Good morning, ladies and gentlemen, and welcome to the Titan International Inc. First Quarter 2024 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Investor Relations for Titan. Mr. Snyder, the floor is yours.

Thank you, Megan. Good morning. I'd like to welcome everyone to Titan's First Quarter 2024 Earnings Call. On the call with me today are Paul Reitz, Titan's President and CEO; and David Martin, Titan's Senior Vice President and CFO. I will begin with a reminder that the results we are about to review were presented in the earnings release issued yesterday, along with our Form 10-Q, which was also filed with the Securities and Exchange Commission yesterday. As a reminder, during this call, we will be discussing certain forward-looking information, including the company's plans and projections for the future that involve risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. Additional information concerning factors that either individually or in the aggregate, could cause actual results to differ materially from these forward-looking statements can be found within the safe harbor statement included in the earnings release attached to the company's Form 8-K filed earlier 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 Q1 earnings release is available on the company's website. A replay of this presentation, a copy of today's transcript and the company's latest quarterly investor presentation will all be available soon after the call on Titan's website. I would now like to turn the call over to Paul.

Thanks, Alan. Good morning, everyone. As noted in our last earnings call, we saw our One Titan team step up to get our transformative acquisition of Carlstar over the goal line right at the end of February. Of course, that was just the beginning as we've been full speed ahead over the past 60 days, integrating their operations into Titans. And I have to say at this point, I'm really pleased with how that has gone thus far. Carlstar has a really good team from top to bottom, and it's been great to see them embrace the transition and really envision a good future ahead for the combined companies. On the Titan side, it has been similarly been terrific to see how our new -- the new folks have been welcomed with open arms and have been integrated quickly into our One Titan team. So I'll take a minute and thank our entire team, both the existing members and the new ones for all their hard work and commitment in recent months with the integration efforts. Let me shift gears to look beyond the present towards the future with our newly combined company. We believe Titan is now positioned well to deliver more consistent, stronger results throughout various market cycles for a number of reasons. Let me touch quickly on just a few. First, we have made substantial structural changes in recent years, including portfolio optimization, addressing underperforming and noncore businesses, our pricing strategies and fortifying our balance sheet. Next, we have a tremendous focus on product development that's centered around our entrepreneurial culture, which is connected to end users and has built our portfolio with innovative products. And lastly, the Carlstar acquisition. This was accretive from the onset. As we discussed last quarter, this transforms our company with growth…

Thank you, Paul, and good morning to everybody on the call today. I'm very pleased that the One Titan team felt hard through more challenging conditions in the quarter, and we put up a respectable result for Q1. As a reminder, our first quarter included 1 month's contribution from Carlstar, so we'll naturally see more benefit in the quarters to come. We are well underway with our synergy plans, and we have a clear line of sight into the near and long-term opportunities. For 2024, we're targeting bottom line contribution of approximately $5 million to $6 million and believe the longer-term opportunity is in the $25 million to $30 million range on an annual basis. Broadly, we're developing strong plans with actions to improve areas such as procurement, manufacturing and distribution center optimization and more direct cost reductions. We're being thorough in our analysis as we look to take advantage of the economies of scale and our buying power, along with ensuring the combined organization is efficient and working on driving value every day. For some opportunities in areas such as raw material supplies, there are contracts in place that impact the timing of the changes we will be pursuing, and the opportunities are significant. There are meaningful commercial synergies, as Paul said, stemming from our one-stop shop strategy and having complete offerings to serve our customers, and our teams are very focused on this as we speak. Moving on to our results. We performed well in terms of margins during the quarter. And as we move through the balance of the year, we'll see a full year impact of Carlstar's operations. We expect that it will create some gross margin lift, all else being equal, although offset by a bit heavier SG&A, which I'll discuss a bit more. Turning…

[Operator Instructions] The first question comes from Stephen Ferazani with Sidoti & Co.

