Titan International, Inc. (DE)

Ladies and gentlemen, the Titan International Inc. Third quarter 2024 earnings call and webcast will begin shortly with your host Alan Snyder. We appreciate your patience as we prepare your session today. During the call, we encourage any participants that may have questions to raise them. You can raise a question by pressing star followed by one on your telephone keypad. And to remove yourself from that under questioning, it is star followed by two. We will begin shortly. Good morning, ladies and gentlemen, and welcome to the Titan International Inc. Third quarter 2024 earnings conference call. At this time, all participants have been placed on listen only mode and we will open the floor for questions and comments after the presentation. If need assistance during the call, please press star followed by zero on your telephone keypad to connect to an operator. 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 and good morning. I'd like to welcome everyone to Titan's third 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 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 to be discussed today, as well as the reconciliation of the non-GAAP measures to the most comparable GAAP measures. The Q3 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. The value proposition created by our products and our OneTitan operating environment continues to support our third quarter results, which included several bright spots against the backdrop of continued challenging conditions in our end markets. One of the things I really enjoy doing is spending time with customers and end users. I've been doing a lot of that lately. And during these visits, I frequently hear how our innovative products bring solutions to our customers that improve their operations and really differentiate us from the competition. For a number of years now, Titan has been using that valuable interaction with customers and the feedback we get to really propel our future innovations and it has provided a strong path, not just for today, but also for the future. I'll talk more about that later, but I wanna start off with some context on market conditions. This current cyclical ag bottom is really one of the deepest we've seen in many years. Despite the challenges that poses, we really have been able to maintain gross margins well above levels from prior downturns. I think you can look at our assertive management actions and the cost control that we've put in place, along with the balance sheet these days that is much better than it has been in the past. These factors have really enabled us to continue to deliver free cashflow that's above our guided levels. David, of course, will spend more time on that with the financial discussion later. What I wanna do now is focus on market conditions as we wrap up 2024 and really provide some insights on key drivers for 2025, really especially focused on the initiatives we're gonna pursue to drive growth. Despite these challenging end markets, we do see a number of areas of opportunity that we're excited to share our thoughts on. Everybody's favorite topic when you think about anything at the macroeconomic level is next week's presidential election. Obviously, that's a significant event, really as it pertains to trade policy. Like most businesses, as we manage our operations, what we desire most is a policy direction with some clarity as that will heavily influence both the import and export of many goods, including a lot of what we do related to agriculture products. Once the rules of the game are known, industry participants can and will adjust their business plans accordingly, and we expect that to help underpin improving transparency when it comes to capital equipment demand and in turn, OEM production plans for 2020-25. In the near term, what we're seeing for the fourth quarter is our normal seasonal low. This year, it's being compounded by the OEMs and the dealers in the markets that continue to slash inventories. The commentary we're hearing from leading OEMs has centered on a desire to enter 2025 with lean inventory in place, thus they're able to better match their production with demand. We saw initial round of de-stocking post-pandemic that we've been talking about, but then what we've also now seen is a second round of de-stocking that has taken place this year as OEMs and dealers work to get goods off their lots. For Titan, we actually think this is a positive as it will hopefully mark the end of this second stage of de-stocking and will then be what we see as the low point of the cycle for us. One thing I really wanna be clear with on today's call is we are by no means standing still why this plays out. In our earnings release, I provided several examples of how we are busy working on ways to drive growth for the present and future. We are attacking a variety of opportunities across our business, again, led by our connection to end users, which has developed our highly successful LSW tires, which we have been putting into the marketplace and gaining tremendous results for many, many years now. But to date though, that focus of our LSW marketing and sales programs has been primarily on larger tractors and combines, where we see a lot of opportunity in the futures to expand into more of the mid-sized tractors. The bottom line is, and this has been reinforced with our discussions with farmers time and time again, this isn't just me telling you this, is that LSWs continue to meet and exceed their expectations. The fuel savings is one performance that is readily quantifiable, and we are seeing field results coming in above the 10 to 15% range that we had predicted. This is a very significant impact for farmers and a strong selling point. On top of the fuel savings, you also get the improved field performance that can, with LSWs being able to handle just about every condition thrown at them. And then of course you get one of the most important things to farmers is the reduced soil compaction. So as we increase our efforts to target more of the mid-sized tractor market, which I wanna emphasize is a big market. We're talking about 25,000 tractors roughly on an annual basis. So if you look at that, just tapping into a fraction of that will help move the needle in our sales in EBITDA. Moving away from LSW, another new innovation we're excited for this quarter is our