Titan International, Inc. (DE)

Good morning, ladies and gentlemen, and welcome to the Titan International Inc. Second Course 2025 Earnings Conference Call. At this time, all participants have been placed on listen-only mode. We'll open the floor for your questions and comments after the presentation. If you should need assistance during the call, please save them by pressing star followed by one on your, star followed by zero on your telephone keypad. It is now my pleasure to turn the floor over to Amin Schneider, Vice President Financial Planning and Vist Appellations from Titan. Amin Schneider, the floor is yours.

Thank you and good morning. I'd like to welcome everyone to Titan's second quarter 2025 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 10Q, 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 8K filed earlier, as well as our latest Form 10K and Forms 10Q, all of which have been filed with 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 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. Overall, our Titan team had a solid quarter. We're pleased with our Q2 results that were within our guidance ranges for both revenue and adjusted EBITDA, while also driving positive free cash flow for the quarter. Our Titan team continues to execute well. We're taking operational, commercial, and administrative actions as needed. In response to the extended market softness, we are continuing to experience. At a high level, conditions for the OEMs in our end markets remain similar to last quarter, as buyers of equipment continue to take a wait and see approach. Based on our conversations with dealers, farmers, and OEMs, it seems clear that this cautious mindset is primarily a function of waiting for interest rates to come down, coupled with a desire for more clarity on tariffs and trade policy. We have continued to experience some fairly large drop-in orders, similar to what I mentioned last quarter, as OEMs need to adjust rapidly when they see lower inventory levels get out of sync with pull-through retail demand. You're looking ahead, the macro environment appears to be similar to what we've seen. So for the coming period, our Q3 guidance indicates exactly that. Digging into the trade and tariff topics a bit more, we have seen the tariffs have an impact on our consumer segment this quarter. As many aftermarket customers are choosing to wait for some resolution on tariffs to the extent possible before restocking their shelves. The positive is that we have seen some consumer customers in July place good size orders to get inventory back in line with sales. Recall our commentary has been that trade policy applied somewhat consistently around the globe would benefit Titan in the long-term, and we still believe that. The bottom line remains, it is important that tariffs and trade policy result in a more level playing field in the end. The cases we have won with the international trade commission over the past couple, couple decades illustrate we have not been competing in a level playing field regarding off-road tires. Again, I want to reiterate that our U S based production amidst a strong global footprint has us well positioned to benefit as tariffs are levied on imports. A number of industries in the U S with steel and tires being a couple of prominent examples have had to compete with foreign producers that take advantage of cheap labor and significant government subsidies for many years. And on the whole, we are glad to see these efforts to end unfair competition. Our position is, and our customers say it as well, that Titan has an exceptional competitive position in the markets we serve, and that is further solidified when irrational import pricing is removed from the equation. Central to that is our one stop shop strategy. Our culture of innovation and customer service driven by large, our large product portfolio and production capabilities puts us in a good position. We pride ourselves on our ability to deliver products to our customers quickly, whether it be North America, Latin America, or Europe. The markets we serve demand maximum uptime from their equipment and our ability to deliver replacement tires and undercarriage parts quickly helps make us a key partner for these customers. I also want to briefly touch on the recent legislation that was passed as we think it will be a long-term positive for farmers on the whole with the increased appreciation rate is the most important element that's getting a lot of the attention, the ability to appreciate 100% of the investment in new equipment, such as tractors and year one is obviously beneficial and should improve farmers balance sheets over time. So bringing these general comments together, I want to stress that we are by no means sitting back waiting for our markets to turn. We continue to be proactive on a variety of fronts to drive growth wherever we can and continue to invest in product development and constructive partnerships. Last quarter, we highlighted our expanded license agreement with Goodyear. We're busy working to maximize this opportunity with the Goodyear brand, which we've been doing successfully for over 20 years. And we think it will absolutely help drive growth over time. The new partnership, the new segments of this partnership that we added with the new agreement. I'm also excited to announce that we signed an initial minority investment in a strategic partnership with Brazilian wheel manufacturer, Roderos. We have been actively looking for an opportunity to get to the Brazilian wheel market for a number of years, and this is a great partnership to do so. Over the years, we have been talking with OEMs about this and they have expressed enthusiasm about bringing wheels and tires and assemblies into that market, just like we have done successfully here in North America. Roderos is the second largest manufacturer of agriculture wheels in Brazil, and we look forward to working with them on the development of integrated solutions tailored to the Brazilian and South American markets. Brazil has become an increasingly important market for Titan as their ag economy has grown and we think this investment is an excellent use of some of our local cash to further extend our leadership in that market. We expect this transition transaction to close in the third quarter, which is subject to some customary regulatory approval. Turning more specifically to the ag segments, farmers are guardedly optimistic about their businesses. I know I'm repeating myself and saying that the feedback we get from them centers around interest rates. Seems to be a fairly universal opinion that they need to come down with farmers and dealers citing financing costs is one of the main impediments to a pickup and large equipment purchasing. That has an hesitancy is elongating OEMs efforts to further destock their finished good inventories, but we are starting to see some pockets where distributors have let inventory get too low. As we did in Q1, we've seen some good large size drop in orders this quarter, and we think that sort of buy as you need it ordering behavior will persist until rates come down. You know, our Titan, our priority is to manage costs effectively while staying close to our customers and being prepared to ramp up to meet demand when needed. You know, reiterating a point I made last quarter when the cycle turns, it typically turns fast and our team and the breadth of our production capabilities are best suited to meet our customer needs in those moments. Shifting away into our -U.S. markets, there are cross currents which are ultimately resulting in flattish demand in Europe. You know, why Brazil has generally fared the best of our operating regions? As a reminder, we have largely localized manufacturing in Brazil and Europe, so our sales in those regions will continue to be a function of local economic activity. Our consumer segment was most directly impacted by tariffs, as we mentioned earlier. This far U.S. consumer related economic data has not really shown any significant deterioration, but it's also clear that people are being cautious when it comes to discretionary equipment purchases. As with Ag, we expect interest rate cuts will help spur demand in our consumer segment, you know, to the obvious reduced cost of financing, whether it be at the dealer or end customer level. To the extent that settled trade policy will make various market sectors more stable in their staffing of higher plans, that would also be a positive for consumer segment as outdoor enthusiasts might feel more secure in being able to afford a discretionary purchase. Moving over to our EMC segment, there has been little change from Q1. We continue to view European infrastructure investment as the primary driver for activity. That investment is a function of many inputs, including trade policy and continued military conflict in the region. While those items remain unsettled, there really was no material change in our EMC segment activity. That being said, equipment continues to be used and wear out. So the demand for aftermarket parts and the time will come when owners have no choice but to replace that equipment. So we wrap things up here. You know, we are really doing quite well and holding our own despite some significant macro challenges thus far in 2025. We are focused on our customers and our execution as success on both of those fronts is the best approach to delivering success, not only this year, but beyond. We are well positioned to do so when the end markets start moving upwards, which they most certainly will. With that, I'll hand it over to

