Titan International, Inc. (TWI) Q1 2016 Earnings Report, Transcript and Summary

Ladies and gentlemen. Welcome to the Titan International Inc First Quarter 2016 Earnings Conference Call. During this session, all lines will be muted until the question-and-answer portion of the call. [Operator Instructions] Any statements made in the course of the conference call that states the company’s or management's intentions, hopes, beliefs, expectations or predictions for the future are considered forward-looking statements. Please note that the Safe Harbor statements contained in the company's latest Form 10-K and Form 10-Q filed with the Securities and Exchange Commission extend to this conference call and any forward-looking statements involve risks and uncertainties as detailed therein. At this time, I would like to introduce Titan Chairman and CEO, Maurice Taylor.

Good morning, everyone. I appreciate the fact that you are on this call. You probably got the release. And like has been going on for all over the years, there is a good things and there things that aren’t so good. But the first quarter I think the thing that everybody -- that were taking away from it was and Paul will get to it later. But it came out really, really weak. And I think that’s from the standpoint of where the inventories were. And I think everybody is flushing both January and February. The situation on our side is that you make adjustments March came too and March kind of like started the uptake and the situation now is where we are going to be -- I just came in from down south basically Northern Florida, Georgia and Alabama. And in the next three weeks I'll start with the situation of the harvest down there and any of the grading crops that were planted. But overall I think we’re modeled around down to the bottom. And whether it was March, beginning of March was a low point or it's going to do a little bouncy up and bouncy down. I was with a lot of big dealers down there in the south, the equipment dealers. And the farmers are spending money on things that they actually need. They are certainly going to I think this is going to be a year where they decide are they moving on to a bigger, newer piece of equipment or they looking at the used equipment. Used equipment has started to move. If it is good the equipment that has been beat up like over the years, that's still probably have a lot of dealers who going have to take ride off and move it there. When you move to the construction, construction is basically that we are into is just like in a pause. It's not -- it's not growing. It's kind of just sitting there. I don't know if everybody is waiting for the election or what but that's what we see there. The same thing is true in the mining side. And all the dealers in North America are at least turning around in there. They are letting their inventory get way down. And the reason is real simple. One of our dealers that supply their friends at Peabody and with the bankruptcy. Small businesses taking a big hit on the chin, so everybody is tightening their belts on that side. Production wise we have the small size, the small tractors and that's the size is basically 125 horsepower and down has been real steady. Actually it is got pickup and that's the bright side. And we've been developing new tires and wheels for that which we should be able to rollout beginning of the -- the end of the beginning of the third and fourth quarter. We think we are positioned very well. We've -- as they will talk about the numbers and I'll talk about what they have been doing at the factories. We are still -- when you go south, Brazil is a big animal force in the South America. And on the consumer side which is the biggest side of the Goodyear special bias truck tires we make. That is hurting, and mainly because of the currency situation down there. But we believe that's still going to be coming back there and they are in a quite period right now. Because it's basically fall down there for them. When you turnaround and you look at the agricultural side. We have -- our first farms, I think we are at three of the big farms. We've made our situation with LSW tires and wheels. That has been a big hit. So we've -- and we expect that but that's out for about a year because they are going to try it. They are going to run them; they are going to see what happens with that. On the US side as I say in the release, we've been very pleased that how many options are out there, how many farmers have stepped up. And we think as we stated all along that it takes a while and we referring to -- but it is increased every month. And we are excited about that. It's pretty hard to go out and be able to tell the farmer, why you run on duals because I think John Deere would tell you that probably 80% of everything they sell to basically to a farm -- is a set of duals of North America. And they questioned like I was in the south is why he got duals? It was with super single, it performs much better especially if it's LSW. And we've been making penetration with that. And it just keeps going up and eventually that's our homerun. So it's up and I should touch on