Williams Companies, Inc. (The)

Good morning, ladies and gentlemen, and welcome to the Titan International Inc. fourth quarter 2021 earnings conference call. At this time, all participants have been placed on the listen-only mode, and we will open the floor for your questions and comments after the presentation. If you should use assistance, please dial star zero and an operator will assist you. It is now my pleasure to turn the floor over to Todd Sheets, Senior Vice President, Investor Relations and Treasurer for Titan. Mr. Sheets, the floor is yours.

Thank you, Victoria. Good morning and welcome everyone to our fourth quarter 2021 earnings call. On the call today we also have Titans President and CEO Paul Reitz and Titans Senior Vice President and CFO David Martin. I will begin with the reminder that the results we are about to review were presented in the earnings release issued yesterday along with our Form 10-K, which has also been 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 risk, 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 today, 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 Q4 earnings release is available on the company's website within the investor relations section under news and events. Please note today's call is being recorded. A replay of this presentation will be available soon after the call within the investor relations section on the company's website. A copy of today's call transcript will also be made available on our investor relations website. In addition, our latest quarterly investor presentation is available on our website. I would now like to turn the call over to Paul.

Thanks, Todd. Good morning, everyone. Titan had a great finish to the year with our fourth quarter to what adds up to be a tremendous 2021 for us. The days really go by fast as we're already sitting here into March, and we see numerous positive aspects in our business lining up well for 2022 and beyond that. I really want to comment, though, that I'm very pleased with what our Titan team has accomplished over the past couple of years, and those efforts have put us in a good position as we head into 2022. Today, I'd like to share some thoughts on markets and our expectations for this year. But before that, I do quickly want to go over a few financial highlights from 2021. And then David will, of course, dive in deeper to the financials and cover that from all angles. So as we look at the year, we grew our sales over $520 million with a solid $120 million of that or 23% of that flowing into operating income gains. That led to our 2021 adjusted EBITDA growing two and a half times over 2020 to $135 million. It's only happened one other time in Titan's history that we have had sequential sales growth each quarter throughout the year, but that is exactly what occurred this year. I also want to note that our fourth quarter gross margin percentage was 300 basis points higher than our Q4 average over the past 10 years. David will share more financial information later, but as I said, I'm very pleased with what Titan has accomplished in 2021. But what's more important is that we feel well-positioned going into 2022 to keep riding that tsunami tidal wave that's out there. In the world of agriculture, which is our breadbasket comprising 53% of our sales, we believe the market forces are aligning well to create market momentum driving a multi-year strong demand cycle. Some items to note, farmer income and balance sheets around the world are looking good from higher commodity prices. Prior crop yields have been strong. Government support programs have been very accommodating. These forces will continue to pull through strong demand, along with the fact that dealer used and new equipment inventories are at or near all-time lows. Also, let's throw in there the continuing momentum from a replacement cycle that still has legs as North America large ag volume remains approximately 15% below historical average even after the recent growth. You start looking at future crop prices, the weather conditions in South America are helping to keep prices at higher levels. It's placing increased demand on U.S. grains where reserves are light to start the year. The point being of all this, there are clearly a good number of positive forces in the ag sector. For example, at the National Farm Show just a couple weeks ago, the comments I heard from management teams, in particular our small ag customers, where they see current demand and future forecasts was really nothing but positive. So sitting here today, Titan's ag order books are strong, and we are continuing to pursue increases to our headcount and our capacity to meet this demand. So looking further down the road, it doesn't appear that 2022 OEM production levels are going to put much of a dent in the low inventories, low dealer inventories. So if you're looking at 2023, really before you're going to start getting meaningful inventory replenishment that could start taking place. Plus, on top of that, I think you'll see unmet 2022 retail demand that's going to carry forward into 2023 as well. It does appear that positive ag wave is going to keep flowing on a multi-year cycle. So moving from farm over to earth moving and construction where our undercarriage business is a major global player, we continue to see demand orders at really good levels. We stated last quarter and still believe that our EMC segment continues to look promising as you have the expected infrastructure investments kicking into gear really this year. More likely than not, you're going to see more of that continue to flow into next year as well. That will just add further support to the current strong demand levels that we see. On a global basis, Titan was able to be there for our customers in 2021. We have increased our output with our global production footprint that I want to remind everybody is the best and largest in the off-road wheel, tire, and undercarriage industry. I believe that with our production capabilities and our quality products, along with the innovation that we continue to drive into the marketplace, that we are prepared to serve our global customer base well in 2022 and beyond. As companies move to further de-risk their supply chains, Titan is definitely better suited in the competition to meet our customers' needs. We understand that in today's world, there are questions surrounding global volatility and uncertainty from material prices to supply chain, labor challenges, global logistics, and then the recent events in Ukraine. As we have noted before, and you see evidenced in our 2021 results, Titan is accustomed to solving problems and overcoming challenges, and we have proven that. We have a strong focus within our management team to meet our customer expectations, along with solid pricing and cost discipline in innovative products that will drive further margin and profitability improvements. It's been great to see how our company has taken strong actions and really come a long way in improving our balance sheet in recent years. That's obviously crucial to protecting the heartbeat and future of Titan. As I've stated before, during that period, we have continued to invest our CapEx widely to drive innovative products into the marketplace. and increase our capacity where really it's needed in our core businesses and it fits with our long-term strategy. That fact combined with our large global production footprint and the capacity that we have puts Titan in a position of strength within our industries and really makes us well-suited to meet our customers' needs for the foreseeable future. I also want to add a comment in there that in recent years, we have improved and removed businesses and product lines that were a drag on our financial results. And along with increasing our portfolio of innovative products, we have streamlined our product portfolio to remove certain skews and improve our operational efficiencies. All of these facts illustrate our capabilities and our future potential. But really what speaks the loudest is our results this quarter and really for all of 2021 for that matter. that demonstrates that the Titan team has been successful in managing through a dynamic business environment and that we are well prepared for 2022 and beyond. Titan has built a good foundation for the future, and we have put an operating plan in place to deliver another good financial performance in 2022, with sales over $2 billion, which is 14% over 2021, and adjusted EBITDA around $175 million, or up $40 million, or 30% if you look at it that way.