I wanted to ask about the year-over-year ag sales decline. It was certainly -- and you went into a little bit of detail, but it certainly was much sharper than we were anticipating. And I think in your conversations in 4Q probably sharper than you were expecting. A couple of questions related to that. And it looks like your guidance implies it's going to extend to 2Q. What's changed in the dynamics? And can you provide a little bit of color around the geography there? How would you compare it to your overall? And how much Brazil was hampering those results?

Yes. Steve, you're exactly right. And as we look back let's go back about 6 months as we're getting forecast from our customers, and we're discussing that internally, we have seen a contrast between what we were hearing the market was going to be in '24 and where it's at now, like you highlighted. So I just want to be clear, the expectations we set were something that Titan was throwing a dart against the Board and just saying, hey, that looks like a good number. It was really a deep involved process. And what has changed over the last 6 months comes back to just the uncertainty comment. Interest rates have a big impact on it. And I know we read about it, we talk about it in our daily lives, and we think about it from an inflationary standpoint. But what it does is it impacts the amount of inventory people want to hold carrying costs. So if you -- if aftermarket dealers look at it and go, if I was paying x before, now it's x plus something, I want to reduce inventory. From the OEM perspective, we've seen their dealers do the same thing. They want to reduce inventory, interest rates driving it, but also as we've seen that translate into a reduction in ag demand you get to double on, call it a double effect, where you want lower inventory, but because of the uncertainty, but you also want lower inventory because you see demand decreasing. And so we saw that take place in the forecast that we've seen in the first quarter and the activity of the first quarter, more abruptly than what we saw and what we expected 6 months ago. So it's a combination, again, of inventory in the channels being reduced along with just overall macro uncertainty that we certainly -- we all know a lot about that. Well, the only thing I didn't touch on is Brazil. You asked about geography. We have seen Brazil be impacted more heavily than U.S. and Europe. And that is, again, is another action that over the long run is what needs to be done. And I'd rather have it be done quickly so we can get back to a more typical state, but it has been more severe than what we had expected. And I think you hear that from some others as well. I mean Brazil, just a number of macro factors are just waning on the ag market down there. But with our experience in Brazil and it's a market that does rebound quickly, we do have really strong market share there, have great products. So I'm confident in the mid- to long-range vision of where we're at for Brazil. But in the short run, Yes, they're dealing with excessive grains, commodity prices, inventory and a few things that they got to get cleared up in the system before we get back to a typical date.

All right. On the flip side, I'm impressed with how strong your margins in Ag and consumer, if you back out the inventory adjustments held up given the volume declines? Would we expect to see further impact -- I would have expected it should look more like what you reported in EMC. How is that holding up? And would you expect further impact if this is a little bit more prolonged because just with fewer product going through your facilities, it should be -- I would think it should be having more of an impact.

Yes. Yes, Steve, it's a great question. I think we've done a really good job managing our production, taking the right steps to manage labor and all of our variable costs associated with all of our plant activity. I think the team has responded well. We have good discipline in place, and that's enabled us to hold our margins up pretty strongly. I expect that as activity -- I mean, even that said, Q1 is still traditionally a stronger quarter. And then as we see volume in this second quarter and beyond, it's going to be harder and harder. But again, I think the teams are doing a good job with it. So I think our margins will continue to be solid in the Ag segment. But I'll contrast that with EMC, and I'll say it a little bit, it's a bit of a mix issue there for EMC and that it's -- in Europe and Brazil, the activity has been much more impacted. It's surprising to see how much activity has declined so rapidly, but it's much more of a steel component, and we have labor and long lead times. So it was a little bit more impactful on the margin versus our ag and consumer.

Great. That's helpful. To get one more in. The question becomes, Paul, how you think about temporary versus more than 12 months impact on demand and how you approach cost cuts. How are you thinking about that? Because clearly, you'd like to take some costs out of the system, but if this is temporary, you don't necessarily want to do that. How are you sort of thinking about that?