VPO technology. It's a versatile solution as an alternative to TWA wheels and can operate machinery of various inflation pressures, even down to zero PSI. We issued a press release on that several weeks ago, highlighting these advantages and where this technology can be used. It has a variety of end-use applications, which really fits well in our consumer segment. We're also working hard to reclaim our presence in the military market. Going back a number of years, Titan was a meaningful supplier of wheels and tires to the US military. So if you take these technologies I just mentioned with LSW and VPO, we're really optimistic about our potential to restore the sales in this channel and become an important contributor for Titan again. We continue to focus on these top line synergies that are stemming from our acquisition of Carl Star earlier this year. Some of these key opportunities include the first Titan branded high-speed trailer tire. It's a category where Carl Star's performed very well, which is their brand in the past. Along with doing that, we're gonna be focused on continuing to expand Carl Star products into new geographies that have been opened up since the Titan acquisition earlier this year. But then also taking the new offerings that the Carl Star team being combined with the Titan team has across the entire consumer tire and wheel business. And so again, really good opportunities for us to grow, not just in our historical ag sector, but in this consumer business as well. An important element of our ability to drive improved results through the historically weak part of the cycle is our aftermarket business. Again, this is something that we've talked about in the past, but I wanna highlight the benefits that come from this as we see this strategy really helping offset some of the OEM-centric weakness that we've seen in the marketplace. And we expect this to really be a strong attribute through all phases of the economic cycle. So if you look at it year to date, inclusive of Carl Star on a pro forma basis, our aftermarket business is down high single digits as compared to a roughly 25% decline in OEM sales. This year, aftermarket sales now account for more than 45% of our total revenue and remain accretive to our overall results. Switching gears and touching briefly now on market conditions. Starting with ag, farmer incomes continue to be under pressure, especially in the US. At the same time, we are guardedly optimistic that two of the primary headwinds plaguing purchasing activity, the election and interest rates will abate and calm down as we get into 2025. Recent reports, we have seen points of finished goods de-stocking extending into early 25. As we talked about earlier, the sooner that reaches the conclusion, it's a positive for Titan and obviously the better for our sales. On a positive note, similar to that comment, we do expect tire and wheel orders to lead production of finished goods at OEMs because of the impact of that de-stocking. So it's reasonable for us to see some growth before the OEMs would see that. Secondly, we expect our aftermarket business to remain solid as farmers continue to use their equipment. That's gonna drive demand for replacement tires. It also bears noting that the equipment fleet also continues to age and those machines will ultimately need to be replaced. Additionally, population growth, increase in protein consumption, those are things we've talked about many times in the past, that will support an increase in farmland planting acreage on a global basis. Over the long term, we still see the structural demand drivers for us are very much intact. You combine that with our one-stop shop strategy, providing our customers from OEMs to farmers a comprehensive product catalog and solution to the OEMs and aftermarket. In our consumer segment, the aftermarket portion of the business has also seen better relative demand as compared to the OEMs. Although interest rates have started to come down, they still remain higher than they have for many years. That does put a dampening effect on things like recreational vehicles and riding mowers, what you would see as consumer type purchases and these consumers are being squeezed by the impact of gas and food prices. So again, these discretionary items are naturally gonna suffer in that type of environment. So looking ahead, leading off-road equipment OEMs noted that a series of further interest rate cuts would be a positive demand as would a further cooling of inflation. Switching over to the last segment focusing on EMC, same things we just mentioned, the higher interest rates and higher levels of inventory are primary drivers. In terms of the underlying strength for the EMC market, aside from the impact of de-stocking, the fundamentals do remain relatively strong in comparison to the other two segments. While construction activity in Europe is fairly stagnant, US non-residential construction continues to grow in 24. Additionally, within the EMC segment, it's worth pointing out that mining is one key area for growth, especially within the aftermarket channel. Let me kind of start closing off things here and I'm gonna do that by talking about an important initiative underway at Titan, which is to expand our tire and wheel product portfolio via strategic supplier partnerships. Until now, Titan has primarily positioned itself as a manufacturer and supplier of premium larger size products. As we continue to strengthen and expand the one-stop model that we've really brought on from the Carlstar acquisition, we now recognize that many of our customers also buy products in many different size ranges in product categories. Therefore, we are really seeing some good opportunities ahead to leverage our brand, our strong distribution platform, and extend that product base and ultimately command more wallet share. Our ability to identify and partner with top suppliers in more segments of the market will benefit our customers and of course, in turn, that'll benefit Titan and its shareholders. In summary, although macroeconomic conditions are continuing to be difficult, I'm really proud of the work of the Titan team. It's positioned as well to get through the downturn and not just do it by controlling costs, but set the stage via product development for future growth. So with that, I would now like to turn the call over to David.