With that, I'd now like to turn the call over to David. Thanks, Paul, and good morning to everybody on the call today. The fourth quarter concluded very strongly, and it capped off a year that we at Titan will all remember. In the midst of unprecedented volatility, we've set a course towards a bright future for the organization as a result of our collective decisions that we made in 21 and even prior. There are many foundational pieces that we established that will bear fruit for the years to come, and our 2021 results are just the start. As usual, I'll begin with the major highlights for the quarter and the year. For the fourth quarter, we had a sixth quarter in a row of sequential sales growth. This doesn't happen by accident, as we put everything together to deliver increased production with our labor and our supply chains. Net sales grew 8% sequentially from Q3 and almost 50% from Q4 last year. This was led by the ag segment, which grew 64% in the fourth quarter from last year, and our gross profit grew 68% from last year, and our margins remained strong. The adjusted EBITDA for the quarter was $36 million, representing the strongest fourth quarter performance since 2013. Our fiscal year adjusted EBITDA was $135 million, which grew by an incredible $81 million. This implies incremental adjusted EBITDA margins of 15.6%. On the cash flow and balance sheet side, our fourth quarter operating cash flow was $13 million, making the second quarter in a row where we generated positive operating cash flow, despite the large increases in sales and the corresponding working capital requirements. And then finally, our net debt leverage fell to 2.9 times at year end. We expect an even stronger year in 2022, which Paul already discussed, and I will touch on that a bit more in a few minutes. Now let's hit the important points relative to segment performance in the quarter, starting with agriculture. Our agricultural segment net sales were $265 million, an increase of over $103 million from Q4 last year, and it was up sequentially from Q3 by over $20 million, representing 8.3% sequential growth. We saw a very good balance between OE and aftermarket sales again this quarter, while OEs continue to be the largest driver of increases year over year. There was also a very good balance between growth in volume and the impact of higher pricing related to cost of raw materials and other inflationary costs. Each of our global regional businesses experienced significant growth in the segment year over year. And for the year, the ag segment grew by over 50% or $315 million. in growth. The agricultural segment gross profit for the fourth quarter was $37.5 million, from only $20 million in the prior year, representing a 92% improvement. The gross margins were 14.2% for Ag in Q4, up from 13.6% in Q3 this year, and 12.1% last year. This is reflective of the increased volume and the effect on efficiency along with continued strong cost control actions we have taken over the last year. We're using our productive capacity in a strong way to support the demand in the market, reinforcing our value to customers. And that will continue in 2022. Moving over to earth moving and construction, the segment experienced another strong quarter as well. Overall net sales for the EMC segment grew about 46 million or 33% from last year in Q4. This also compares favorably to the third quarter, a sequential growth of 15 million, or 9%, very similar to the ag growth. Again, all the major geographies experienced year-over-year growth during the quarter, with the largest dollar growth from ITM's undercarriage business, which grew 35% from the fourth quarter last year and 11% sequentially from the third quarter. Similar to ag, the growth was driven by a balance of volume and increased pricing relative to higher raw material costs and other costs of inflation during the quarter. And it was slightly offset by currency devaluation of about 2%. Gross profit within our earth-moving construction segment for the fourth quarter was $20.4 million, which represented an improvement of $6.1 million, or 42% from adjusted gross profit last year after eliminating one-time charges for asset impairments last year. The gross profit margin for the EMC segment was 11.1% versus an adjusted gross margin from the prior year of 10.4%. Again, the largest driver of increased profitability came from the increase in sales in ITM, while growth occurred across all of our businesses and geographies across the globe year over year. The consumer segments Q4 net sales were up 41%, or $11.5 million compared to last year. Much like the rest of the year, volume was up nicely in the segment while currency was a slight drag in the quarter. Our growth was balanced across all of our global businesses with the largest proportion coming in North America this quarter. This segment's gross profit for the fourth quarter was $4.6 