TTRC. If you watch the news you would know that there is a tremendous forest fires up in the north of Canada, Alberta. That they have evacuated the city of Fort McMurray. We don't believe that any of our facility up there is in harm’s way. But everything up there has been declared an emergency. And the only -- we actually have spots where people could stay but they have no food and no water because they couldn’t come up to the road to supply the town. So everything is shutdown as we speak. And I figure it would probably be another four or five days before they start let in everybody to come on back in there. We are not -- the area we are -- is just pure dirt. Now it has nothing to do with forest around our side. But on the south side of the town, and I guess all around it, there is -- they have lost some homes, they have lost some businesses. And they bring in the Canadian army out. When they get there -- actually we have a fire truck we bought, but it is just sitting there. Runs, I thought we would be able to lease it out but there is nobody there to drive it right at this moment. But anyhow with that we expect to yet this month to ramp up -- go into production. And we've been running through the reactors batches of tires. Everything has been successful. And once we have the permit, this is going to sound a little funny, once we have our permit for our safety deal for fire, we will have the operational permit then and away we go. So that is from our side the good news is -- I don't want to leave out Russia. Russia is -- people who are there doing an excellent job. And that is coming along. So there is --the only spot that they have to worry or we are looking at that just we just have to put more sales into it. And that is North America. And everybody in the world at this point, pricing is headed south but so is almost everything that we do or buy to put it into the tire. So when we were at last night we were with two large dealers. And they have seen considerable pickup in everything except the big iron. And we believe that falls right with what we stated and we do think though but come fall we believe that there will be a pickup in that. And so we are optimistic that we are doing the right things. And when it comes back we will be in a great position. And as I said in the release, Goldman Sachs is the banker for our track business ITM, that we are looking at -- to see what success we have in that market and we've -- as I said have an offer on it. So they have putting everything together and we think that would be very successful. Only thing that would probably happen towards the end of fall. So with that I'll turn this over to Paul.

Hey, great. Thanks, Maury. Good morning, everybody. First quarter was a difficult start to the year. You saw in our release, we continue to see challenges in many of our markets. This unfortunately did lead to a 20% drop in first quarter sales compared to last year. And if you go even a step further, if you compare our Q1, 2016 back to 2014, you will see our sales are down near about 40% or $250 million. That's a heavy loss to absorb in revenue operationally. Yet we've been able to really manage our business successfully. When you look at that $250 million decline in revenue and we've only seen a little over $8 million decrease in our operating income. Also with our sales down over 40% in the last two year period, our cash is sitting right around the same level it was just at the start of a couple years ago. So in overall the revenues is not where we wanted to be but the management of the business and the decremental margins both from gross margin and operating income perspective have been quite impressive when you look at it that way. Look it's tough out there and there is definitely no easy path in this difficult market to change things around easily. I point out these comparisons for two years ago not to just search for a silver lining but to show how the Titan team has done a good job battling these marketing conditions. And again it takes a team of people working hard and together to see a slip of only $8 million in operating profit on a $250 million decline in revenue. To do this we've implemented successful programs like business improvement framework and the one Titan initiative we talked about that on previous calls. These have helped us guide our team to make effective decisions. But at the end of the day it's really all about people. As a result, we've made a number of changes to our operational team over the past couple of years to battle the downturn and build our team around one Titan model. We've eliminated some high level positions along the way that really didn't fit with one Titan model. Which in turn has created some good opportunities for really some good young key people within our organization? And they have responded well. We have also had to bring in some new blood from outside the company to shift gears and gain a new perspective and some new places where that were needed. These days the markets continue to be tough and we realize we need to really work hard together and do everything we can do win sales. Maury mentioned North