David. Hey, thanks, Paul. Good morning to everyone. And thanks for listening in today. As Paul noted, our results in the second quarter were in line with our expectations as revenues were $461 million with adjusted EBITDA of $30 million. We were also able to drive positive cashflow in the quarter of $4 million. It's important to restate the fact that we continue to navigate this cyclical trough with agility and we remain in a strong position as a company. On a sequential basis, our gross margins improved 100 basis points from 14% in the first quarter with product mix being the main reason for the sequential improvement. Looking at margins by segment in the quarter, all three showed expansion versus the first quarter. Our gross margin was .6% compared to .4% in the first quarter. EMC gross margin was .5% versus 10.4%. And then consumers, the gross margin was .4% compared to 19.6%. Year over year in Q2, our margins of 15% were down from .5% when adjusting out the impact of the Carl Star inventory step up last year. This gross margin decline was driven by the leverage on overhead, which is expected with our organic revenue decline that we saw year over year. Our teams have done an exceptional job at managing production and our costs and our performance shows significant improvements in margins as compared to the last time we saw a market like this. Our SG&A expense for the second quarter was $52 million or around 11% of sales, which was up about one and a half percent from last year. And that's really generally due to inflation in the business around labor costs. R&D expenses were $4.3 million in the second quarter compared to $4.2 million last year, so not a big change year over year for the business. Again, inflation being the factor. We generated positive operating income for the second quarter of $10 million. Now turning to cash flow, we were able to drive the $4 million of positive cash flow in the second quarter by moderating our cap expense to $10 million in the quarter as we were judicious with our spending. Working capital was also a positive driver for free cash flow in the quarter when adjusting out the FX impact of the weakening US dollar within the quarter. Our net debt at quarter end declined $10 million from the first quarter to $401 million. As noted before, we expect free cash flow generation in the second half and we are confident we'll exit the year with a debt ratio closer to our target of less than three times adjusted EBITDA. As a reminder, our debt structure provides us flexibility with our domestic credit line and our long-term bonds. Again, we are in a much stronger position as a company compared to the last historical cyclical low. Our second quarter income tax expense was $4.7 million with an effective rate well over 100%. This elevated tax rate continues to be a function of where our profits and losses are distributed geographically and the associated tax regimes within those areas. I expect it will remain at this elevated level for the short term as we continue to navigate this lower market. As we see a rebound in market conditions and our improved profitability across the globe, we can get back to normalized tax rate levels. Now moving on to our financial guidance for Q3, our guidance ranges for the quarter are revenues of $450 to $475 million, adjusted EBITDA of $25 to $30 million, and I also expect to see tax expense of around $4 to $5 million, which is similar to our Q2 level. The midpoints of our revenue and adjusted EBITDA guidance imply growth in both metrics when compared to Q3 of last year, as well as relatively flat performance versus Q2. That sequential comparison is notably positive as it runs counter to our normal seasonality in which sales traditionally drop from Q2 to Q3 due to normal plant shutdowns and holiday schedules in the summer. The main factor underpinning this positive dynamic is our expectation that the consumer segment will rebound a bit as channel inventories have gotten too low, as Paul talked about earlier. Reiterating our prior comments on cash flow, we will continue to manage working capital tightly, allowing us to reduce our debt. Our financial condition does remain solid and I'm fully confident we're putting ourselves in a position to accelerate future performance. So thanks for your time this morning and I'd like to turn it over to the operator for our Q&A session.