million, a $1.4 million increase from last year. Gross margins were 11.7%, again, improved from Q4 2020 margins. reflecting some positive mix and pricing improvements in our products. Our selling general administrative and R&D expenses for the fourth quarter were $35.6 million, representing only 7.3% of net sales for the quarter. For the year, adjusted SG&A and R&D costs were 8% of net sales. This year's expenses included some variable spending and compensation. reflecting the significant increase in sales and profitability during the period. But we control our spending very well, and as a percent of sales, it dropped 220 basis points year over year after adjusting for one-time items last year. Our reported taxes on income in the fourth quarter bear some color. As a result of recent efforts to restructure our intercompany loan structure and realign our legal entities to reflect our operating model, Along with improved profitability in certain tax jurisdictions, we reversed previously recorded valuation allowances against net operating loss carried forwards in the amount of $16 million in the quarter. Therefore, on a net basis, recorded a tax benefit in the quarter of $8.8 million and tax expense of only $1.1 million for the full year. Our cash taxes in the year were approximately $16 million in the range that I had communicated last quarter. Let's move over to cash flow. Let's start with the fact that our net debt level remains stable at $387 million from last quarter. Our cash balances increased to $98 million, an increase of about $3 million from the end of Q3. We generated $13 million in operating cash flow in the quarter, almost break-even free cash flow as well. After a tremendous growth in sales this year, we naturally invested in working capital, notably inventory, to meet demand. Despite these increases, we're able to generate positive operating cash flow of $28 million in the back half of the year. Another important metric for our management team relates to liquid working capital, meaning our AR plus inventory less AP. At year end, our liquid working capital as a percent of annualized net sales based on the most recent quarter was 19%. This compares favorably versus the end of the third quarter when it was 21%, and our last year end figure was 24%. We are making measurable progress with discipline and focus across the business. Our debt leverage at the end of December was 2.9 times, trailing 12 months adjusted EBITDA down from 3.3 times last quarter. We are in a comfortable position with leverage in this range. With earnings growing in 2022, expect a gain on leverage ratio throughout the year. We have flexibilities around the business at these levels, including organic and inorganic growth initiatives. We are into March now, and it really feels like 2021 is far behind us, but it is important to look back and reflect on the progress that we made during the year and how that sets the table for this year and beyond. As Paul talked about earlier, our markets are strong and our position in it is as good as it's ever been. We expect another great year at Titan, and we are off to a great start in the first quarter. It bears repeating that we expect sales to exceed $2 billion, and an EBITDA target is $175 million. This implies that gross margins will continue to expand, and this comes with discipline that we have around our controllable costs, our pricing to match inflation, and raw material fluctuations that are inherent in our markets. We expect SG&A and R&D costs, not including royalties, to be controlled as well, and about 7.5% of net sales for the year. We also will remain very disciplined and focused on working capital management, and as I have reviewed earlier, and our targeted capital investments. For 2022, based on our operating plan approved by the board, we expect to spend approximately $45 to $50 million in capital investments, which is somewhat higher than last year, but relative to sales remains in the range of spending that we believe appropriate for the business. One of the most important takeaways from today's conversation is that we expect to generate meaningful free cash flow in the business this year. Our current expectations are that we should generate between $35 and $45 million in free cash flow in 2022 based on current expectations of profitability, working capital assumptions, and our capital investments. We should start to see positive momentum in free cash flow generation as we progress through the year, following our traditional seasonality with working capital requirements. Positive free cash flow is important, and this supports us the optionality to balance growth initiatives with potential debt pay downs and even the potential for cash to shareholders. Well, that's our story for now, and I'm happy to take a Q&A in in a minute, and I'll turn it back over to Victoria for any questions you have today.

