Good morning ladies and gentlemen and welcome to the Titan International Inc. Third Quarter 2021 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode. And we'll open the floor for your questions and comments after the presentation. [Operator Instructions] It is now my pleasure to turn the floor over to Todd Shoot, Senior Vice President Investor Relations and Treasurer for Titan. Mr. Shoot, the floor is yours.

Thank you, Nadia. Good morning and welcome everyone to our third quarter 2021 earnings call. On the call today, we also have Titan's President and CEO, Paul Reitz; and Titan's Senior Vice President and CFO, David Martin I will begin with a reminder that the results we are about to review were presented in the earnings release issued yesterday along with our Form 10-Q which has also been filed with the Securities and Exchange Commission this morning. As a reminder, during the 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 8-K filed earlier today, as well as our latest Form 10-K and Forms 10-Q all of which have been filed with the SEC. In addition today's remarks may refer to non-GAAP financial measures which are intended to supplement but not be a substitute for the most directly comparable GAAP measures. The earnings release which accompanies today's call contains financial and other quantitative information to be discussed today as well as a reconciliation of the non-GAAP measures to the most comparable GAAP measures. The Q3 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 and the call after the call within the Investor Relations section of our website. A copy of today's call transcript will also be made available on our site. In addition our latest quarterly investor presentation will be available on our website after today's call. I would now like to turn the call over to Paul.

Thanks Todd and Good morning everyone. Titan definitely had a good quarter as our results exceeded expectations as we posted our strongest third quarter for revenue and profitability since 2013. We had adjusted EBITDA of $35.1 million this quarter on sales that were up 48% to $450 million. This quarter's adjusted EBITDA has been exceeded only twice in any quarter since 2014 and one of those occurred just last period when we posted $37 million of adjusted EBITDA. We are now expecting to see our full year adjusted EBITDA coming in above $130 million which is our highest annual total since 2013. Our global team has been working very hard to produce these results and increase production levels to meet growing customer demand as we continue to drive forward to grow our production capabilities further in coming quarters. It really is impressive to see our One Titan team continue to perform well building on that strong foundation we've built in recent years and I want to thank all of our Titan's employees around the world for doing a great job and their dedication to our company. So, looking at our segments Titan again this quarter experienced strong sales growth in each of our segments with agriculture leading the way with a 60% increase compared to last year. Our order books continue to strengthen especially on the ag side where commodity prices remained at good levels with corn above $5, soybean above $12, and cotton at record highs, thus ensuring another year of farmer incomes strong farmer incomes for 2022. Yes, I realize that commodity prices have dipped from their peak levels earlier this year and farmer sentiment has dipped as well. But let's not get caught in the trees and miss the abundant forest around us. Times are good. Farmer…

Thanks, Paul and Good morning, everyone. I appreciate everyone joining us today. Well the third quarter was just another significant step in the right direction for the company and we were able to deliver a very strong result and build on the momentum that we've started more than a year ago. Our global management team has managed this concurrent environment very well, and we believe we have solid plans in place to continue to do that moving forward. Well let's start with some highlights for the quarter, and then I'll get into more details. Sales grew at a very nice clip at 48% this quarter. Again a very strong results for our Q3. Our growth was led by the Ag segment with a 60% increase from Q3 last year. And at the same time, the EMC segment was also very strong at a growth of 37% and our growth in the consumer segment was nothing to sneeze at with an increase of 32%. Our gross profit increased by 93% in the quarter and our margin improved to 13.4% compared to only 10.3% last year. Adjusted EBITDA for the quarter was $35 million representing the strongest third quarter performance since 2013 that bears repeating. On a trailing 12-month basis, our adjusted EBITDA stands at $116 million as of this quarter and we expect Q4 performance to be strong improving that run rate to over $130 million for fiscal 2021. Our cash position remained stable again this quarter at $95 million, despite some growth in working capital. We continue to do a very good job managing our inventory levels as well. With our improvement in profitability and our strong management of the balance sheet our debt -- our net debt leverage as of the end of Q3 stands at 3.3 times, our…

Of course. We will now begin the question-and-answer session. [Operator Instructions] Our first question today comes from Larry De Maria of William Blair. Larry, please go ahead. Your line is open.

