Titan International, Inc. (DE)

Good morning, ladies and gentlemen, and welcome to the Titan International Incorporated First Quarter 2024 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 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 yours.

Thank you, Megan. Good morning. I'd like to welcome everyone to Titan's first quarter 2024 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 yesterday. 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 involves 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 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. Good morning, everyone. As noted in our last earnings call, we saw our OneTitan team step up to get our transformative acquisition of Carlstar over the goal line right at the end of February. Of course, that was just the beginning as we've been full speed ahead over the past 60 days, integrating their operations into Titan's. And I have to say, at this point, I'm really pleased with how that has gone thus far. Carlstar has a really good team from top to bottom. And it has been great to see them embrace the transition and really envision a good future ahead for the combined companies. On the Titan side, it has similarly been terrific to see how the new folks have been welcomed with open arms and have been integrated quickly into our one Titan team. So I want to take a minute and thank our entire team. both the existing members and the new ones for all their hard work and commitment in recent months with the integration efforts. Let me shift gears to look beyond the present and towards the future with our newly combined company. We believe Titan is now positioned well to deliver more consistent, stronger results throughout various market cycles for a number of reasons. Let me touch quickly on just a few. First, we have made substantial structural changes in recent years, including portfolio optimization, addressing underperforming and non-core businesses, our pricing strategies, and fortifying our balance sheet. Next, we have a tremendous focus on product development that's centered around our entrepreneurial culture, which is connected to end users and has filled our portfolio with innovative products. And lastly, the Carlstar acquisition. This was accretive from the onset. As we discussed last quarter, this transforms our company with growth and synergy opportunities, And now Titan has the broadest wheel and tire product offering in our business that covers everything from ATV and UTVs to high-speed trailers to construction and then of course the entire ag segment from small to large. Carlstar brings to us a one-stop shop that diversifies our customer base with a good balance between OEMs and aftermarket. So using that as a basis along with our recent financial performance of Titan and Carlstar We've discussed with our board that the combined companies in a typical year would have earnings power of $250 million to $300 million of adjusted EBITDA. That also would produce free cash flow of at least $125 million. Keep in mind that AIP, the prior owners of Carlstar, believed in the value of the combined company based on the amount of stock they took as part of the transaction. That's a nice positive to see their belief in Titan and our stock, And let's not forget our board also represents a significant shareholder base of Titan. I say all that to bring forward the point that we feel good about the future prospects of our company. And we are currently working on short and long term actions to deliver those numbers I presented earlier and more. While you won't see that performance this year with softer market conditions, it is good for our investors to have a perspective of where Titan and our board see the future. For today's call now, I'd like to share some thoughts on a couple primary themes before handing the call over to David for his comment on the financials. I want to talk about current market conditions. That's naturally on everybody's mind. So I'll spend some time there. And then I'd like to talk more about Carlstar and how we're attacking the opportunities with that acquisition. So let's start with the market conditions. Most everyone in the ag sector is currently characterizing the market as being in a cyclical trough. although many expect this cycle to be shallower and shorter-lived than previous ones. A fair amount of the reasons behind the cycle that we're in are macro factors that extend beyond the typical ag sector drivers such as farmer income and inventory levels. You know, we all spent a bunch of time seeing the headlines and understanding the Fed's steady rate increases in 2022 and 23. are certainly having an impact on credit availability and, in turn, spending in parts of our business. Geopolitical tensions are running high on a global basis. That's stating the obvious. But it also impacts countries that are significant producers of grain commodities and, in turn, significant markets for ag equipment. There's also the presidential election this fall. It's everyone's favorite or least favorite topic, I guess. But the reality is that this may have a material impact on US trade policy. So you put that all together, and it's easy to see why a lot of economic factors are causing more uncertainty in our end markets than we would otherwise have at this point in the year. On a positive note, the election is something that's not going to go on forever. It has an unknown end date, so to speak. And I think it's also reasonable to expect we'll have more directional clarity with the Fed and interest rates fairly soon. So what that means is the uncertainty phase a pickup at end market demand should translate pretty directly into positive activity for Titan. So more specific to the ag sector now is farmer incomes. We've talked about the direct correlation between that and demand. We have seen the estimates for the year trending lower, but let's keep in mind the overall farmer balance sheets have been and continue to be described as healthy. According to the USDA, we're seeing farmer incomes projected to be down around 25% this year. Sentiment has been up or down, but it's somewhat neutral right now. But it really bears note that farmer incomes have reached an all-time high the past couple years. So even though the direction has retreated, they are still at quite healthy levels. Also, with each passing day, let's not forget farmers are out there in the fields with their equipment doing the work they need to do, and that drives a need for aftermarket replacement tires. I speak with customers on a regular basis, and that uncertainty I