Hey, thank you, Paul, and good morning and thanks to everyone listening in today. Revenues in the third quarter were $448 million with adjusted EBITDA of $20 million and free cash flow of $42 million. Relative to our guidance for the quarter, free cash flow was obviously a bright spot, driven by our focus on managing working capital to appropriate levels for the down cycle. On the other hand, customer demand was even weaker than we anticipated in our Q3 guidance, which also weighed on our bottom line due to the impact of reduced fixed cost absorption. Stepping back, I wanna reiterate a theme that Paul touched on, which is the relative success that we've had in navigating through what has turned out to be a very unusual deep cyclical bottom. 2022 was a similarly unusual year for us on the positive side of the ledger, and while some reversion to the mean was expected, the downside we've seen has been rather unprecedented in recent memory. We took advantage of those excellent conditions in 2022 by aggressively paying down debt and growing our cash levels, while also continuing to invest in our product development, which has enabled us to enter this downturn with a net debt leverage ratio of approximately one times adjusted EBITDA. That resulting flexibility was a critical asset, allowing us to acquire CallStar while still maintaining a relatively modest interest expense level. And the key thing is our balance sheet remains solid. CallStar has brought an important diversification to our business in the form of significant aftermarket business, which Paul touched on, and a larger consumer segment. Over the mid to long term, we expect those larger aftermarket and consumer segment contributions to be less cyclical than the legacy ag business. On top of this, we're driving product innovation and are focusing on significant growth opportunities across all aspects of our business, despite the current conditions. But turning back to the results for the third quarter, our adjusted gross margin was .3% compared to .4% a year ago. On a segment basis, ag segment margins were 9.6%, EMC was at 8.6%, and consumer adjusted gross margin was 22.9. Now, this disparity isn't normal. Our margins in the EMC and the ag sectors are normally much higher, but our volume in our plants across the world were very low, and which contributed to the lower margins that we saw this quarter. Our SG&A expense for the third quarter was 50 million or .1% of sales compared to last year at 34 million. This increase in SG&A can be entirely attributed to the cost of our acquisition, particularly the distribution centers that are an integral part of the operating model for Carl Star. Our global management teams have watched spending very closely and have taken appropriate actions to reduce costs in the midst of a continuing inflationary environment. We have synergy and opportunities going on that we're gonna go into next year, and we're already on track with those synergies. R&D expenses were 4.2 million in the third quarter compared to 3.2 million a year ago. A portion of this also relates to the investments we're making in R&D and Carl Star. Our operating income was 2.8 million for the quarter, and our operating cash flow was 60 million. As I said earlier, we continue to drive strong working capital management, particularly receivables inventory, with both contributing positively to cash generation in the quarter. Again, this is a strong focus for our management teams, and it is a discipline that's inherent in our culture. We also used our cash to fund our share repurchase program buying back a little over 1 million shares for a total of 8.3 million for the quarter. Subsequent to quarter end, we also repurchased 8 million shares from our longtime equity holder, MHR. We think this was an excellent opportunity to drive value for our shareholders on a long-term basis. We will continue to have some flexibility to initiate open market stock repurchases in the future, while we will use some discretion in the near term as we manage cash flow. Net debt at the quarter end was 291 million, or 1.9 times trailing 12-month adjusted EBITDA, compared to 370 million, or two times, trailing 12-month adjusted EBITDA on March 31st, which was right after we did the acquisition of Carl Star. As was the case last quarter, the third quarter was also included significant increase in our effective tax rate compared to our normal levels. I discussed this last quarter, but I'll hit it again since it had a significant impact on net income and EPS this quarter. It is important to help frame the drivers of the higher effective rate, which relates to foreign tax expense without benefit in the US due to a lack of domestic income along with significant limitations on interest expense deductibility. We're working on a number of tax initiatives right now to drive more favorable tax rates in the future, heading into 2025. And so I expect to see more normalized tax rates in the future. It is important to note we have paid approximately 16 million in cash taxes through the first three quarters, primarily related to foreign income. And we anticipate that we'll pay approximately 22 million for the full year of 2024. So for the first nine months, our cash tax rate was approximately 42%, which is much more normal, but still higher than the normalized rates that I've talked about in the past. Due to the mix of foreign versus domestic income. Moving to our financial guidance for Q4, Paul and I both noted the fourth quarter will continue to be pressured due to the OEMs and dealer de-stocking we have discussed. It's normal to see a seasonal drop in Q4 and it's exacerbated by the near term market impacts this year. So our guidance ranges for fourth quarter are revenues of 375 to 425 million with adjusted EBITDA of zero to 10 million. Our free cash flow is approximately break-giving, but we're really focusing hard on still driving free cash flow. It's important to have perspectives on our cyclicality in our business. And we have deep experience managing these cycles. We're diligently managing through this trough while keeping an eye on recovery when it happens. Our financial condition continues to be solid and we're putting ourselves in a position to accelerate future performance. So thank you for your time this morning. Now I'd like to turn the call back over to the operator for our Q&A session. Thank