America is really where we fighting a lot of the battles. Our current sales levels being down 40% over the past couple of years. We are clearly where we not wanted -- where we don't want to be. We know we can make some improvements. And so what we've been doing, recently we've made a number of changes within our sales and marketing teams. We've brought in Tara Schrock as our North American Ag sales director. And she has a strong background most recently as a Vice President of Sales to John Deere supplier. Before that year of management experience at large companies including American Express and some very well known blue chip companies. But most importantly on top of that she comes from a passionate farming family. And she has been changing the oil on their family tractors when she was a young kid. So she is a great addition to the Titan team. And really will be able to jump in and make a difference and start running faster to help our overall sales organization. We also -- there was announcement went out this morning; we also hired Brice Howell to manage our North American associate dealer programs. He will oversee our continued efforts to strengthen dealer relationships and make sure we are really reaching as many customers touch points as possible to drive sales. He also comes from a strong Ag background. His family has a background in the equipment side. Plus he has many years of experience working ag dealers, working with dealers. And most recently was the sales development manager at one of our competitors. In all he got to do is spend 30 seconds with this guy and you will see his passion and energy and understand quickly why he is a strong addition to Titan. We also brought on Doug Loney; he joins us with over 25 years of experience at one of our large competitors to be part of our OEM account management team. He already knows all our customers very well. So we really just need to change the logo on his shirt. And he will be out there strengthening our relationships with our OEM customers. That goes beyond just the sales team. We in the past year we brought in a new marketing director, Kim Boccardi, she is already been up and running spearheading our efforts in that area, has made a nice impact for Titan already. On our last call I talked about the success we have had in growing our brand and we really look forward to where her and her team and our marketing efforts will take us in the future. The last change I want to announce is and I want to wrap up by announcing that our CFO, John Hrudicka is moving into a Senior Vice President of Operations role. He will be focused on our North American tire business. I think many of you know that's our largest most important business. And as Maury talked about and I talked about there is a lot of emphasis been put on that division within our company. And I mentioned also on previous calls that our North American tire plants have been very successful in reducing the cost to quality. Managing the plant efficiencies against the big volume declines that they have been facing. So it's really good to have John in this role not because of tire plants need help building better tires or improving their efficiencies. What we really look forward to having John in this role doing is adding value by really making a tire plants better more overall holistic businesses. Maury made a comment about pricing in the marketplace today. It is a complicated market. Everybody is out there fighting hard. The North American tire market is going to continue to be tough. And so I mentioned the other changes we've made on the sales side. And so it's a natural fit getting John into this operational role. And from there I’ll let John talk more about his role later in the call. But really people are the foundation everything we do, everything our business does not just Titan, and it's a foundation for how we operate is centered around one Titan. Titan team has done a commendable job in managing our operating income and our margins in tough market conditions along with our balance sheet and our cash position. You saw that in 2015, we increased our gross margin percentage while revenue was down 26%, not an easy feat but something the team was really proud to accomplish. But reality of the situation is we need more volume. We need more sales in order to leverage the one Titan foundation we’ve created. You see pockets where the turbulence is going away and the sunshine is coming out. The recent dealer sentiment report and you echo some of that. Maury talked about the dinner that we had recently with a couple large equipment dealers. And there is a lot of optimism that was coming from those guys. I think one thing that really caught me is a big positive is that they are back to being able to export some equipment offshore. That's been -- it's been a long period of time since they have been able to do that. And they had a couple of really big homeruns with that recently. So again there are pockets of hope out there. As I noted earlier we are putting a number of new pieces in place to help drive sales in this market. And I think with that I'll turn the call over to John.