Okay. Thank you. Nice job today. Question on the outlook, first of all, the over $130 million adjusted EBITDA, just curious how we have sensitized that to the – obviously, the strike situation and the possibility of plus down or indifferent to that based on what's going on obviously, for a large customer?

Yeah. No, I mean, look, Deere, like you said, Larry, is a large customer. They're a great customer for us. They're very important. They're a great company as well. For us, the comments we made this morning, it implies the – that there are actions that could continue with for Deere in their strike situation. And with that, we understand that our numbers are still going to be quite solid for the fourth quarter, and we can adjust our production as needed based upon what may or may not happen with the situation with Deere. So definitely in the comments we made this morning, it implies with full knowledge of the situation with Deere that it could go in a number of different directions.

And then staying there, kind of curious about how easily you can shift capacity and you can move your tires from going OE to the aftermarket or to another OE and probably a little bit easier on tires. And then also wheels, which are more of an OE product, how important are the wheels to the overall numbers being held together this year or even into next year, if the strike continues, can we just shift more capacity to tires, different OEMs, or how can you manage that given those two important components of your business?

Right, right. No, look, we've spent a lot of time talking about it. We dedicated a lot of time just yesterday to kind of looking at the different scenarios. And in reality, from a financial perspective, the products can be adjusted easily. But from a production perspective, there are – there's some decisions we've got to make. There are some things we have to do. You have to change some tooling. You have to be prepared to – at the front of the line, run different – the rims maybe the same, but the discs need to be stamped differently. So you have some – again, some adjustments you have to make with your equipment to modify that. So in a big picture, it all can be handled quite easily. But you got to be prepared for it. And you have to have some planning and you have to be aligned with your operational team to make those adjustments. So we are discussing it, and we are prepared to do – take care of our leading customer, but also do what's best for Titan, and we'll see how that plays out.

Perfect. Thanks, Paul. Last question, you guys talked about your own inventory. Did you mention – maybe I missed it, channel inventory of tires in the aftermarket, which obviously can maybe absorb some excess tire production if that end is happening?

Yeah. We haven't made any specific comments about that, but it's a good question, Larry. The last couple of months, I've gone around with our VP of Sales, and we visited quite a few of our large aftermarket dealers. And what I've seen – again, I don't have any quantification to this, I'm just telling you what I saw with my eyes is that dealer inventory levels are low. And clearly, we're hearing that from them as well. We're seeing that reflected in our order books. And so we see this pent-up demand that exists not just for Q4, but carries us into next year. So you got the harvest cycle. Then next thing you know you're going to be back into planting. So there's some inventory levels that need to be replenished, not to mention that you got to continue to produce product just to meet existing demand – existing retail demand. So definitely, what I've seen over the last couple of months is that inventory levels are not just low at the OEMs, but they're low in the replacement side as well.

Okay. Thanks. Good luck.

Thanks, Larry.

Thank you. Our next question today comes from Steve Ferazani of Sidoti. Steve, please go ahead. Your line is open.

Good morning, everyone. Just wanted to get your thoughts on, obviously, supply chain issues are becoming a much bigger part of this quarter's cost throughout companies that weren't having problems now are. A couple of questions about whether you've still managed. And then in terms of your customers that may be running into more of the supply chain challenges, even if you're okay, are you expecting any kind of slowdown from them as they run into production problems?