you. We'd now like to open the lines for Q&A. If you would like to ask a question, please press star followed by one on your telephone keypad and to unmute yourself along the questioning, it will be star followed by two. Our first question comes from Steve Ferenzi of Sudossi. Steve, your line is now open.

Morning, Paul. Dave, appreciate the detail on the call. I want to start by asking about the significant variability in the performance of the three segments

pointing

to the healthier margins in the consumer segment. I mean, I know I'm not comparing it year over year, but if I can compare it sequentially, and it was down 10% sequentially, but your margins improved. Is there something different going on with the consumer segment than the other segments? Can you help me with that?

Yeah, as we saw, the ag margins obviously, obviously heavily weighed by the volume that are going through our global ag plants, including in EMC is also weighed down by that, similar plant levels there. But we had a really healthy mix of aftermarket business in the consumer segment, and that did hold very well through the quarter.

Is there significantly different seasonality in the consumer business versus your other two?

You know, it's more even than what we see in ag and EMC. Keeping in mind, EMC is a little different than ag too, as we've talked about in the past. But their Q4 is very similar in terms of low volumes as they prepare to go into the spring cycle. So seasonally, Q4 is the weakest, but the variability is less.

Okay, that's helpful. Talked about various catalysts to get the ag market going again. Ultimately, Paul, is it gonna be crop prices that brings this market back? Do we have to wait for that, or is there any near term drivers, in your opinion, that haven't been through these cycles before?

Yeah, I mean, that's the heaviest driver. I mean, we all think at this point, understand that there is a strong correlation between farmer income, and then the pull through of purchases of equipment. So I really think the focus, because, well, let me say this. You're right on one of the comments you made. Titan's been through a lot of cycles. And so we do have a tremendous amount of experience, and we've seen this, and we don't overreact. But where we are reacting in a favorable way, going beyond just cost control, and the measures that need to be done, is really making sure that we're putting the right changes in place with product development. And how we're doing that is really two pronged. There's the internal development of things that I've mentioned, which are either new products going in a different direction, or extension of existing products, but we're really also looking at, again, the possibilities of what we can do to expand our portfolio. That can be done via our joint ventures, our strategic partnerships, our own plants, looking at how we can move into underserved geographies. If you look at the legacy Titan business, and how we see the world now with Carl, Star, and Titan coming together. The one-stop shop model has, again, really opened our eyes, and there's opportunities in markets that currently, or I should say previously, we just did not have exposure to, and couldn't gain that exposure. And so, I think we're using this time, Steve, instead of waiting for crop prices to come up, which is gonna require some catalyst. Could be interest rates, could be the presidential election, could be a sandstorm that wipes out crops somewhere, I have no idea. But waiting for that to happen just isn't the right answer for us. And we are, we know how to take all the actions needed in the downturn, but we're going beyond that, and taking the actions that set us up well for the future.

Understood, appreciate that response. I'm gonna combine a couple of questions. One from a couple of weeks ago, when you guys announced the share repurchase, Mr. Taylor, Chairman, mentioned the potential of a large US Army contract. I wanna see if you could comment on that. And I wanna combine that with Paul, you talked about expanding potentially into smaller wheels, smaller tire markets. I just wanna understand your thinking on that, because I would think those markets, typically you would think of them as being more competitive, resulting in lower margins, which I'm sure is not the goal here. So if you could expand on those comments as well.