Thank you. We will now begin the Q&A session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your headset before pressing the keys. To answer your question, please press star, then 2. And now our first question comes from Steve Farazani from Sedoti & Company, please go ahead. Your line is open.

Good morning, everyone. Paul and David, appreciate all the detail on the call. I want to get a sense on the much stronger sales in 4Q versus even 3Q. Typically, you've got some holidays there. I'm trying to think of how much you've caught up on the labor front in the production capacity as you go into what could be a stronger 22, how you're prepared to manage the stronger sales and how you did it in 4Q.

Well, we continue to execute on increasing our labor force, but I think most importantly along with that is our labor force continues to get stronger as that training continues to sink in and their output levels increase. And then the other element I would throw on top of that, Steve, is that we did get some new union contracts signed that have Incentive clause in North America. So look to continue to drive further improvements on output as we move into 2022. So I think it's a combination of just really executing on what we already have in place. We have a good team that knows how to continue to recruit and retain people. We work hard at it. And then you throw in the union contracts on top of it with the incentive clauses to help drive in further output for this year.

Thanks. When I think about, David, the guidance you gave for free cash flow, I'm looking at my model, and clearly there's going to be the building working capital won't be as steep, even though you're going to have sales growth. I'm just trying to think how you get there, what you're going to do on the working capital side, unless my other assumptions and margins are way off.

Well, as you look through how you model, we can certainly talk about that later, but We do have some impact from working capital. We have some working capital growth built in, but we don't believe that our inventory levels are going to require significantly more investment than where we have been. We've been really working really hard to determine that balance to manage inventory. We're in pretty good shape, and we'll see some growth in the first part of the year just because of the natural climate we'll have, but we'll be able to start to see the benefits of that and start generating some good operating cash flow as we progress through the year.

Great. Thanks. And then just, I've been getting a lot of questions. I'm sure you have as well. So, I mean, one, if you can just walk through the RDIF stock transaction, where your Russian venture stands now, and just your general perspective, thoughts on the Russian venture, given the current Russia-Ukraine conflict.

Yes, Steve. It's David. I'll take the first part. We did execute the stock repurchase earlier in the month with our AIF. It was all according to everything that we needed to do from a regulatory standpoint. Obviously, it was well before the conflict started, and we're in compliance with anything that relates to any regulatory matters. We were able to complete that in early February.

And then, Steve, when you look at our business there, as we've stated on prior calls, we have a really strong management team. They've always been good at handling challenges, including the one they face now. We've got a business that has a strong market share within the CIS region. We don't export a lot outside that region. I think that's an item of note that is important as well. We've talked about long-term exporting more But really our business has a high market share within that region. The one item that I really think is important is what we've seen throughout the last couple of years around the world is the products that we produce are critical to not just the customers that we serve, but really the societies and the overall food supply in the territories that we operate in. And certainly that is true there. You know, at this moment, we are in compliance with all current sanctions relating to the Ukrainian situation. There is no material impact to our Russian operations or really our other Titan facilities at this time. And, you know, we'll continue to move forward from there.

Great. Thanks for that. I'll turn it over and get back into you if you have additional questions. Thanks for everything, guys.

Thanks, Steve.

Perfect. Thank you, Steve, for your question. Our next question comes from Kamal Patel from . Please go ahead. Your line is open.