Thank you very much. We'd like to open the lines for Q&A. If you'd like to ask a question, please signal we're pressing star followed by one on your cell phone keypad. And if you'd like to remove your cell phone line of questioning, it will be star followed by two. As a reminder to raise a question, we'll be star followed by one. Our first question comes from Mike Shlilsky, sorry, actually, from DA Davidson. Mike, your line is not open. Mike, can we just confirm your line is unmuted?

I'm sorry, thank you. David, can you clarify that the last few comments there, I might have misinterpreted here. So in the third quarter, you're saying the Fiat is going to be roughly similar to what you just saw in QQ. The EVA DA could be down 10 to 15%. That's what the numbers are kind of saying. So if we may break down a little bit what's behind that assumption. Is there any kind of mix or other issue that's just three Q specific here?

Yeah, there's nothing to really call out. But we normally have our seasonal shutdowns of the plant and equipment for the summer maintenance schedules as well as the holiday schedules in Europe. Overall, the product mix, we don't think it's going to be quite the same as what we saw in Q2. So moderately off, but nothing significant. So again, we have the opportunity on the high end to achieve what we achieved in Q2. But a little bit of moderation in some areas.

Okay. Don't want to look too far ahead, but looking at the fourth quarter, if you recall last year, I think folks were throwing a bit of a curve. You had kind of even thought that was not seen since pre-pandemic when you were a very different company. I don't know if you're ready to actually give us guidance yet, but are you getting indicators that these OEMs are going to have a large shutdown again this fourth quarter or is that just kind of in the past at this point?

Yeah, we're seeing very similar schedules. I don't think it's really changing a lot. But certainly I would be encouraged by them picking up production. But right now we're not seeing any indication of that. It's just kind of fairly flat at this point.

Okay. I also wanted to ask about maybe the broader Ag sector in general. It sounds to me as if you're seeing some inflection, but it's just still happening only in Brazil. Are you getting any sense that you'll start seeing an improvement in the United States or are the OEMs still just saying we're just not going to build anything more until we start seeing actual farmer orders get better?