Yeah, I think, you know, Morrie's comment was really, if you look at back, you know, his legacy with Titan, military used to be a more substantial part of our sales base. I would say going back, you know, 15 years ago, that base was lost. And so this is an opportunity that is all accretive to Titan's current shareholders, is gaining back those military sales. And so what we're doing is combining the knowledge of the past with the present, where we have some really good product innovation, like we talked about in the call with LSWs, with the VPO, with our improved manufacturing base, that we can go small all the way up to large. We can do wheels, we can do tires, we can do it globally. And we're looking at the military now from a different angle and saying, let's go figure out how to go capture this again. And so this is not in any way a negative, meaning it's a risk for current shareholders. It's all accretive, all upside. And I think that's where, you know, Morrie's comments in the press release are expressing that excitement because it's something he remembers and saw in the past. And we now see ways we can get it back currently. And there's been some changes of how we go to the military market that we've been doing recently. And that's why we started talking about it. We're getting into more doors, we're getting at these opportunities. But I think the point to make clear to everybody, Steve, is this is all accretive, and that's why we're talking about it. It's an opportunity for us to grow, regardless of where the markets go, because military sales are, again, something that was lost 15 years ago. And now we see a good path to get some of that back. And then your next question on the smaller tires and wheels, I think, I would say 2024 has been a really good year of learning for us as we bring Titan and Carl Star together to understand the realm of the possibility. And our expertise with Legacy Titan would be on larger products. I would say Carl Stars would be on smaller. And when you bring the two of them together, we're looking at it and saying, wow, this fits really well together. It provides diversification across the product base, across aftermarket OEM, as we highlighted. But it also creates these opportunities that, to answer your question specifically, in these product ranges that we're talking about, there's similar or less competition, not more. And that's where Carl Star and now Titan, when you have a strong brand, you combine that with strong distribution, you find a platform that looks really attractive and it does actually have, again, it has similar or less competition, not more, when we talk about some of these smaller tires and wheels that we're referencing as growth opportunities. And there may be more competition on the surface, but again, a lot of purchases come down to brand and distribution. And that universe where companies can offer the strength of backing the product with both a brand support, strong distribution and service that can take care of the customer, that's what I'm talking about when I say there's similar or less competition when you look at some of these smaller tires and wheels.

So you're talking about the, like with Carl Star, this very specific niche markets, not the very broad consumer market?

You got it, yeah. The stuff that's in our universe, it's again expanding into little prongs along those pathways, but you're right, not looking at all of a sudden, every small tire and wheel that exists out there. And when I say small, it's relative. I mean, when I talk about a Carl Star trailer tire, when we talk about some of these turf tires, they're still pretty damn big. It's just small compared to a 1250 LSW.

Yep, okay, thanks Paul, thanks David.

Thanks David.

Thanks Steve.

Thank you. Our next question comes from Brian Derubia of

BAD.

Brian, your line is now open.

Good morning gentlemen, a couple of questions for you. David, I think you mentioned, or maybe we'll shoot Paul, that volumes were down much lower than expected. So two parts on that. You know, what was the operating rate impact on margins? And how has the increase in rubber and butadiene costs also hurt you on the last couple of quarters?

Yeah, great question. You know, if you look at where our margins were a year ago, that's pretty much the change. That's really the volume that's really killing us. You are seeing some pressure on the cost like you just suggested, and perhaps a little bit of pressure not enabling us to pass it on to customers at this point. So there's a little bit of, call it price, or cost increases that impacted our operating leverage, but it's mostly volume.

And you provided ever sort of what the operating rate of the plants are at any point, and specifically what they could be today.

No, we don't typically talk about each of the plants or anything like that. Obviously we talk about our segments and the differences between ag and EMC, ag being global, and then a lot of our EMC plants are in Europe. So you have a little different operating leverage at each of these plants, and the impact of material costs, the steel volatility and those kinds of things. But if you go back to 22, 23, the average margins we saw on that level at a call it a mid cycle peak, those are the margins that we expect to be able to deliver. And now we're sitting at levels well below that, that's the pressure we're seeing now. But so there's no reason why, as we seek recovery, that we can't get that operating leverage back.

Understood. As we look at the balance sheet, you mentioned some of the trade working capital that you reduced in the quarter. How low, how much more opportunity you have to squeeze out more trade working capital out of the balance sheet?