Yes. And that's where we rely on the experience of our team. We know where we can attack costs quickly, and we're doing that. As David noted in his prior response, I'm impressed to see how our team is able to react very swiftly, make timely, efficient effective decisions in times like this. And I'm not -- I said it in my comments, and I'll repeat it again. That's the experience we have. If you look at the group of the Titan management team, we have extensive experience, both with cycles, but more importantly, working together. And so the actions start happening fluidly on a consistent regular basis where we can reduce costs. We're doing that, and it happens very -- again, very quickly, efficiently and effectively. And then we talk about it as a team. So one area knows what another area is doing, and we can learn from each other. But to answer your question about how you balance the temporary versus the longer-term outlook. I mean, that is how we see it, that we do see this as more temporary. We see that this is a shallow trough. I mean farmer income is still okay. It's still in good position. Their balance sheets are healthy. They're still planting and utilizing tractors. And so the investments they're making will drive changes into the marketplace that will be positive. So we look at our customer base, the infrastructure spending for construction and our customer base is going to be solid in the what I would call the midterm. And so what we're hearing from them is the same thing. By '25, you're looking at things going in a positive direction. So what do you do for '24 is you do what I was mentioning with our team, more temporary type actions we take them quickly. But we're trying to avoid making those long-term decisions right now. Recruiting and retaining labor and talent is something that's critical to every company. And the last thing you want to do is overreact in the short run and then start spending money next year, building the team and building the labor force back into play. So it's a fine line, it's a balance, and that's why I rely and I believe in the experience of our team and our Board. I mean, I -- we're very fortunate that we have a board that understands the cycles that we go through as well. And so when we communicate with them, they can work with us as well to make sure we're making effective in timely decisions.

The next question comes from Thomas Kerr with Zacks Investment Research.

Can you go back to the construction earthmoving segment? Were you saying that the sort of commercial construction macro outlook was deteriorating worse and the mining was holding up? Or do they get that backwards or maybe clarify those 2?

Yes, Tom, you got it right. It's mostly on the construction side. Our mining activity on the aftermarket side was solid. And you saw a more dramatic drop in our European and more global construction OEM segment. or sector.

And is that -- do those stabilized on the commercial construction yet? Or are those ongoing declines that stay the same throughout the year?

Yes. Right now, it seems like it's stable. It's come down and -- but relative to where we were a year ago, it's still in decline mode. But as we shift from Q1 to Q2, it's fairly similar.

And on the Consumer segment, if you look at the legacy segment, I can back out the numbers, but that seemed to be a substantial decline as well. Any other comments on just the legacy consumer side of the business?

Certainly, we had some decline in what we call the old utility truck tire segment, and that's mostly Latin America. And so you had some decline there, and we've had a little bit of decline in our custom mixing as well just because certain customers, their activity is down, and so that led to a bit of decline there as well. But then obviously, you do have the contribution of Carlstar. And that's a very positive thing to think about though. I think our margins have held up really nicely despite that.

One more quick financial one. The -- do you guys have a level of cash that you want to maintain or try to maintain? I mean, obviously, you could put a dent in the new debt easily with all that cash, but is there a dollar amount you guys try to keep on the cash side.

Well, cash can be a little bit tricky in terms of where the cash is, but we're looking to optimize where our cash is, but the levels of cash that we have are adequate to run the business, and we'll look to pay down debt as well as even being opportunistic on the share repurchase side. As stock prices move, we can certainly have -- we have the flexibility to manage the business and do those things as well.

The next question will go to Kirk Ludtke with Imperial Capital.

Paul, David, Alan, thank you for the call. I noticed the -- there are some very helpful pro forma numbers in the 10-Q. I was wondering if you could share the first quarter '24 adjusted EBITDA pro forma for Carlstar. So I see net income, do you have an adjusted EBITDA number in there for Carlstar, pro forma for Carlstar?