Hi. Thanks so much. And nice job this quarter and in 2021. Thinking about 2022 and the visibility that you have after the consecutive curves of strength that you've experienced, are you seeing any deceleration in your order books at this stage? I know the backlog is still pretty strong, but if you could comment on the visibility and the rate of orders that are still coming in.

The visibility is strong, the order book is strong, and we're going to continue to work hard to produce as much as we can.

that work so um maybe the second question is in light of some of the continuing challenges on raw materials supply chain labor etc um if you could touch on pricing um any need to take on additional pricing um you know any kind of capacity that you think that you have you know additional room versus peers uh to you know pull that lever further if needed thanks yes i you know obviously as we progress through 2021 there were required

adjustments that we needed to make to pricing relative to not just raw material costs, but the logistics costs, energy costs, labor, all the different inflationary components. I would tell you that we work really well with our customers on giving them that transparency around our pricing relative to those costs. We work really well in 2021, and we fully expect that we're going to be able to do the same thing in 2022.

And I think as far as our footprint is extremely strong in relation to meeting the needs of our customers and further de-risking their supply chains. And so as we continue to add volumes, clearly it's a benefit to our efficiencies. And we see that we need to continue to add capacity. We need to add labor, continue to add that capacity in the key core strategic areas. We're not trying to veer off into anything new or different or chase volumes that maybe in the past we haven't been focused on. So I think we just remain disciplined, as David said, with our costs in relation to our pricing. We'll continue to work hard to, as I said in my previous response, to increase our output, meet the needs of our customers. And, you know, we see good order books for 2022. But really, when you look at all the positive forces out there, especially in the ag sector, you know, we think this tidal wave has got a multi-year leg to it. And, you know, we see this continuing into 2023 and beyond as well.

Great. If I could squeeze one more in. Leverage has come down a lot, you know, the 2.9 versus your 3 to 4 times range. And again, it sounds like your comments are pretty positive on the outlook there. I know in the capital allocation comments, you had mentioned some potential share repurchase. If you could just elaborate on that, could that be potentially debt funded? If you could shed some light there, that'd be great.

We still need to have conversations and make decisions around that as the cash flow warrants. We haven't made any decisions yet. one way or another at this point in time. The point is that we have the optionality to work around the variety of components, obviously investing in the business, paying down debt where we feel it's warranted or opportunistic, and then the potential for shareholder returns.

Got it. That's fair. Thanks so much for the color.

Thank you so much for your question. And our next question comes from Clark Lutzke from Imperial Capital. Please go ahead.

Good morning, guys. Hey, good morning. Thanks for the call and the updated presentation. It's very helpful. Just a quick follow-up on the capital allocation topic. Three to four times still your target range? I would just say that we're in a very healthy range, and we have opportunities to do the right things for all of our constituents. We do feel, obviously, a lot more comfortable with three to four times, and we're going to be in the below three here for a bit of time as well, and we'll obviously look at the right things to try to drive returns in a better way with that you know, with that comfortable level. Right. Thank you. So there was a time when you were hoping to get to three to four. Now you're below it. It looks, if I'm doing the math right, without any distributions to shareholders, you'll be closer to two times at the end of 22. So does that three to four move down? Would you, would you prefer to run the business as a, say a double double B as opposed to a single B type credit? Well, obviously I love better credit and as a CFO, I always love, I want to be in a comfortable range. And, but I, I, again, I want to think, make sure that we and our board are totally aligned as to the, what we're doing to try to drive returns for the longterm. And so that may need some investments in the business to, to try to try to drive that. And, uh, But again, I feel like if we stay in this three times range, we have the options to do that. Right. Do you think of leverage as a over the cycle? Or, I mean, how do you think about your leverage? You know, it is still a cyclical, even though you're in an upswing and you think it's a multi-year run. I mean, you're still, it is a business where earnings have been have been volatile historically. I'm just curious how you think about leverage. I want to be able to maintain the levels of leverage that we have done through a cycle. We haven't had a long cycle of any sort over the last number of years. It's been more challenging. So I do view it over the cycle versus just a moment in time. Got it. Thank you. I think there's a lot of concern about maybe a recession in Europe. And slide four is very helpful. It shows where your facilities are located. And none of them, other than the Russian tire plant, are in a war zone. But do you have a sense for, and you might not have this visibility, but do you know your facilities are, Obviously, you know where your facilities are, but where is your equipment? Where is it actually used? Do you have any visibility into that?