noted is something that is weighing on everyone's minds. Of course, in ag, there is always some uncertainty this time of year with the planting season, as dealing with the weather is just part and parcel of being in the ag business. Even so, I am consistently hearing our customers say that the visibility at this time of year is below what they would normally see. Without that visibility from customers combined with the macro factors, the normal and logical reaction for dealers is to adopt a risk-adverse positioning with their inventory, which then flows back to the OEMs who adjust their production accordingly. We have seen tire and wheel inventory levels improve at the dealer channels and with OEMs, But this slowing of demand has resulted in overall levels not yet reaching a normal state. Again, we are confident this is a temporary dynamic, as some of the macro factors that I've noted will not simply last. Outside the US, your farmer sentiment has weakened. Geopolitical concerns are taking a toll. It has resulted in reductions in demand, and inventory is still running higher than normal. In South America, strong harvests have negatively impacted commodity prices. Notably, according to some research we've reviewed, regional commodity sales there have trended below normal, resulting in some farmers still holding unsold grains. So moving away from ag over to the consumer segment, which I want to remind you now represents 25, approximately 25% of our revenues. The same macro factors are impacting the market there as inflation, as you expect inflation would. Even though the pace of increase has slowed with inflation, it is apparent that consumers are still feeling the effects of it with higher gas and food prices. What that ultimately means is someone who might have thought about buying a new riding lawnmower, for example, is sticking with their old one this summer. Similarly, the off-road ATV, UTV vehicle market is feeling the effect of the various economic factors I noted. As with ag, our view is that this is more a pause in end market demand than anything else. so that the person that wants a new yard tractor or recreational vehicle is still sitting on an aging piece of equipment that they will eventually replace. So on a positive note, I want to point out that Titan has a robust aftermarket offering in the consumer segment, just like we do in ag. We have a one-stop shop that serves the consumer marketplace. This helps us offset that delayed demand dynamic that I mentioned. as the same customer who has deferred buying a new lawnmower or ATV might still opt and would be expected to still opt for new tires that would replace the worn-out old ones. And it helps to maximize that performance of that existing equipment that they're still using. We've seen this for years in ag. That's where our LSWs have continued to perform well is in the aftermarket replacement space. So we know the game plan, and we know how to maximize our opportunities. Needless to say, we are happy that we've expanded the aspect of our product offering in the consumer segment and what the Carl Star acquisition has brought to Titan. So moving over to earth moving construction, we are seeing the broad macro uncertainty impact demand. We do see these mid to long term drivers for the sectors remaining very much intact, though. In the US, non-residential construction activity continues to trend higher. led by the need for facilities like data centers and the onshoring of manufacturing. Outside the U.S., where equipment is used for activities like mining, demand for precious metals remains strong, especially with the geopolitical factors driving prices of commodities such as gold to levels not seen in many years. While we face some headwinds, it is definitely worth repeating that we are focused on controlling what we can control. And as a global Titan team, we have extensive experience dealing with market cycles like this. Again, I want to repeat, our team is very experienced. It understands how to make efficient, timely decisions in dealing with cycles and conditions that we've seen to start 2024. David will get into the financial details, but I want to say that we did a good job in a challenging environment this quarter. And we've delivered solid financial results that our team is proud of. To close here, I do want to shift back to Carlstar. As I noted previously, I would cover this. This acquisition has really ramped up our aftermarket business. It's something we expect to benefit on several fronts. You've heard us talk a lot already about the one-stop shop concept, and that is our central emphasis. By positioning Titan as a single provider of end-to-end wheel and tire solutions for our customers, we make their lives simpler and processes more efficient. Adding a robust aftermarket business also helps us control our own destiny a bit more than the past. At Titan, we've done a good job expanding our tire aftermarket business in recent years in both the US and South America. We've done that as well in the mining sector with our undercarriage business. Historically, as expected, our wheel business has been more of an OEM-centric type of operation and therefore relying on the production coming out of their factories to drive our demand. But now Titan has a sizable aftermarket business in all of our end market segments. We have a revenue source that we expect will mute some of the cyclical nature of our end markets, and we certainly view that as a positive. Aftermarket sales also lead to a more positive basis with our margins. So the Car Star acquisition really is a win-win on all fronts. I've reached out to a couple of our key aftermarket customers right after the closing of the acquisition, and the response has been positive about what the combined company is capable of doing to help them better serve the respective marketplace. So putting that all together, we are executing well despite the challenging environment. It has only been two months, but the addition of Carlstar is on track to drive the intended impact on our business we envision. We are focused on creating cost synergies, and David will talk more about progress in that area. We're also seeing a path to commercial synergies based on the one-stop shop proposition that is really supported by an extensive product offering, and we expect to see that accelerate when overall end market activity picks up. We are pleased to see the solid performance of our aftermarket business. particularly as we contend with weaker demand from our OEM partners. With that, I'd now like to turn the call over to David.