Yes. Good question Larry. We face it all around us, but our teams have done a very effective job at managing any of those challenges on a daily basis. It's part of our DNA. We're always very flexible with how we manage and plan ahead and make sure that we have taken care of it. There's a lot of work that goes on every single day across the many operations we have globally, a lot of strong coordination with our teams. And we've done a very good job managing through that. We do it -- like I said every single day, there's things that come at you, and we overcome it, and we've been able to manage it very well to-date. Now with respect to what our -- some of our customers are dealing with there obviously, there's -- there have been a lot of things that have been going on across the globe. But again, we are able to calibrate our production to make sure that we're staying in step with our -- the expectations from customers. And the diversity of our customer base helps us do that. While some are moving in one direction, some maybe be moving another direction and we can pivot where we need to. And we've done – again, everybody has done a very nice job with that to date. And we have good plans in place for the fourth quarter and beyond, so.

Have you seen any slowdown as the year has gone on in terms of order books? I know you have a significant backlog. But in terms of order books given your customers' supply chain issues, or do you have a wide enough customer base that you just aren't seeing it?

We certainly see pivots one way and I can't -- there's definitely customers that take weeks or days out of production and we deal with that. But again, we have a good diversity of our customer base to manage that. So we've been able to manage it very well.

In terms of earlier in the year, you -- and every company was having issues with workforce hiring and retention where would you say you are on that?

Well, globally year-to-date, we've increased our labor force by almost 12%. And so I think we've done an effective job with that. It's the -- it's dynamic out there very much. They're very dynamic out there. But again, we -- it's like everything else. You have to manage and calibrate according to where the customer demand was and we've done -- we've had to reinvigorate a lot of things. We're continuing to invigorate in our onboarding our training and in making sure that we have good retention plans in place for our employees, and it's a very dynamic market. There's all the things around us. But again, we've been able to do that very effectively today.

Would you say you were you need to be given demand? And also I know in past quarters you've indicated as you've got through the new workers sort of trained and on boarded you expect greater efficiency next year through those efforts would you say that still holds?

I definitely believe that to be true is that we've done a lot of work this year to get the staffing levels at the right spots, and they will always improve as time goes on. So we can always be better. But we've -- I feel like we've been very -- again, I use the word effective to-date, but it's a relative term and we can always see improvement.

In terms of material costs, are you seeing are you getting any kind of confidence that we're seeing some stabilization, which could theoretically with your -- the price increases through the year provide a benefit in future quarters?

Stabilization of pricing. Our raw material costs…

The costs, yes.

Yes. I mean, we are seeing some places where it started to stabilize if not plateau, in some cases it's coming down. And again, we have to do a very, very strong job of seeing that where it's at today and where it's going to be in the future and manage pricing accordingly. But again, as you can see through our results, we've been able to manage our margins very well. And that full expectation is that that will be the case as we move forward as well.

And last one for me. You certainly have addressed it through the call. I just want to get some clarification in terms of your view on where the -- on us entering a multi-year replacement cycle in terms of both your segments. Is that your position right now and you've seen no reason to change it despite the pullback in crop prices?

Right. No, that is definitely our view. We see demand strong throughout 2022. And that's based upon a number of indicators. And like I said in my comments, you got to look beyond just the dip in the commodity prices and farmer sentiment. It's where we see demand being driven is a lot deeper than that. I've spent a lot of time with our customers at the OEM level and the replacement side of the business as well. And the message, I keep hearing is consistent. There's strong orders that have a lot of pent-up demand sitting there for the short term. And then when you look at the long-term, farmer incomes and construction-related incomes are very good. There's a lot of projects in the pipeline for the construction side. The farmer income levels as we've mentioned many times are still very robust. And then you combine all that together and look at the dealer channels are light on inventory. So you have an inventory replenishment cycle. You have retail driven demand and kind of what you and David were just talking about. You also have production levels that are somewhat constrained either by labor or supply chains or whatever forces may be there. I think that the way I see it, and I think the way we see it at Titan and many others as well is that puts demand very strong. 2022 looks really good.

Thanks so much, Paul.

Thanks, Steve.

Thank you. Our next question today comes from Kirk Ludtke of Imperial Capital. Kirk, please go ahead. Your line is open.