We know where our products are shipped to. I think you'd have to look at the follow-through from our main customers to see exactly where it's used. We're going to follow those trends as to where the equipment actually gets used with our main customers. To answer your question specifically, no, we ship directly to their points of manufacturing and assembly.

Got it. Any comments on what you see or what you expect to see in the Ukraine this planting season? Is it just too early to say what's happening there?

yeah it really is i mean it's too early to say i think what what we're looking at is obviously the commodity prices you look at the current inventories in the u.s are light you look at the south american situation where you know their yields are going to put some pressure on on other areas so i think in a broader scope we're looking at farmer incomes we're looking at commodity prices and all that is very strong how that all gets sorted out with production

um and where the production ends up getting exported to it's still too early to tell on that got it then lastly uh thank you and then lastly uh does the does the uh the agreement with kubota uh does that improve utilization rates or how does that affect your financials and then i'll i'll end it off i appreciate it thank you absolutely it's a win-win for both sides i think some we're very excited about uh

Kubota has a product that will be, we have a new product. Let me say it differently. We have a new product that we're going to be partnering with Kubota. It'll be private labeled with Kubota. So it'd be good for not just their end users, but also their dealers. It's a good win-win for us as far as our plants, improving our efficiencies for them, improving their capability to connect with their customers. again, all around a really good deal, something we're excited about. And, you know, it's a great way for us to position a new product into the marketplace with a leading customer in that space as well.

Great. Thank you very much.

Perfect. Thank you, Chuck, for your question. Our next question comes from T-Force Hitman from World Talent Inc. Please go ahead.

Hey, thank you for taking questions from shareholders. Uh, can you talk about, this is a 10,000 foot view question, uh, 10 years ago, we had over 2 billion in sales and the EBITDA profile, those sales were different and obviously 10 years has passed, but can you just help people understand what the difference is now, uh, versus 10 years ago? and how it aligns with your thinking around the $175 million of EBITDA.

Absolutely. When you look at our company today, our breadbasket is agriculture. As we stated, 53% of our sales is coming from that. Back 10 years ago, you would have seen more coming from the EMC segment as far as our profitability goes. So when you look at our EMC segment today, it's primarily driven by ITM, our undercarriage business. So ITM and undercarriage is a strong global leader, tremendous OEM brand and product, good aftermarket presence that continues to grow, a strong foundry there in Spain. And so it's a good diversified business that you see now making up the bulk of our EMC sales and earnings. And when you look at our ags, ag sales and earnings you see good strong businesses that have very very solid market leading products and market share so it's primarily going to be based upon wheels and tires so there is a definitely a different mix what you see today versus what you see 10 years ago where i see things today is is our earnings are coming from good strong core businesses and so These are not areas that we are stretching out into a limb. We're trying to reach into cracks in the marketplace. We're growing our business around our core businesses, and that's where I see things today and certainly where we see things going forward in the near future as we've outlined with our guidance for 2022.

Okay, that's helpful. On a separate topic, I think with a lot of industrial companies that have reported, we've been hearing lots of things about supply chains, raw material availability, labor issues they're still dealing with. I don't think we spoke at length about those, but maybe can you help us understand what makes Titan have an ability to execute well in 2022? You spoke about unions in the past, labor availability there. Can you talk about how you're situated from a labor perspective? And by no means do I want to simplify your business, but You know, making a tire, making a wheel, making metal parts. You know, it seems like there's a lot of steel, there's a lot of rubber, a lot of steel cord is readily available. So can you just update us in terms of your view of the logistics, supply chain, and labor as it relates to 2022 and how it's going to allow you to execute well going forward?

I mean, it starts with the team that we have. We have a really strong, one-tight global team. We've been talking about that for a number of years. You know, even during the downtimes, what we kept references, we're building a good, strong foundation with the team that we have. And as I noted on not just today's call but in prior calls, I could not be more pleased with how our team has operated. across a very dynamic business environment as you illustrated there's a there's a lot of moving pieces out there in today's world and and here at titan our secret sauce just starts with our people and our team we've done a very good job over the last couple years with the challenges that are put in front of us we continue to see these challenges on a weekly basis just like every other company but as a team we're very good at dealing with those issues we're managing our customers well We're here to serve our customers with our strong production footprint, the strong quality innovative products that we have, and it's all wrapped around the umbrella of a really good global OneTitan team. Really, what I would point to is you see evidence in our 2021 results, how we've been able to perform through these challenging times, and we continue to believe that the OneTitan team will continue to execute as we have.

