall market context, but we believe we're in a position where any softness that we're seeing at a higher level is offset by the fact that we were impacted pretty significantly in 2023.

Yeah, so I think you referenced Tom, 20 to 30% down mark. No, we're not in a situation like that at all. There's general softness in the marketplace and I think everybody that's talked about it so far this year has said similar comments. We're not going to sit here and repeat it. I think a lot of what you heard from the large ag companies was 10% range. No, we're not seeing anything that's indicating that the sky is falling, run for cover, down 30%. We're going to spend some time getting our arms around the Carl Star forecast and the Titan forecast and we'll be able to provide some additional color as we move through the year.

Sounds good. One more quick kind of accounting question. Can you refresh my memory on how big is the business in Argentina that would have that larger currency effect and maybe just quickly explain the hyperinflation rule?

Okay, we can take it offline later too, Tom, but it's a smaller business, but a very profitable business for us and it's really the net asset position that creates that. You know, FX losses over time. You've got to remember that the devaluation of the Argentinian peso was very significant during the 2023. So you have assets that significantly devalued during that period of time. It's over the course of a longer period of time as well. So we were catching up to hyperinflationary rules. So basically you have to adjust everything to the current rate versus the historical rates for a lot of your assets.

Tom, it was stupid. Argentina is a great agriculture market. We make good margins. We got a facility there, good connection to the customers. We don't manufacture in Argentina, like David said, it's just catching up on years of kind of activity, but it makes it seem like it's a terrible business that something tragic happened. Now Argentina is a good market. It's been part of our Brazilian portfolio, you know, output portfolio for a long time. Nothing really changed from a business perspective. It's just, I don't know. David probably doesn't like me calling it stupid, but it was stupid.

The county rules require us to do this. And so we obviously caught things up with respect to that. You have to, when it hits over the deflation or the inflation over a period of time, if it exceeds 100%, you have to go to these rules. So we can talk a lot more about it offline if

you want. Yeah, that's kind of what I thought. All right, I'll jump back in the queue.

Thanks. All right, thanks, Adam.

Thank you. Next question, cast on the line of Kurt Luftig with Imperial Capital. Your line is now open.

Hello, Paul, David, Alan, can you hear me?

Yeah, yeah, good morning.

Yeah, great. Hey, congratulations on the transaction. A couple follow ups. One, how would you compare Harle Star to what you're already doing in your consumer segment?

Not comparable at all. Harle Star is a world class thoroughbred and we're, you know, what we do in consumer just doesn't even touch what they do. You know, what we're doing in consumer, and I know David's mentioned this quite a few times, is going a different direction than Harle Star, where we were, we have a really good mixing facility in Tennessee. And so we were doing some custom mix for other companies along with servicing our own facilities. But in the true consumer space where Harle Star operates and the segments that they are in, yeah, I mean, we dabbled around, but yeah, they were running laps around us. So again, Tying and Harle Star are definitely better together.

Got it. Were you competing with Harle Star? Is that how you learned about them? Got to know them? You weren't?

Well, we, yeah, I mean, it's a similar world. I mean, competing is probably a little bit of a strong word. I mean, we did touch each other a little bit in some ag. But we really weren't competitors, but it's just a small world where we were complementary operating in similar spaces and doing it in a different way or with different products, but in a similar way. So a lot of respect for Harle Star, the way they were connected to the marketplace, to the customers, taking care of the end users. It's a lot of what Titan did. But really the complementary nature of our business is very strong. And so I would say we know each other because it's a small world, but not directly competing. Like the big trade shows we would go to, they wouldn't have a booth. The big trade shows they'd go to, we didn't have a booth. So the overlap is minimal.

Interesting. Okay. And you've been working on the transaction for a couple months. And what precipitated the sale?

I mean, we've been working on due diligence for about three months. I mean, what brought the sale together is just some contacts that, you know, really between our board members, Carl Star's ownership group and myself, we did start talking well before the last few months. And so there was interest in both parties and seeing this come together. It just takes time, though. It takes time and it takes some understanding of each other, of our businesses. And so, yes, I mean, it really came together quickly in the last couple months. And that's a tremendous amount of effort on the Titan team to make that happen, a few folks from Carl Star. But if you look at it from a strategic rationale perspective, I don't want to create the impression that this just happened in a few months. There was a lot more behind the scenes that took place.

