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.