Yeah, I think there's an overall tone that's just pretty quiet. And I would say that's different than prior years, that quietness. I don't think that indicates negativity. But I think it just means right now there's definitely a pause to wait and see on obviously what's going on currently with some of the tariff deadlines and then any Fed action later in the year. Where we see some positives though in our industry, you mentioned Brazil. I think Brazil continues on a good path. But where we're seeing some net positive in our industry is that wheel entire inventory just has been dragged down too low or equipment inventory has been dragged down too low. And that's where we get these drop-in orders that can be fairly largeable in size as I've mentioned we saw in Q1, Q2. Seeing some good trends starting off Q3 so far in July related to our consumer segment as David has mentioned as well. So each quarter we're seeing some very positive trends with good size orders coming in from different customers serving kind of some different markets with products. But that's where Titan's ability and what we have been instructing our team all along is that when our customers need us we have to be there. And so it's easy to say it on a call today. It's much more difficult and it shows the strength of Titan to do it in reality. And so we are positioned to take these large orders as they come and service our customers. And we are starting to see them. And so I think Mike what we believe as we get into next year and it's very early to give you a fine-tuned comment. But I think because of inventory and some general positive trends kind of leaving tariffs and interest rates to the side we do expect an uptick for next year. And quantifying that further is going to depend on again tariffs and interest rates and some of these elements that are causing the pause. But I think the underlying drivers that are there for us to see some uptick for next year.

All right. Maybe one last one. I've only gotten part of it for the 10 Q. You have given what happened with the taxes this quarter. Are there any large US NOLs that are on the books that we should be putting into our valuation going forward? Thanks.

Yeah. So there are some NOLs that could potentially hit valuation allowances needed if we don't see market conditions improve. But again I think it's important to focus on cash taxes and how we're paying. It's been relatively stable in that area. So that's really what we look at. There can be some movement in the NOL valuation allowance from time to time. But we'll call it out separately.

Okay. All right guys. Appreciate the color. Have a great one. Thank you. Thanks Mike.

Thank you very much. Our next question comes from Steve Faranzani from Sudoti. Steve your line is not open.

Morning Paul. Morning David. Appreciate the detail on the call. Obviously nice job on the gross margins. I know in a difficult market to get that kind of sequential improvement is impressive. I know that's been something over the last couple of years you've been focused on. I'm hoping you can help me walk through what happened with a little bit more detail on consumer. The expectation was if tariffs were an impact would see it on your gross margins. We did not. Your gross margins improved sequentially. Is that a situation where you're trying to raise prices to offset and dealers and customers are rejecting that? Or can you just help out on what's going on in consumer?

Well the sequential improvement in margins was a little bit to do with just product mix. You know different OEM versus aftermarket. And that's really it. But I want to be clear. We're not going out trying to capture price per se. We're managing the tariff costs with a moderation of prices accordingly. But it was not a material impact. It had in fact there was no bottom line impact.

Steve we're not having any pricing has been something that is a very big strength for Titan. Not just consumer but in ag we understand the market well, the relationship with the customer. So like David was just saying we look at pricing as neutral. So we're not looking to capture volume via pricing. We're not looking to take it on the chin with cost per se. And so I think our position to respond quickly to changes in the cost structure within our markets is reflective in the pricing that we're using to position our products in the market. And we have not had any significant issues. I can tell you Steve that have risen to my attention that I've had to be involved with on major pricing challenges which was the other part of your question. Are we seeing some pushback in the answers?

No. Then what can you help us out on what? So is it the decline in consumer? Are you saying that's not tariff related? That's just pure demand consumer uncertainty and dealer destocking? I'm just trying to understand it.

That's a different question. In terms of going to see it is I'm just trying to ask.

I'm trying to figure out the mix of what caused the consumer to climb.

There was some mix and again that you have to be very devils in the details with products and so forth. But it's hard to explain sometimes. But the one thing that it's clear is that there was some pause in the market during Q2 for you know call it tariff impact. Just the wait and see aspect and nobody wanting to hold inventory. And so you know you started to see that's why we're starting to see some recovery and some improvement in early Q3 because they get their inventory's just got too low.

Okay.

Does that make sense? It's helpful.