Got it. We got a great board. I do

want to be clear on that. Yeah, I mean, again, with the strength of our board and the strength of their owners, we were able to get some understandings in place that, again, led us to a transaction that you saw today. So, again, I think you get the point. It wasn't just cobbled together in two months.

Got it. Got it. That's helpful. And it's a decent sized deal for you. Is this it for M&A for a while? Are you going to focus on this one or are there other deals out there you're contemplating?

Well, I mean, I think as a company, we've worked hard to get to this point to pursue growth. We've developed a strong business, good brands, good products, good people, and have a strong balance sheet. So, I think at this point, we need to get our arms around Carl Star and maximize the value that this brings to the table for our customers and our shareholders. And we do think it's significant. It's a creative right out of the gate, strong opportunities in growth and synergies. So, I think there's going to be a period of time that the right thing to do is make sure that we get the maximum value out of this transaction. I do think there's some growth opportunities that could require some investments as we expand the territories, the geographical footprint of the combined company. But you never know when opportunities may present themselves like this one did. So, we want to keep our company in a position, our balance sheet in a position where opportunities that they become available, we can pursue them.

Got it. Is there, you know, is the company's change in composition and size, is there a revised leverage target? That you're sharing?

No, I think, you know, obviously this transaction enabled us to maintain that conservative profile and it doesn't, we're not over our skis with respect to the debt that we took on this deal. Right now we're on a pro forma basis 1.3 times. So, we want to stay in this general territory and, you know, as we digest a transaction, obviously the flexibility we have to pay down debt with cash flow is important as well. We can continue to build strength and then maintain flexibility for the future for growth. Not just investments that can come in the form of an acquisition, but also investments inside our business. Like Paul has talked about in terms of growth, territories, products, whatever. So, I like where we sit with respect to where leverage is now and we'll continue to have that. Again, it's all about flexibility.

Got it. Thank you. And last follow-up, I know there's no guidance. Volumes are down. Are there any other headwinds or tailwinds that we should be thinking about when we forecast 24?

I don't think so. I think we've touched on that pretty well. You know, again, 23 was a very good year as we reported this morning coming off a really strong 22. I don't think anything we're seeing at 24 is different than what you've already seen in the marketplace. So, now I think we've provided enough color, you've heard enough from others, and, you know, again, what we will work towards is getting a good understanding of place of what Titan and Carl Star look like together. We'll work towards articulating that for not just 24, but also work towards articulating that for the future because, again, I think Titan and Carl Star are going to be better together. So, we'll put our heads down for a little while and work on getting that information for it. Got it. I appreciate

it. Thank you very much.

You bet. Thanks.

Thank you. The next question, I'm sorry, follow-up question comes from Alana Steve Farazani with SIDOTI. Your line is now open.

Hey, thanks for taking an additional question. I don't want to harp on this, but it's a question I've been getting for two months, accelerating over the last couple of weeks. Again, back to the 10% or 15% decline for large tractors, depending on whose call you listen to. But you're down 18% in ag this year, almost entirely on de-stocking, which accelerated through the second half of the year. Everyone's kind of trying to do the math on this. If you were already down that significantly in what was an okay year, that would, I mean, the simple math would say that you're more flat, and I don't want to pin you to a number. The math would say you're kind of flattish in ag because of how much you were hit by de-stocking this year. I mean, is that a reasonable way to think about it? Look, I'm getting this question all the time. I got to ask.

That's a great question, Steve. Obviously, as we come into the year, it's certainly not, I mean, flat isn't probably in the equation, but certainly something less than the full impact of the market being down. We really can't put a fine-tuned number on that.

Okay, had to try to ask. Thanks, guys.

Thank you. There are no additional questions waiting at this time, so I will pass the call back over to Mr. Wright for closing remarks.

Thank you. I appreciate everybody's attention to today's call and the opportunity to hear us talk about the Carl Star acquisition and how Titan and Carl Star can be better together. So, thank you and look forward to talking to you again soon.

That concludes. Thank you for attending today's presentation. That concludes our call. Thank you. Have a great day.