Titan International, Inc. (DE)

The 24-hour earnings call will begin shortly. We appreciate your patience. If you'd like to ask a question during the call, please press star followed by one on your telephone keypad. And to remove yourself from that question queue, it's star followed by two. We will begin shortly. Thank you. Good morning ladies and gentlemen and welcome to the Titan International Inc second quarter 2024 earnings conference call. At this time all participants have been placed on 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, Carly. Good morning. I'd like to welcome everyone to Titan's second 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 10Q, 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 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 Q2 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. Overall, Titan had a solid quarter performance, generating good cash flow. Those of you that have been following Titan or the ag industry are likely well aware that industry conditions are difficult. Yet there are really several key positive things for Titan that I want to highlight. First, our management team here at Titan has a deep reservoir of experience operating a cyclical business. And the actions we have taken over the past several years have the company well positioned to manage through the cyclical trough and continue to drive accelerating growth as macro conditions improve. We firmly believe improving conditions are a matter of when, not if, as the secular demand drivers for the economic sectors we serve remain very much intact. Second, we have a strong aftermarket business in both consumer and ag, fortified by a market-leading one-stop shop strategy, which we have talked about on prior calls. That strategy is helping offset some of the OEM-centric weakness in the marketplace, and we expect it to be a strong attribute through all phases of the economic cycle. Beyond the strategic importance of the aftermarket, which was strengthened by our Carlstar acquisition, I also would like to say that the integration is progressing quite well. The last item I'll touch on is our innovative product portfolio. That is something we're proud of and a key differentiator here at Titan with our products such as LSW tire wheel assemblies, which we've noted still have plenty of opportunity for growth both in ag and potential new markets such as Canada, Brazil, and the military. So to provide some context on current market conditions, really the primary headwinds can be summarized as interest rates, where we're seeing market participants await potential rate cuts and then farmer income. Agriculture equipment is a significant purchase for farmers, stating the obvious there, and financing costs are an important part of that equation. The prospect of rates coming down as soon as this fall has led many to defer such purchases, and OEMs have responded by reducing their production schedules. Then you look at the USDA, which forecast 2024 net farmer income to drop 25% from 23, following a 16% decline from 2022 to 23. That would mark the two largest dollar value drops in history. That has certainly created some paralysis within the industry, and we're seeing some ag tire volumes down to levels well below the last cyclical trough in 2019. And again, this is primarily due to these reduced OEM purchases along with some of that inventory destocking that is taking place. As recently as two years ago when we were seeing record-setting sales, I don't think many of us would have predicted volumes falling this far this quickly. But even so, as we look back on those periods, Titan has used that strong cash flow in 21, 22, and then again this year to rapidly delever our balance sheet knowing that doing so would create significant strategic and financial flexibility for the future. So if you look prior to acquiring Carlstar, our leverage was down to one time. From there, we were at more than 10 times as recently as 2020. And then today, even after the Carlstar acquisition, we're still at a very reasonable 1.8 times. Of course, David will expand further on our balance sheet and our capital allocation, but the point is, and I really want to emphasize, that compared with prior cyclical troughs, Titan is in a significantly better position through this part of the cycle than in the past. Over the last few years, we've also devoted significant resources to optimizing our operations. Through this consistent effort to drive process efficiency, you've seen it result in a better margin profile that we're seeing in both good times and bad. As we work through the trough portion of the cycle, that improved margin profile is driving our ability to continue to generate positive free cash flow. So turning to the secular demand drivers for the sectors we serve, we really see no reason to think anything has changed for the long term and that those positive attributes are still there. Global population continues to increase. That's going to drive demand for food. While AI is the talk of the town and it's causing changes in some industries, farming still requires putting seeds in the ground and nurturing plants through to harvest. Doing so requires capital equipment such as tractors, sprayers, combines. Farmers continue to work their fields to feed the world and use the equipment that in turn continues to age. That drives demand for replacement tires and slowly but surely creates pent-up