Yeah. It's sort of I mean it's tough. I mean you see what's behind it. It's tough to walk through it. And obviously the consumers much larger than it used to be in the cycles are a little bit different than EMC and AG. So clearly I have a little bit more questions on that one. But that's helpful. If I can ask briefly about the balance sheet. Obviously your net leverage I think it's fair to say it's a bit elevated here. But apparently you made that you know you're taking up minority interest. Can you just walk through any kind of covenants financial constraints? And just as an add on to that question by our model year over year EBITDA improves in the second half. Cash flow seasonality tends to be better. This should by our model be peak leverage. Is that fair? So I know it's two different questions.

That is that's a very important aspect. Okay. So yeah we see this being peak leverage. And as we see free cash flow in the second half improve will be price increasing cash. So all that plays well within the leverage ratio. Again I said it earlier but we have great flexibility within our within the bonds and our ABL facility. And there are covenants but those are more like what I call springing covenants. And we do not get ourselves in a position to where those ever come into play. And so from a covenant perspective I don't see that being an issue and we manage it accordingly.

Great. Thanks Paul. Thanks David.

Thanks Steve. Thank you. Thank you very much. As a reminder to raise a question we'll be staffed with both one telephone keypad. Our next question comes from Derek Soderberg from Council of Fish Carroll. Derek your line is not open.

Yeah hey guys thanks for taking the questions. Wanted to get your thoughts on the Japan trade deal and then you know you've got this accelerated depreciation provision. Just to me feels like the setup is quite good for ag. Paul you continue to mention interest rates. Seems like that's the gating factor but you know looking at some of these other trends going out in the market it feels like you know that setup is good. And so I was wondering if you can kind of double click on you know what you're seeing from a customer perspective. You know your thoughts on some of the timeline for you know if these things are really going to start to have a positive impact or it's really interest rates that are still the getting factor and you know we're going to be waiting until those rates come down and that's that's sort of the biggest hurdle at this point. Just wondering if you get some additional thoughts there.

Yeah it's a good question with a lot of thoughts. I think you move in a positive direction like you said getting where we're seeing these tariff agreements settle is at a level that I would say is net positive for our business and really not positive for the sectors we serve serve overall. I said in my comments and I'll keep saying I mean the world we compete in it was not a fair fairly competitive global marketplace and you know that was demonstrated when we went in front of the ITC twice won unanimously and the weakness has always been the commerce department. So I think we're seeing the commerce department and the activity that's going on within the administration is what's really needed for companies like Titan. We make great products with great people but it wasn't a fair playing field. So I think the Japan agreement like you illustrated is a good is a good starting point for where we see the rest of the global you know market being settled related to tariffs. You know I listened to Besant this morning. He's phenomenal at what he's doing. He didn't exactly give clarity to answer your question but I think he did point in some pretty good directions with you know some of the key market the key countries that these deals haven't been settled you know at this point. So I do I do feel good about where we're going. I think the farmer sentiment indicators are positive. I think the backdrop of way the administration is stepping in with with support for farmers. You know you look in the construction segment obviously there's a lot going on there but I think that both both segments tie back to one thing it's just interest rates. We still see interest rates being that cloudy factor that's hanging out over making those making purchases and holding inventory because people are looking at it going what I pay today is too high to what it's going to be in the future. And I think once you remove that impediment which maybe we got a step closer this week then I do think you're poised for a market that is going to start rebounding. You know we've been in the ag cycle now for you know we're going on a two year two year downturn and I think all the indicators are that 26 will be an uptick. You know the question is going to be when does that springboard into place. One of the things we're going to be working closely with our customers is kind of find out the answer to the question and with the products we produce Derek you know especially the wheel we usually do get very good lead time and right now they're still fairly quiet on next year. But as I mentioned earlier I do think there's there's going to be an uptick for 26. The question is again does it really spring into place to be a major major uptick or is it just sort of a get the year started moving in a positive direction and wait and see for the back half of the year if it really kicks in. So can't quite answer that question but something will be for the next few months working to to get some more clarity.

Got it that's helpful. My other questions were answered but I think maybe if you could just provide some detail some additional color on this deal in Brazil. It sounds like you're investing in one of the bigger companies over there. I think I missed the name on that but I'm wondering if you can maybe help us plan for how we should model that any impact to you know cash outflows inflows revenue outlook anything that might help us model that that impact would be helpful.