Okay, that's helpful. And as it relates to the guidance, and I understand that things are probably changing in real time. Historically, you've disclosed the revenue contribution from the Russian operations, but as it relates to $125 million EBITDA guidance, are you willing to disclose your expectations through the EBITDA mix within that 175 if that relates to the Russian operation?

We only report based upon the segments, as you see in our results. Now, in our 10-K, it is disclosed that the Russian business comprises roughly 5% of our overall total sales. But as a general practice, completely unrelated to what's currently going on with that situation, we just do not disclose by business units any information beyond what you would see in a 10-K related to sales. Really, how we look at our business is based upon farm, earth moving construction, and consumer. So, you know, at this time, we can really just refer you to the 10K where you see 5% of our sales come from Russia. But certainly, that's all factored. One comment I'll make is, yeah, certainly it's all factored into our 2022 guidance. You know, we're taking all that into account.

Okay. Thank you for taking my question.

Perfect. Thank you for your question. Again, if you have a question, please press star, red one on your telephone keypad. That is star followed by one. And our next question comes from Alex Blanton from Clear Harbor Investment Management. Please go ahead.

Hi, good morning. Congratulations on the quarter. I just want to clarify the tax benefits What would your taxes have been without the benefit?

For the quarter, it would have been roughly about $4 million to $5 million, I believe.

Did you say $4.5 million?

No, I just got clarification from my chief accounting officer. He told me it would have been $8 million for the quarter.

$8 million? $8 million even?

$8 million, roughly.

And what's your tax rate expected to be this year?

Well, here's what I would say. Because there can always be variation with respect to book taxes because of the valuation allowances and those kinds of things. I do expect cash taxes, which is the most important piece of this, to be around $16 million. Okay.

Well, I'm interested in what taxes are going to be in the income statement. I'm interested in what the tax rate will be in the income statement.

I don't have that off the top of my head, Alex. I can get it for you later. But, you know, like I said, about $16 million is the expectation.

Well, not what you're paying. What's going to be in the income statement is what I'm interested in.

That's roughly it, before any special allowances that we might be able to take or any benefits that we can take as well. So that is the expectation I'll give you for now, Alex, 16.

Okay. That's not a rate. That's not a tax rate.

I understand. You can do the calculation in your modeling, though, can't you?

Okay. Well, I have to know what the pre-tax is going to be to get the rate.

That's not part of our guidance, so... Okay, well, then, let's go on.

The tax benefit, then, is included in the address of earnings?

Yes.

Yeah, so if I... If I apply a 25% tax rate to the income, earnings come out about 18 cents, correct?

I believe that's the math, yeah.

Yeah, so why didn't you adjust the earnings for the tax benefit? We could have. No, but why didn't you?

No. Yeah, I mean, we've had variation in adjustments related to valuation allowances and FIN48 adjustments for a long time. So it's just not part of it.

But those variations throw your earnings out of kilter. The purpose of adjusted earnings is to smooth out these things and present a more realistic number. So I'm just wondering why you didn't do that.

And standard practice has not been too adjusted, so I'll just leave it at that. It is clear in the numbers that we outlined in our remarks and the press release.

Okay, let's go on. The incremental 23% for the year in the operating earnings that you talked about at the beginning, do you think that's sustainable?

going forward or do you expect it might increase you know inherently in our guidance for 2022 that is the case you know it could vary around that number but we have good expectations for continued efficiencies across the business as a result of all the things we put in place last year and yes that's that's implied in our guidance that margins will continue to expand

Yeah, that's an operating incremental. That's pretty good. So you think you can sustain that going forward at least for a while? Yes. I mean, clearly when you get close to peak capacity, that tends to go down, but what would you say your capacity is?