No, we didn't publish that, Ludtke. That's something that we wanted to -- I mean, there's too many adjustments in it to make -- it's noisy because of all the different things that happened with the acquisition. So we -- I'd have to put too many adjustments on there to make it meaningful. But... It's fair to say, it was a very fairly similar progress with -- or a good strong margin contribution. They're certainly impacted by the same level of impact on the market that we are with their ag sector, but their consumer business, as you -- as we look at the numbers for the 1 month of contribution, it was solid. And so therefore, it may not be dramatically different than how Titan trended.

The second quarter guidance, it looks to be -- at least in terms of adjusted EBITDA, it looks to be flattish with the first quarter, even though you've got 2 more months of Carlstar. So I'm just curious if -- are the -- does the guidance reflect a continuation of the roughly the same type of trends by business tighten versus Carlstar -- or is anything changing?

Yes, sequentially, yes. Yes. I mean if you think about how typical seasonality works in our business, Q1 tends to be a larger quarter for sales in the ag segment. So you're shifting a little bit from a seasonality perspective. So it's seasonally down. And therefore -- but when you think -- that's why when you do the EBITDA, the in the 50s. It does feel flattish, maybe a little bit down in terms of overall activity, particularly in ag and construction.

Got it. Okay. Well, I appreciate that. And I also appreciate the longer-term guidance, $250 million to $300 million, including $25 million to $30 million of synergies. Can you maybe give us a sense for how that breaks down between the 2 businesses? The $250 million to $30 million less the synergies? I imagine the synergies are coming from both sides.

Yes. I'll say at a high level, we looked at it as a combined company, and that's the way we're approaching it. As the company has and will continue just to move together and operate as one. And so we did not approach it from breaking it out between the 2. What we did use as a basis is kind of grounding our numbers is if you look at where the companies have performed in the past, the target of 250 to 300 is grounded in performance that is supported by both companies' historical results, and then you add the synergies on top of it. So that's why we look at it and say, in typical years, this is what Titan can do is expected to do. But then you throw synergies on top of it, both cost and commercial again, on both sides of the fence, tightening Carlstar and you start going, we think we can do even more than that. So we wanted to get that out there because that's the way we're talking with our Board. And it's important. I mean, our board has substantial shareholders in Titan, not just with AIP and the recent acquisition, which again is a strong signal that they took Titan shares. But our existing Board members represent a substantial shareholder base of Titan. And so I think it's just important information to say, this is where the Board sees tight and going. This is where the management expects Titan to go and want to share that with investors. But we really don't have it broken down, though, between the 2 companies. That's just not the way we're looking at Titan going forward.

Got it. I appreciate it. And I agree. That's an important -- potentially an important valuation metric. Can you talk a little bit about now that you're into this A few months? I mean can you talk a little bit about the synergies, $25 million to $30 lore those mostly revenue opportunities, cross-selling opportunities, mostly costs? Any kind of additional color there?

Yes, Kirk, it's a very good balanced approach to it. There's a significant amount of commercial opportunities. And then when you think about supply chain in our -- all of our buying, our procurement, there's great opportunities as we're a bigger company today. We're able to buy -- get buying power, but also look at the number of things that we buy to and the actually, if you think about a broadening of supply chain, we had -- they bought from certain vendors. We bought from certain vendors, the consolidation helps in bringing together the best of both worlds. So we're doing a lot of that. There are certainly cost reductions with inside the business in terms of the alignment of our organizations. We'll do that. And then ultimately, there's the whole sourcing aspect of it. We're a global business, and there's a number of third-party buys that we have around wheels and tires that can be brought in or the combination of the 2 companies can provide more economies of scale, too. So there's a lot of things, but I would tell you, it's a fairly balanced approach. It's not weighed heavily towards commercial, although they are significant.

Got it. Is there a revenue range on revenue that you would put on that guidance?

I would rather wait a little bit before we start putting fine tips on that. But again, we'll provide more guidance on that at a later time.

The next question comes from Alexander Blanton with Clear Harbor Asset Management.