Yeah, inventory is a key, obviously the key component there. We have really good control of our AR and then how we pay our suppliers. So that's really a balance. But inventory levels, yeah, there's always opportunity and we watch it very closely. As a percent of sales in the current environment, it's heavier than what you want it to be. But it's also with a mindset towards what the next 90 days, 120 days of production will be or the demand levels that we will see as well. So I would say we're relentlessly pursuing optimal inventory levels in any given period of time. So I'm never satisfied, right? But at the end of the day, we have managed it well. So as you go into 25 and you expect to see an improvement in profitability, we will continue to pursue working capital optimization. So that can still be a contributing factor to our cash flow. So again, all plays together in driving a healthy balance sheet.

Understood. Just switching maybe to the cash balances, obviously you drew just a portion of cash to repurchase the shares post quarter end and you drew on the revolver and the rest. Good to assume that most of that cash is overseas. Sorry, I didn't dig into the queue that closely today.

Yeah, traditionally we've carried the majority of our cash offshore. We have some, call it limited opportunities to bring cash, move cash around without any tax impact. And we'll continue to do that. We did that earlier in 2024 and we'll continue to do that and replace cash that we use for the transaction or pay down debt as well. So we're looking at those opportunities right now and expect to see some things happen over the next 60 days.

Got it. And the last question for me, it hasn't been mentioned in a while, but from time to time over the last bunch of years, it's been discussion about potential sale of the tallow tractor business. Is that something that you guys still consider as a possibility these days or is that more a core business within Titan Wheel going forward? Titan International, sorry.

From a management perspective, we view it as a core business. I mean, it's a business that we've invested well into. So they've had a good growth and margin profile in recent years. It performs at a very good level, does a great job with a strong brand and taking care of our customers, which fits the Titan profile, the core business. But as you mentioned in the past, we've been approached with discussions pertaining to divesting ITM. And I would just say on behalf of the board, if approached, we always, not always, but in the case of ITM, we feel like that's the right thing for our shareholders to engage in those discussions. And then if they reach a point where we have to talk about them publicly, then we do. So I would say our position really hasn't changed. If approached, I think our board would engage in those discussions, but how David and I see it from a management standpoint, along with the management team at ITM, which is Julie and Oscar, is that it's a core business and we treat it as such. In fact, David and I will be there next week talking about 2025 strategic plans with them.

Great, appreciate all the color. Thank you so much.

Thank you. Thank you very much. As a reminder, if you would like to ask a question, please press star followed by one on your telephone keypad. And to remove yourself from the line of questioning, it is star followed by two. Our next question comes from Brian Lanterner of Saks Research. Brian, your line is not open.

Good morning, it's Brian Lanterner subbing for Tom Kerr this morning. I think you've touched on a couple of these already, but I just wanted to ask for a little bit more color. If you have any feedback from recent trade shows in the ag market specifically, do you feel like there's a tipping point in interest rates potentially where it could jumpstart the market? And is there any talk or was there any talk at these trade shows about potential for demand to pull forward related to the prospect of new tariffs being implemented after the elections?

Yeah, I think interest rates in a lot of industries, folks are waiting for them to come down and drive activity in a meaningful way. In our business, what we hear is mean interest rate is impacting their purchasing decisions and then also the amount of inventory they wanna keep in the channel. I would say at this point, the trade show discussions haven't been meaningful different from January through currently in pertaining to the market. I think what I would highlight though and what we're seeing in our particular business when you talk about wheel tires is that impact of de-stocking. What we believe has taken place with this de-stocking, again, partly due to interest rates, partly due to the post pandemic effect wearing off is that in our business, we think the de-stocking has had a larger burden on us relative to the market. And so as the OEMs get their production and their inventory back in line, we see 2025 having some positive uplift in our sector because you're gonna get back to just inventory, our sales being in line more with what's going on in the marketplace. We've been overly impacted this year by the inventory de-stocking. And so I think that is an effect that is positive for us in 2025, regardless where the market goes. I mean, I would say this in relation to the market, the catalyst is out there and it's gonna happen. And in times when things are this bad, you have a tendency to extrapolate too far that it pierces through the trough, it just keeps going. You know, I do feel like we're at the bottom of the trough. I do think there's gonna be a catalyst out there. I think the election being done, whatever direction it goes, will provide at least certainty and clarity towards future past. And so, you know, I do think we are at a point where you can start seeing things break through at some point in 2025. But again, I think for us, the key thing is we do think the de-stocking, subsidizing, subsiding, excuse me, in 2025 will have a positive impact in catalysts for us in 2025. Great, great. And the military- Trade shows, man, where we have fun. I gotta just add one more comment. Where we have fun as a team is just talking about our innovations. I mean, if you were at the Titan booth at the Farm Progress show, man, the environment and the energy is just as good this year as it has been in the past. I mean, we have tremendous energy around what we're doing and where we're going, not just making that up or saying it. I think there's enough eyewitnesses that would support that comment. So again, I think in downtimes like this, your innovation can stand out more because people aren't just looking to replace what they currently have. They're looking for ways to get better. And we have innovations that can clearly do that. And so this is really the time where you start telling them about the fuel efficiency, the savings we can bring to their bottom line. We can make their equipment perform better. We can help their soil compaction. The new VPO technology, if you can run out and do your job on a golf course and not have to worry about going flat, that's pretty awesome stuff. And so I think the energy around the innovations actually gets a little bit stronger during the downturn. So I'll stop. I think I've said enough.

