Titan International, Inc. (DE)

Good morning, ladies and gentlemen, and welcome to the Titan International Inc. Fourth 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, Jaquita. Good morning. I'd like to welcome everyone to Titan's fourth 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 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. 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 Carl Star's product portfolio in those end markets will add some meaningful diversification to our business. In addition, Carl Star 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. Carl Starr 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 in specialty 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 bread and butter, 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 best 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 Carl Star's business model that connects their manufacturing and distribution assets with third-party producers in a very effective and efficient manner. Carl Star has a plant strategically located in Meiju, China, that has a long history with an incredible, knowledgeable workforce and access to lower-cost materials. Carlstar's three U.S. 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 Titans, 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 value customers. Complementing that manufacturing platform is Carlstar's one-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 one-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 and 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 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 accretive, 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. 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 weighing 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 earth shattering with that comment, as really being driven by the impacts 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 Carlstar team to the Titan organization. It's clear they are a really good group of people. They've done an excellent job building Carlstar into the strong business that I talked about earlier. They're world-class in serving its customers and its end markets. Titan and Carlstar are better together. With that, I'd like to turn the call over to David now.