The thing that stood out to me the most was the decremental margin in ag, only 15%, you've talked to something. You've talked just to that already quite a bit. That's very low for the kind of volume decline you had in that business. And it's quite a bit different than what happened in the engineering -- or the earthmoving segment, which was a decremental margin of 42%. And I'm wondering why that is so different. I see in the text that you mentioned contractual price givebacks due to lower steel prices. And that was not in the ag segment, at least it wasn't mentioned. Was that the main difference between the 2? If you had great cost control in ag, why not in the earth moving, it's basically the same kind of product.

Yes. That's a good question, Alex. Let me jump in first with a comment and then David will touch on the financial aspects, and I know he's kind of touched on already. But you look at ag, think about what we have in ag, Alex, where we got to LSW I mean, LSW is just a tremendous product and what it delivers to the end user. It's a premium product for us. It's a premium product for end user as well for our customers. And so the LSW serves the marketplace very well in aftermarket. As we've noted in our comments in ag, I mean, the fields are still being planted. The work is still going on in the LSW, that ultimate product that can take care of the customers' needs. And so one of the differentials we have in ag versus earthmoving construction is going to be LSW. We have other innovation besides LSW. There's other products that do serve the marketplace well. So I don't want to make it seem like LSW is it. But LSW stands up to test the time and down markets, up markets, the demand is strong. We see it increasing in many aspects. So really, just one key differential though to keep in mind is just the pull-through we get of LSW. We do have a strong aftermarket distribution channel. We've talked about that, and we worked very hard to have what we see and what we firmly believe is the best distribution channel in North America for large ag. Strong partners servicing the marketplace very well. We're connected to the end users. And so again, that aftermarket piece and ag is really one of the drivers that is different between Earthmoving and Construction. So go ahead, David.

Yes. The only thing I was going to add there is that on the EMC side, it's more heavily weighted towards the OEMs and in particular, in Europe and in Brazil. So you don't have that strong aftermarket opportunity on the EMC. So as the volume declines, you're just much more impacted there versus ag where we have a good balance of OEM and aftermarket and aftermarket margins are good.

Well, I think I'll take the rest of that offline because I still don't quite understand what the difference is, it's the same kind of product. in both sectors. And one, you had a big decline in margins and the other you did... I'm not sure important...

Before you go any further with it, they are different products. The majority of our EMC segment is undercarriage product. It's not wheels and tires. So it's different...

It's what ? Undercarriage?

It's the undercarriage.

And what is the effect of these givebacks and the lower steel prices in that sector?

We typically try to line that up. Obviously, when it still comes down, you've got steel, your prices come down in line, but you don't necessarily always get it exactly. And there's leads and lags when you buy steel. So it can be more impactful in a given month or quarter. It's not tremendous, but there is some of that. But the steel has moved in a reasonably down fashion in Europe and Asia over the last year.

Okay. Second question is on the guidance in EBITDA, what is that in earnings per share for the second quarter.

Yes. Alex, we'll -- it's going to be -- if you think about it, from a tax rate perspective, it shouldn't be totally different. So it should be fairly in line with how we did the first quarter. I don't have that number off the top of my head. But Alan, maybe you can help me out with that one.

Okay. So we're going to have basically flat earnings in the second quarter versus first, but the sales were 14% higher. So what's happening there?

Yes. Again, that's a little bit of the mix and seasonality in the business in terms of the mix of where the -- what products we're selling. So that's primarily it.

Okay. So you've modeled that out then.

Yes.

Just a general question, one more question on that. Why is it that you don't give us the guidance and the results in EPS as well as EBITDA.

I mean that's a fair question, and we can look at that in the future, and we'll help you out with that.

Because most channels really use EPS more than EBITDA. And to get that, we have to calculate it from your numbers. Sure. If you're guiding -- in other words, the $250 million to $300 million in EBITDA that you're saying you have a long term target for. What is that in EPS? That's what people really want to know.

That's a great question. We'll look at that.

That would be something you could do in the future.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Reitz for closing remarks.

Yes. Thank you, everybody. Appreciate your participation in our Q1 earnings call. Look forward to touching base here in the near future. Thank you.

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