That's great. In the middle, well, I guess to sort of piggyback on that, when you work with the, and you go into the military market, is the sales pitch the same? Is it typically those increased efficiencies that they're looking for? Or is it more a performance driver that sparks those conversations?

Yeah, it's both, but it is different. And I think that's why I keep highlighting military as a great opportunity because we've done all this innovation. We brought it into our core segments. And like I said earlier, we've lost this military sales, but yet we have this great technology and I think we can combine the two. So we do need to have the right contacts in order to do that. And I think where you're seeing Maury's excitement come through is we, him and I, and now getting our team involved, we're seeing these contacts start to open up and then we get in there and we start talking about our technology and what we can do different than the competition. But to be honest with you, just being candid with you, it's a part of our business that has really, for a number of different reasons, changes within the military. And then obviously changes here within Titan where we lost some of our key salespeople in military through the years, just weren't able to replace them with the same experience, the same knowledge. We tried to put some folks in there. In military, you do need those deep experience and knowledge. And so for me, that's where I think our team being able to bring Maury into the fold and use his experience and knowledge is what we're doing. That's what he's excited about, because he's like, holy cow, this used to be a really nice part of Titan, let's go get it back. But again, the sales were lost 15 years ago. It's not like we're talking about it because these were lost two years ago. This is something that, again, a change that took place a while ago, but now we see some avenues where we can go get it back. And again, it would be all accretive to future earnings.

Great. And just a housekeeping one for the model. Do you guys provide any guidance on where you think share count may be at the end of the year?

I can certainly give that to you. I don't wanna quote off the top of my head on that, but it's in the 63 million range because of the recent repurchase. Perfect.

All right, thank you.

Thank you. Thank you. Our next question comes from Pert Luzki of Imperial Capital. Pert, your line is not open.

Hello, Paul, David, Alan, thank you. Thank you for the call. I am sorry, I had to drop off for a couple of minutes, so I apologize in advance if these are repeats, but you mentioned synergies with Carl Star. I was curious, are you able to share the magnitude of either the cross-sell, the top line opportunity or the cost saves or anything on that front?

We haven't put it all together at this point for 2025. We're still in the midst of all of our planning sessions with all our teams. And I can tell you it's pretty exciting to see what's happening and coming together. At the same time, I don't wanna commit to the specific numbers yet until we coalesce everything together. But again, we talked about the expectations for synergies earlier in the year. For this year, we had, it was four to six range I think for this year, and we're right on track with that, meaning mostly cost driven. Through September, we had four million, so it means we're right on track. But from an overall commercial and growth perspective, we had suggested 25 to 30 million as a conservative number. I believe we're gonna be right on it. I think we're gonna be able to deliver that. It's not necessarily all 25, but as we start embarking on some of these things and actually executing on it, we're gonna be right there.

Thank you. So on the low end, 25 million, and you think, I guess you thought maybe five this year and the rest would be 25?

Yeah.

Yeah, I mean, that's the

math. Just really long, that was the long-term opportunity. And I think as we've continued to drive harder in the business, there's no reason that that's still not true if not better.

Got it, and that's

just on the cost side.

Side.