demand for new equipment over time. And our LSWs make both new and older model equipment perform better. The second theme I noted at the outset of my comments was that our aftermarket business is one of the positives helping to offset some of the OEM weakness we are facing. Stating the obvious, one of the good things about the tire business is they need to be replaced over time. In both our consumer and ag segments, people may be deferring purchases of new machinery, again, such as tractors, lawnmowers, ATVs, but they're still using their equipment, and as those tires on those old machines wear out, they need replacing. Titan is well positioned because we have built a strong global aftermarket presence, and our recent acquisition adds to that strength with a one-stop shop strategy that has only expanded our aftermarket offering further. We are seeing our consumer aftermarket hold up quite well at this point, which is a testament to our dealers and wholesalers in this segment, and the resilience of our aftermarket business, even when OE market conditions are challenged. Using that to give you an update on the Carlstar integration, I'm very pleased to see that it continues to go very well as our teams are working together to create additional value for our customers and shareholders. It is important to note that Carlstar's aftermarket customers, especially wholesalers and distributors, are mainly complementary to Titans dealers. This creates a great opportunity to cross sell Titan products within Carlstar's network. And the other side of the coin is we would sell Carlstar products within Titan dealers. Our sales and engineering teams have been working extensively on this effort, but we really only scratched the surface since we're only six months in at this point. There are also wide open opportunities to sell Carlstar products in Europe and Latin America, where Titan currently has limited consumer presence. And at the same time, Carlstar can benefit from existing Titan distribution there. These are just a couple examples of commercial opportunities presented from the acquisition. And David will touch further on cost synergies, which I will at least note at this time are progressing nicely as well. The final theme I discussed at the beginning of the call is we also continue to prioritize investments in R&D, as our innovation pipeline is a key difference here in Titan and in the field with our end users. In our press release, I detailed how our LSW tires provide a number of tangible benefits for farmers, ranging from direct cost savings on fuel, reduced soil compaction, and to a more comfortable ride in both the field and on the road. We think we still have plenty of room to increase LSW penetration in the ag market, and I'm looking forward to an opportunity to meet with several key Canadian farmers that also happen to be key influencers in the farming community. Creating enthusiasm with end users is what got us here with LSW and is important for us as it continues to create buy-in with the dealers that serve those farmers and in turn the OEMs. The large farmers I'll be visiting in Canada have a lot of influence amongst their peers and people do pay attention to what they are saying. I use this opportunity in Canada as just an example of how Titan conceives a continuing growth path ahead for LSWs to increase penetration there and abroad in Brazil while also continuing to grow our base in the U.S. Beyond LSWs, there are other significant areas of innovation going on here at Titan. We continue to work on those extensively across our portfolio in wheels, tires, and undercarriage using the strength of our Titan, Carlstar, and ITM brands. And I really look forward to sharing more of that with all of you in the future and more specifically with our customers and end users that use our products. Before I hand the call off to David, I want to spend a few more minutes expanding on market conditions in our key geographic areas. In the US, I already noted how interest rates and farmer income continue to be a significant headwind. Speaking about conditions in the EMC segment, I mean, purchases of construction equipment are impacted by some of those same macro issues as ag equipment. But conversely, that end market demand for EMC equipment also has positive differences tied to infrastructure spending and demand for minerals. And at this time, we're seeing that segment hold up better for us. Outside the US, European farmer sentiment, it continues to be weaker due to the ongoing geopolitical concerns, particularly the potential increase of some protectionist trade policy in that region. In South America, Many of you are aware of the significant flooding that occurred in Brazil from late April into May. It hit Brazil's southernmost state, Rio Grande do Sul. That happens to be home to a significant production of agricultural commodities and will have a negative impact on the current year demand in what was already a down market. So really taking that full circle and summary, macroeconomic conditions continue to be difficult But really, thanks to the superb efforts of everyone on the Titan team, what we've built here through recent years, the connection we have with our customers and our end users, we are continuing to produce solid results. We're well positioned for growth as cyclical conditions improve, and we firmly believe they will. With that, I would now like to turn the call over to David.