Thanks. Yeah I mean I would probably spend more time on the strategic side of it because it is a minority investment so the modeling isn't going to be quite as you know transparent because it's not we will not be consolidating their financials but it's a strategic relationship we've been working on for a number of years. We've watched this company you've gotten to know this company worked with them with some deals and seen them they've really built a strong business for our particular products. A large ag they've put the investment into the plant they have a great technical team and really what we're looking at it is if you can bring a wheel and tire as an assembled product to our customers we are truly that one-stop shop and that's something you keep hearing Titan say over and over again if we can do that anywhere we operate we feel like we're going to win we're going to have the best customer service and the strongest customer relationship and so Roderos is the name of the company to answer your question. They've done a great job gaining market share in Brazil with the products they produce in wheels servicing ag and construction and again just somebody we've been working with talking to for a number of years and it's great finally see it all come together. So I think you really have the formation of a healthy strategic partnership there two companies looking for ways to continue to grow and expand our relationship together. So we'll start off with an initial minority investment of four million dollars for 20 percent and then we do have some you know opportunities in the future to see that grow and expand and at that point then you would start bringing in the full financial consolidation and seeing the direct impact of the financial statement. So I do think it'll have a positive impact definitely strategically for the coming months and next year. We'll work more on the modeling side of it after it gets closed to see the incremental volume that we can drive to Titan through the strategic partnership but again just to be clear it won't be a consolidated as a full set of financials.

That's helpful thanks.

Thanks Derek. Thank you very much. Our next question comes from Joe Gomez from Noble Capital. Joe your line is not open.

Good morning. Hi Joe. I just wanted to to start just for some more clarity here around the consumer side and so what I'm hearing is what's giving you confidence that this was a temporary lull is below inventory and then if we get some positive resolution here or stabilization let's call it on tariffs and our interest rates that could even be a better environment for us. Is that accurate?

I think Joe yeah you're on the right path with that and I you know David has there's so many moving parts when how we try to respond and answer and it's part of it is also because we have a ton of information available to us and I would say as we went into the quarter we knew that volumes were moving downward and there was a number of different factors like we've already highlighted in your question brings into play. Part of it is tariffs and interest rates were the obvious. Part of it was the timing of some of our sales that we had in some programs from last year versus this year so there's a lot of moving factors but what we were really watching closely David and I along with the leadership team from the specialties division was what do we see in July and what we have seen in July and we spent some time yesterday just confirming all this is that some of our customers had paused in Q2 as you see in the financials for the reasons that have been noted and they're now realizing that the retail pull-through demand has remained stronger than anticipated and they're building back their inventory. So again inventories had gotten too low relative to the retail sales and so we've seen some really good orders come back in July leading to the positive comments that you've heard from both David and I that there's this was more of a temporary slowdown still impacted by tariffs and really primary interest rates as we've talked about but there is a positive indicators in Q3 that the fundamentals in the consumer segment are stronger than what was indicated in the actual Q2 results. Does that make sense? I'll kind of stop there and let you digest it.

That's great. I appreciate that. Very informative. And then I was wondering maybe you could talk a little bit about some of your efforts that you've talked about in the past getting some third party source product and your move again back into the military market. Maybe you could just give us a little update on how those are going.