Well, the 25 to 30 is mostly cost and efficiencies, productivity, those types of things with some commercial opportunity. I think we've been pretty conservative on that. That's what I'm suggesting is that that commercial opportunity is even more. On top of the things that Paul even mentioned this morning, some of these growth opportunities are not just synergies with CarlStar, but just the continued initiatives that we have on growth that are pretty exciting.

Got it, thank you. If I remember correctly, CarlStar has a facility in China. Is that where you're planning on sourcing the smaller tires?

Yeah, we continue to drive the efficiencies in that plant. We have opportunities across the entire business. We have a lot of flexibility. We already started to see some production from the, you call it cross-pollination perspective, starting to build some tires there that we previously may have produced here.

Got it, and I know you've talked about the fourth quarter guidance. You gave us a tax number, and I missed what you might've said about working capital in CapEx for the fourth quarter.

Yeah, CapEx is kind of the same general direction that we have seen in the past, probably a little bit lower in Q4. We're being very pragmatic about that. But as far as working capital, that'll continue to be a good driver for our cash flow in Q4. And the tax rate, it's a real challenging one to put a hard number on, but we've seen that elevating. We've seen that elevated level from a book tax perspective, and I think given the low levels of profitability, it's gonna be an interesting number. Let's just say it's in the same range as what we've seen here today. Got it, I appreciate it. And then lastly, I'm gonna- I mentioned it. No, just real quick before I move on. We are looking at a lot of initiatives to try to reduce our exposures to some of these challenges that we faced in Q4. Expect to see better rates in Q5.

Got it, thank you. And then- I'm sorry, I heard. And then in terms of ag prices, and I know this is tough to forecast, seems like it's mostly demand-driven. Supply doesn't change that much. Is that the way to look at it, is we're really focused on the demand side from offshore, offshore demand. Is that what we're looking for? Crop prices, you mean?

Yeah. Yeah, I mean, the other thing is, the crops have been relatively good around the world for a number of years in a row. So the supply, I think, is being impacted by just repeated years of good crops. You look at the US this year, very little disruption to the size of the crop, maybe a little bit kind of in the northern part of the farm belt, but generally speaking, crops have been good, which is a repeat of recent years. And so I think you have, you do have some supply impact there where the crops have been good, the grain has been able to be put into storage. And so the drivers of demand, you're right, probably shifted with exports, with Brazil playing a bigger role in exporting grains to the Far East than the US used to, but those things can change overnight. To be honest with you, so I think you gotta assume that those equations are gonna work out over the long run because a couple things. One, protein consumption is too important to people's diets over the, not just today, but for the future. That's gonna continue to pull through demand for grains. But then also, government's gotta be aware of what's going on in the farm sector. You can't just let it go basically the winds of the, what direction the wind is blowing. And one day you're exporting here, importing there. I mean, you gotta control your food sources within your government structure of your society. And I think that's, over the long run, that's gonna balance itself out. And so again, I don't think it's, things are gonna go negative in a direction for so long that all of a sudden what we're seeing today just can be extrapolated into the future. Again, I think people are, people are, protein consumption, people are gonna continue to eat well, or better I should say in the future. And the governments are gonna make the right decision for the long run regardless of the short run on making sure that they're taking care of their food production and their sources in relation to having a peaceful, satisfied society. So I think, again, I think over the long run, the prices will improve for whatever reason it may be. There's catalysts out there that are gonna happen, whether it's interest rates, politics, but farm is not something that you can constantly just have year after year of declining prices. That won't continue.

Got

it,

I appreciate it. That's it for me, I appreciate the time. Thanks, Kurt.

Thank you. We currently have no further questions, so I'd like to hand back to Mr. Wrights for any closing remarks.

Yeah, well, thank you everybody for joining the call today. I do wanna conclude by talking about a few things we have going on on the investor relations front. Certainly we enjoy the opportunity to get out there and meet with all of you. We have some conferences we'll be attending over the next couple months. We'll be at the Baird Conference, their industrial event on November 13th, the Three Part Advisors Southwest Conference on November 20th, the B of A Leveraged Finance Conference on December 3rd, Noble Capital has an event that we'll be attending on November 4th, and then we got a couple virtual events that are gonna be really good ones. Oppenheimer on December 12th, and Northland on December 12th as well. So again, just wanna highlight some opportunities for us to get out there and interact with all of you, and look forward to doing that, and appreciate your attendance on today's call. Thank you.

Thank you. As we conclude today's call, we thank everyone for joining. You may now disconnect your lines.