Good morning, guys.

Good morning.

Well, congratulations on the quarter, really accomplished a lot. Got -- I'd like to maybe follow-up on three topics. One is 2022. Another is capital allocation. And then the third would be steel prices. With respect to 2022, you mentioned that the orders are strong and it looks like you're off -- your -- 2022 at least the early part of 2022 looks to be strong. Can you give us a sense for how much visibility you have? Are you sold out through a certain date? Are you taking orders for a certain month in 2022? Can you just give us a little bit more color on that?

Yeah. And that varies. I mean, our products have different lead times and they go to different channels. And so the question can't be answered from a simple quantification level. But I will say the order books compared to our production levels are very strong. So we can look into the future next year and have a pretty good idea of exactly what we need to produce. And then on top of that, we know that consistently you're going to get additional levels or additional orders that need to match with the production levels at our customers. So there's a number of different factors you look at Kirk for one you got to look at what your order books are where they're compared to historical levels which we said in our comments are at extremely high levels compared to historical. But also, we want to make sure our order books are in line with what our customers' production capabilities are. And so when you look at those different factors, you can look well into next year and go okay, we feel very confident that the demand is going to be strong for 2022. And I'm not even really starting to address the inventory replenishment that needs to take place. If you look at one of our primary customers, I was -- I was at their national dealer meeting recently. I mean their inventory levels at the beginning of the year were historical lows and they've dropped further. And again, this is their dealers. And so, I see demand just being robust at the retail level based upon our order books. And then again you throw in the inventory replenishment that needs to take place and I think that pretty well takes you through 2022.

Fantastic. I know you're not providing specific guidance earnings guidance yet, but can you give us a sense for cash requirements next year maybe CapEx? Any other – obviously, I'm thinking about what free cash flow might be next year. Any unusual cash requirements?

I would say there aren't any unusual cash requirements. From a debt perspective, there's very little that's required in terms of current maturities, it's normal stuff related to credit lines outside of the US and we will pay down, as cash flow dictates. But to the broader question about capital expenditures and investments in the business is that we've been maintaining with a decent range as a percentage of sales and we will continue to do that. I would expect to see we're predicting $35 million in capital expenditures this year. It will be increased a bit next year. But again, as a percentage of the sales, it will remain in a very healthy band for us to be able to manage our cash flow. Obviously, with robust profitability means that we will have positive free cash flow. That's my expectation for next year. So as far as giving strict predictions on what that number is, I'm not prepared to do so yet because we're still going through all of our planning for next year. But we're going to continue to invest in the business in a healthy way. And I think from a broader capital allocation perspective, we're going to continue to invest in the business to try to drive innovation on the products that we are producing, and making sure that we have the efficient plants that are producing products that we need for the future. So we're going to continue to invest in a very similar pattern to what we have been doing this year particularly.

Do you have a -- we used to talk about four times I think as a net leverage target. Have you updated that number?

No haven't updated it. Obviously, we're at 3.3 times. I said it earlier. I expect us to be in that kind of territory for the reasonable future. There's no reason to be any different. Our EBITDA is at a very robust level and will continue to be so. And debt is stable.

That's great. Thank you. And then lastly on steel prices, hot-rolled has come off just a little bit but it's still a multiple of historical average pricing. And you managed the spike in the steel prices very well? How would a collapse in steel prices impact your results?

Well, I'll say a couple of things is that we obviously have to manage the cost of those materials and know-how that's going to flow through our production. The good news is we don't maintain as a high level of inventory than where we used to be. And so, the cycle time is faster. With respect to how steel flows through our production. So, we kind of model that and we know that and we manage our pricing with our customers as well because there's mechanisms within that process. And we were very clear to our customers that there are lead times and lag times, if you will with respect to when that material flows. So again, you can see through our results again this year that it's been managed in a pretty healthy way with our margin improvements. And I fully expect, if there's a significant drop in steel, we'll be able to manage it on the way down like we managed it going up.