Yeah, we are going to continue to be that one-stop shop which includes our incredible portfolio production capabilities around the world but also where we need those third-party partners or the JVs that we have in the ones that are in the new one that we just announced but we are going to be that one-stop shop to service our customers and what we bring to that equation with the third-party source products is we bring distribution branding and an incredible technical resource team that can stand behind the products. So we are willing and looking consistently to fill in either geographical or product gaps in our portfolio to service our customers with a high degree of confidence that if we find the third-party partner we will service that product and we will service the customers and do it well. We have been doing that. We are currently doing that and we believe strongly we can continue to grow via that strategy and so really pleased with the progress and to be honest with you we have an incredible team. So doing this requires resources and strengths of people and market intelligence that is where Titan can really outrun and outshine the competition because our breadth and depth of the places of the globe that we can touch is a step ahead of everybody else. So we are going to keep running and growing in that area. Military, we see the opportunities. In fact, I had a really good week with military to be honest with you. I am glad you asked that question. It is a pretty military this week and now it is just getting the technical needs from their side, cooperated with what our team and our capabilities are and really moving forward. So at this point there is nothing discreet because projects do take time from an engineering standpoint. If it was just up to me we would sign a deal and we would be running but there is a lot of technical stuff you have to work through. But it is a timely question because it was a positive meeting that I was involved in directly this week was moving in that direction. We have already scheduled some follow-ups so we are going to continue to chase those military opportunities. The way I view it from Titan's standpoint, in my tenure here as CEO and president our military sales have been closer to zero than anything. I know Titan historically had military sales but during my tenure it has been close to zero. I think the direction the administration is going, where the military is going favors manufacturers, producers like Titan. We are building those relationships like I mentioned and I see it only as a positive. We are not at risk of losing anything because we really don't have anything. Again, I think the meetings that took place this week are positive. I am investing time and so will my team.

David Morgan Great. One last one for me. You really haven't talked about LSW today. I know one of the goals was you talked about was some penetration into the mid-size tractor market. I was wondering how those efforts are going and then the overall LSW efforts.

Michael S. LSW is something we are always going to be continuing to push behind the scenes. What we working on is the marketing towards those mid-size farms. We got some really good data from a farmer that was working, actually he was a contract farmer working on a number of parcels, really good data that supported the yield improvements that LSW brings to the table every time you turn a piece of equipment. What we are really working on is creating a tool and we are using, trying to bring in AI to be honest with you and some technical resources. But we want to create a marketing tool that makes this so intuitive and easy to interpret for a farmer that the sale drives itself. To do that, you got to make sure you have all the right data. Basically, what we are trying to do is you can plug in the size of the farm and what your needs are and this calculator will tell you what the return on LSW would be and the yield savings and improvements to your income that would be generated by having LSW. We are trying to do it the right way from that regard and it is going to take a little bit more time to do so. But the data that we are getting on the support around LSW, it continues to even exceed our own expectations because to be frankly, it is coming from outside our own internal testing. It is coming from others providing the testing for us which is clearly the best type of testing support you could have because it is somebody telling you, hey, your products are incredible. We do have that but we are just trying to fine tune it. I think there are other things we continue to look at. What David and I would love to be able to provide the farmers in that particular category is some attractive financing. We haven't been able to really get that going in today's markets. I was up in Canada earlier this week and talked with the Canadian team. They have really large farms up there. It is kind of the same thing. He is going to talk to some Canadian agriculture banks. Maybe we can get some financing. I think that would really help drive the purchases of LSW if we had an attractive financing package. If you have the marketing plus the financing package in today's world, I think we can really kick those sales into gear. We are working on it. We have got some smart people looking at these opportunities. Again, the interest rates still are a hurdle to a lot different things. That is something that hopefully we can take off the equation here soon.

Great. Thanks for that.

You bet. Thanks, Joe. Thank you very much. As a reminder to raise a question, we will be staffed by one on the telephone keypad. Our next question comes from Kirk Luce from Imperial Capital. Kirk, the line is not open.

Thank you. Hello, Paul, David, Alan. Thank you for the call. A couple of follow-ups. On Rodaris, do you need to make an investment there?

No, not beyond that initial $4 million. They have done a great job making the investments into the operations and really put it into the world-class caliber company that it is now with good market share in Brazil. That is what we have been watching closely to be honest with you through the years, Kirk, to answer your question, is them making the investment both on the equipment side and the technical arena. They have already done that. Titan's injection is not an injection of capital because they need capital to get to where they need to go. They have already gotten to where they need to go. Now it is strategically how do we take the two companies and make them better? I think it is a really good time from Titan's shareholder's perspective that we are able to do this. I do want to say it shows the strength of Titan yet again, our brand and who we are. Rodaris has other suitors. It is not like this company was sitting there on an island. To answer your question, they built a great company with strong market share. If you are doing that, you are going to have plenty of suitors. It is who Titan is and the value that we can bring together that really drives the relationship to be formed and signed like as we did this week. Again, strategically it is very important, but from an investment standpoint, Kirk, we are in a great position because they have already done it.