Well, Alex, I think that's the point we're trying to illustrate with some of our comments, and certainly I... know our customers appreciate this, but we do have the production footprint and the capacity to continue to grow, get more efficient. Inherent in what we talked about in 2022 is that we will continue to improve as a company with our efficiencies. As I mentioned earlier as well, we put out a press release on it. We very much look forward to our North American union contracts with some new incentive clauses that we put in there that will only help improve the output that we can get from our plants on, again, a more effective, efficient basis as well.

Yeah. On the commodity front, commodity prices are benefiting from the fact that Russia and Ukraine are major producers of grain, wheat, and even corn, soybean oil. And those are obviously going to be in shorter supply than they would have been. Are you taking that into account in your guidance that the commodity prices are going to be higher as a result of what's going on in Russia, at least for now?

Well, I think what's implied in our guidance is not just based upon one particular characteristic, and that's what we see in the marketplace with our comments referencing it being a multi-year cycle. There are a number of positive attributes that exist that will continue to propel this market forward. So there's not one pillar that could fall that crumbles the entire agricultural space at this point. So I think you really got to look at it in its totality instead of trying to predict where commodity prices are going and is that going to have a direct, immediate impact on demand, you've got to look at the big picture and just see all those positive forces that are out there. Alex, whether you talk about just commodity prices, inventory levels, retail demand, this has got some legs on it because of a number of forces. So I think regardless of where commodity prices go, instead of trying to predict a precise level, I think my comments would just – my belief, I should say not my comments, my belief is commodity prices are going to remain at very good levels that will continue to provide a supportive environment for agriculture, not to mention the balance sheets of farmers are already strong. So, again, I think you've got to look at the big picture on that, Alex, and the answer becomes pretty evident.

Yeah. Now, unless you said that you're not going to really comment on the – What might happen there?

What I look at, and we've said this before, we just have a really good leadership team over there. We've worked together now for a number of years. Our business has high market share. And as we've seen throughout the pandemic, our products are critical to the infrastructure and the agricultural needs of not just that society there, but the whole TIS region. We are in compliance, and it's an evolving situation. We'll continue to monitor it, but really don't see anything more beyond that, Alex.

Yeah, just one more thing on that. Does that business, is it mainly domestic? In other words, it wouldn't be affected by export controls?

That's correct. We're primarily operating in the CIS region. That is correct.

Yeah, so it wouldn't be affected if... If there are sanctions against exports, that wouldn't affect you.

No, we primarily operate within the strong agriculture region there in the CIS. So we have talked on previous calls, just to be clear, about the ability for that operation to export more in the future. But at this current time, the demand has been very strong in the CIS region in recent times. And so that's primarily where our production and our footprint is.

Yeah. Okay. All right. Thank you very much.

Perfect.

Thank you, Alex, for your question. And our final question comes from Jack Voigt from Balasky AdWords Management. Please go ahead.

Hey, guys. Thanks for taking the question. So you dive into this a little bit, but 5% of sales came from Russia in 2021. Is that all rubber sales? And then my second question is, you disclose 22% of sales come from Europe. Does that include any Russia or Ukraine exposure?

Go back to your first question, Jack.

You said that Russia is about 5% of our sales. Again, that is rubber. that is those are tires. And then if you look at Europe, there's very little, if any, Ukrainian sales that were in 2021. It's just not a big part of what we do. Our sales are really within the Western Europe and then within the CIS region for tires.

Got it. So you mentioned you don't export a lot out of Russia. I would assume that means finished product. Are you guys exporting rubber out of Russia to other continents to make finished product? And if so, what percentage of your rubber production is Russia?

Yeah, we do not export rubber for other parts of the world. Simply put.

Got it. And then you talked a little bit about capital allocation. Your 2022 guidance is implying a pretty significant amount of leverage for cash flow. Talked about returning that to shareholders over time. So how do you think about potentially implementing a dividend versus buying back stock?

Yeah, all the options are on the table. We have not made any decisions at this point in time, but again, we have that optionality and we'll make, in concert with our board, we'll make the right decision at the appropriate time.

Yeah, that's helpful. Thanks for the time. Congrats. Thank you.

Perfect. Thank you, Jack, for your question. This concludes our question and answer session. I would like to turn the conference back over to Mr. Reitz for any closing remarks.

Well, I just wanted to thank everybody for their participation in our Q4 earnings call, and we look forward to touching base with you soon.

Thank you.

Thank you for attending today's presentation the conference call has now concluded.