Awesome. Thank you. And then just one follow-up on the capital structure. Now that liquidity is so much stronger than it has been leverage is down, how much cash do you need to run the business? I know there's always been a lot of cash overseas but to – as a – to supplement your working capital requirements. But does that – what kind of cash requirements would you say you need to have to run?

Well I can go back to where it was two years ago and we managed at lower levels than what we have today. And so we can manage it in a little bit lower. But I feel like where we're at right now, we're able to manage that pretty effectively. And this is kind of where we like to be. And obviously, it's going to go up. And when we have the opportunity to see continued cash – nice overall cash flow, it enables us to make more strategic decisions about the future in terms of things are ways to be able to invest in the business for long-term growth.

Great. Thank you for taking my question. Great job.

Thanks, Kirk.

Thank you. Our next question comes from DeForest Hinman of Walthausen & Co. DeForest, please go ahead. Your line is open.

Thanks for taking my questions. Kind of a newer shareholder they would have watched the stock for quite a number of years back when Morry was CEO. I agree the stock is extremely undervalued. I think as a shareholder, one of the ways you can help people think about why the stock is undervalued. And it's some of the things that you guys have been doing to improve things. It might be a good time to talk about what you're seeing on the productivity side with the employees that you've hired. It's important to understand your hired employees. You've discussed that. But as a shareholder, when you think about the backlog and the order book that you've laid out, any color that you can provide in terms of line rate productivity, revenue per employee, that would be very helpful for shareholders to kind of understand the opportunity in front of you and why the stocks are undervalued. And any comments you can give in terms of what you use entirely as it relates to incremental margins on sales would be very helpful. I think you're seeing it over the last two quarters. But if you could definitively talk about some of those metrics and how higher revenue outlook flows through to the bottom line for shareholders. I think it's be very beneficial to people's understanding and what the upside opportunity is. I will pause there and I have other questions as well.

Yes. Your comments are certainly valid and important. I think our results though this year do support some of the comments you made and maybe they're not spelled out exactly with the metrics and the indicators that you highlighted. But as David mentioned, our headcount is up over 12%, since last year at this time. That's our global headcount. And we're doing that in a very dynamic challenging environment. And so that's clearly pointing to a high degree of success that Titan has as a company to recruit and retain people. On top of that, our volumes have grown quite significantly this year. And so we're doing that with a team of people around the world that are working extremely hard and effectively. And so our comments about the – actually our Audit Committee shares about our stock trading at 6.5 times. You got to look at where you're at today by looking also at where you've been. And you look at this Titan team that in this dynamic environment the accomplishments we had this year you go back a couple of years ago this was a stock that was trading very low. Our bonds were trading well under par. We put together a strategy to emphasize some things as a company that weren't necessarily that exciting but they were stuff that we knew we had to get done which was protecting our balance sheet. And this is going back pre pandemic and you see what we've done this year to protect our balance sheet as both David and I have mentioned, that's huge. All our bondholders got paid back at 100% and then some. We've driven our stock up from that point. And then the pandemic hits us. And throughout the pandemic, all our plants were declared critical infrastructure…

Yeah, I would encourage you to think about that. And then just on the comments as relates to order book and there is a very dynamic environment as it relates to raw materials which you've touched on to some extent. But I believe there are some past comments that were made when there was a very dynamic move higher in some of the input costs that we actually went to the order book and repriced some of the order book to ensure that we had good margins. Can you help the investors understand how the order book is structured? Is it tied to committed volumes with committed price, or is it more along the lines of the customers are looking for volume, but pricing is contingent upon where those raw materials are at any point in time when production starts, or can you just help us understand some of those dynamics as it relates to pricing inside the backlog.