Kirk Hogan Interesting. Thank you. I guess

I missed that. I guess you said there was a $4 million investment up front. Rodaris I did not say it in my script. It was just part of the Q&A. I did not have that in my script. You did not really miss it from that standpoint. Kirk Hogan Okay. Got it.

Given that you are so successful there on the tire side, this sounds like it could be a pretty meaningful development. When do you think it might move the needle in terms of your results?

Rodaris You know, I think moving the needle, obviously, if we increase our investment to the point where we consolidate or our operational involvement increases and we consolidate it, that would move results. It is added evaluation that is attractive and reasonable for Titan shareholders. I think from that standpoint, it is a creative because it is a profitable, successful business. As far as moving the needle, I think it is what we can do with our product portfolio together. Obviously, now we can sell wheels and tires assembled to the OEMs. We can push more of the LSW together into the marketplace. It is all areas that are good growth, but also what it does, and this is not answering your question directly, but it protects what we have. If you think about they have good market share, we have great market share. When you are a wheel tire assembly type operation like we are in North America, the value and the leverage that you have and really the increases. Again, looking at it from a strategic perspective, it is very difficult in Brazil to compete with a formal combination of Titan from the tire side and Rodaris on the wheel side. More to come as we get the deal finalized and think about the strategy for next year, we will make a trip down to Brazil once it closes and work with them on the strategy of where we can market and move some additional products for next year. At this point, because it is a market strategy, we will build the marketing tools around additional product sales for next year.

Interesting. Thank you. What percentage of Rodaris would you own? This

initial 20%. Then we have mechanisms that would drive that higher as time progresses.

Oh, interesting. Okay, great. Then on the tariff side, we have been hearing about tariffs now for at least four months, longer. It just seems like your customers in the US would be making plans because it does appear that imported tires are going to be tariffed by at least 15%, probably higher for some countries. What are they saying? Are they asking you about capacity in the event that they need to move stuff onshore to US suppliers? Is there anything you can say on that front about what your customers are saying, USA?

Yeah, that's a good question. We have had customers ask us about our capacity for next year. That has taken place. I was at a customer last week and the way the meeting closed, they quietly, the head of the customer quietly said to me, it tightens in a good position for 26. That's kind of where we're at. It's more the questions around your capabilities for 26, feeling that we're well positioned to service their needs for 26, but customers are just not talking a lot about 26 at this point. There's too much still, as you highlighted in your question, is still too much related to tariffs and interest rates. I do like it, like that meeting last week, I like it when a customer quietly says something to me. There was no need to do it. They didn't have to, but it does signal, I think, to me and what I'm there for translating back to our team and even said it to the board in our meeting last month as well. We have to remain agile. We've got to have the staffing in place and the people in place to do that. That's why I keep highlighting again these drop-in orders and our ability to service them. I don't think all companies in our space can do that. I'm not them, so I can't speak directly for them, but that's not as easy in today's world to see tight and managed costs the way we have with our margins and our performance so far this year in a very significant downturn, but also be in a position when customers need us, we can respond. That's why, again, I keep highlighting. I'm not just throwing BS out there for the sake of doing it. It's really important in our business because our business has so many SKUs. It's incredibly complicated from a production operational standpoint. For our ability to, when a customer says, I need you and here's the order and we can do it, that signifies the strength that Q3 has. Again, what I'm saying to our team, investors to the board, remain agile. We see a market that has potential for turning. It's going to turn and fits and starts, it looks like, for a period of time, but we've got to be there to service our customers. That's what we're doing. I think we're doing a good job getting through that so far this year. I think the guidance that David highlighted for Q3 in a period where you have significant holidays and shutdowns signifies that we're on a good pace for Q3 as well. Again, a lot of additional market commentary. I'll stop there. I got 100 thoughts in my head. I could keep talking for 20 more minutes, but I'll stop.

That's a great call. I really appreciate it. Thanks,

guys. Thank you very much. We currently have no further questions, so I'd like to hand back to Paul Reitz for any further remarks.

Well, hey, everybody, I appreciate it. Enjoy the rest of summer and we'll talk to you at the end of Q3. Thanks a lot. As we conclude today's call, we'd like to thank everyone for joining. You now disconnect

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