Well I would tell you that it's fairly calibrated with where our expected production costs and material costs are. We have -- you have firm order decks within a given period of time. It does vary across the business. And then there's forecasts that are out and they can be repriced particularly with where the aftermarket is. And in some cases you price protect certain things. But in most of the case it is -- it does move with where -- how our production costs are going to flow. And we plan for that and we communicated with our customers regularly about where that's at. And in the environment that we've seen in the last year with the spike in raw materials that's been very dynamic and our customers understand. And we've been working with it. It's going to work the same way as it went when it went up as it goes down or at least plateaus at least for now. So again you can't just make a generic statement as to that. It's a lot of -- on the OE side it's customer by customer. And we do -- I think our teams do a great job making sure that our customers are aligned with where our costs are. And so we can make sure that we're both -- they're getting products and we're making the right margin that we need to.

Okay. Understood. And then on low sidewall tires I think we've spent years trying to educate the ag community in terms of the benefits of those tires compression of the soil. And then there was some period of time we talked about fuel savings over time. We're seeing a pretty high spike in the price of diesel fuel. Does it make the sales pitch for low side wall tires even better than it's been over the last few years? And then just from a very high level if we're selling more low side wall tires from a mix perspective is that beneficial to gross margin performance? And then I have one question after that.

Yes. I mean the low sidewall product has really developed a strong reputation through the years. But to your comment and question I mean the rapid rise in energy prices certainly helps the cause for low sidewall. But to be honest with you we feel very strong about the way that product is already positioned in the market. It's proven itself consistently time after time. And again, I think, that energy situation will only help that sales pitch. But we don't necessarily need that to have a good sales pitch is basically what I'm saying. So we are very impressed with the performance of low sidewall as far as the low sidewall product as far as what it means to our financial results it is a premium product. It's priced in a way that's beneficial to the company, but it's also a win-win for the end users. It makes their equipment perform better. So really ultimately it's to the satisfaction of end-user that's going to drive the financial performance of LSW and so far for the end users and for Titan. It's been a tremendous product and a tremendous platform for our company. And certainly we see that continuing to build into the future.

Okay, thank you. And then just can you clearly lay out what the capital allocation priorities are? And the reason I'm asking that is you have done a very good job improving profitability and the debt metrics have definitely moved in the right direction. You have made a bond transaction to term out your debt there doesn't really seem to be a big urgency to lower debt, but I don't want to put words in your mouth but you're coming into a situation where high level problem, lots of free cash flow, you kind of laid out a CapEx story for next year. You start to dot the I's and cross the T's. There's a lot of free cash flow. So as a shareholder can you explain to me what your -- what you plan to use it for going forward?

Yes. It's obviously a deep question. We have had a lot of discussion at the Board level strategically about where we can go in the future. And there definitely could be some opportunities on how we can grow for the long-term and invest. And those discussions are ongoing. Again we very quickly come from a tough situation to a very good situation. And so it's all still very fresh. We, obviously, can't just sit still and think about, okay, we've done a good job. What do we do now? But -- so it has been ongoing. Again it's going to be about investing for growth in the future. And that could come in the form of a number of different things, which could include acquisitions as well. We can't deny that and we want to be very focused on what could be something that's very, very central to the core business that we have. And I think that's where we're going to focus. As far as debt goes, yes, we'll be able to take advantage of some of this free cash flow to pay down some of the call it the lines or the term debt that we have outside of the United States. We still have about $30 million outstanding on the ABL and we'll do that as well. I do feel like, we want to -- I mean at the same time this debt is also very cheap. I'll just say that. And so we will play that out and determine what's best for us and where to use that cash most beneficially in the business. But again it's all about investing into the core business that we have.

Okay. Thank you for taking all my questions.

Yeah.

Thank you. This concludes our question-and-answer Session. I would like to turn the conference call back over to Mr. Paul Reitz for any closing remarks.

Yeah. Thank you everybody for your time and your attention today. Certainly we're proud of our accomplishments, our performance this quarter and really throughout 2021 for that matter. I look forward to touching base with you all soon. Take care. Have a good day. Thank you.

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