Thanks, Paul. Good morning, everyone. Well Q1 was a challenging quarter for us as stated by both Maury and Paul. The story continues to be the erosion of sales relatively to our end markets. So let's jump into the sales story. So sales for the quarter were $322 million, this was down $80 million, or 20% from prior year. A quarter-over-quarter decrease was driven across all segments with North America Ag and currency impact comprising $58 million, or73% of the variance. As has been the trend the majority portion of the North America Ag decline is attributable to high horsepower product. Our reference currency, this drove reduction sales of $26 million on the quarter versus prior year. Half of this impact was driven by the Brazilian Real with smaller impact scattered across our other international businesses. If you adjust for the currency impact, sales declined 13.4% versus the reported 20%. So let's talk a little bit about Ag. As stated earlier, Ag was a key driver in our sales decline. Ag in total was down $30 million, or 15.5% when you exclude currency impact. At a gross level, North America Ag represents this entire decline. Nearly three quarters of the North America Ag decline is driven by the OEs as they continue to scale back production commeasure with the lower demand. And as a result, they are putting more pressure on suppliers like us to lower price. On the aftermarket side, they are only buying a need and that's a lowest price. So product availability is critical to realizing these sales and we are very focused on that. From a product perspective while we are experiencing just slight erosion in small Ag, the driving force continuous to be high horsepower equipment. While there is still long ways to go in terms of recovery. There are some very bright spots to know. The USDA is projecting flat farm income for 2016. So some stabilization appears to be occurring. Used equipment values look as if they are starting to buck the negative trend as there was a slight increase in Q1 over Q4 first time since Q2 of 2013. And also on the side of the dealers, and I believe Paul mentioned this; they are becoming more optimistic based on recent survey results. Our Europe Ag business actually grew slightly when excluding currency. While the business climate is still challenging the sales decline appears to have stopped. And we continue to win new business there .Our adjustable track waffle wheel value proposition project continues to progress with the strong belief. There is a real branding solution that could take us upstream from commodity product categories. Latin America namely Brazil is down significantly to prior year for reasons I will discuss a little later. Russia has been a great story. They continue to grow on volume and they are realizing price increases as well. The Russian government continues to support agriculture through an increasing monetary support to both the Russian farmers and Ag machinery producers. So let's turn our attention to earthmoving construction. Productivity improvement and reducing capital expenditures appear to still be holding fort in this segment. Our sales for earthmoving construction were down $21 million, or 14% from prior year when you exclude currency impact. Our international businesses were either flat to slightly growing when you exclude currency. I wanted to note our undercarriage mining aftermarket projects that were started years earlier are now paying dividends as we gain share in Latin America, Russia and the Far East with our new products and enhancement of existing products. In North America, a large mining tire sales continued to be stagnate while the sales representing smaller mining applications and construction were down 22%. A number of OEs have scale back purchases commeasure the continued slowdown. Commodity prices have increased recently but they are still in excess supply. Is this sustainable or will have an impact on new equipment purchases, nobody really knows this at this point. So let's talk about the consumer segment. Our Sales for consumers were down $5 million, or 9% when you exclude currency. The primary drivers of this decline and its further erosion in Brazil truck tires in the high speed train brake supporting the China railway system development. Frankly, Brazil is just a mess right now relatively to government corruption and their recession worse they have experienced since the 1930s. Government insolvency is a distinct possibility. And regards to the China high speed train brakes, we plan for decline in 2016 as the slowdown associated with the Chinese market began back in Q3, 2015. I move on to gross margins. Our gross margin dollars were down $11 million to prior year. Our gross margin rate performance at 9.9% was down 70 basis points to prior year on 20% less sales. Our consumer segment was particularly challenging this quarter. And I'll talk about that here shortly. If you would exclude our consumer segment, our gross margin rate as a percentage of sales actually improves slightly at 10.2%. Another highlight our Ag gross margin improved 84 basis points on a 21% reduction in sales. So there has been a lot of effort improving profitability on that side of the business. Paul spoke about this and we spoke a lot of about this at the year end call relative to our business improvement framework. Being integral to improve, we actually improving our 2015 gross margin despite a 26% reduction in sales. We continue to leverage this framework to drive profitability improvements in the face of declining revenues and unfavorable mix. I mentioned our consumer segment earlier relative to gross profit. Our consumer segment gross profit eroded $4 million with gross profit as a percent of sales falling to 7.6% from 14.1% one year ago. There are three primary drivers behind this. First of all, overall lower sales and loss leverage. Secondly, lower China high speed train brake sales. These are somewhat very high margin. Brazil, unfavorable mix and higher raw materials link to the US dollar there as well. Our overall material cost declined from prior year driven mostly by North America and pricing reduction in steel and natural rubbers, synthetic rubber and carbon black. And as a function of our long-term agreement, we passed the good portion of this back our OEs mostly neutralizing the positive impact to our P&L. Under our business improvement framework there are number of design and sourcing initiatives underway on both wheel and tire to take cost out of the material content of our products. And it's fully anticipate this design changes will also lower the cost to manufacture these products and improve quality as well. Quick note on operating expenses. SG&A, R&D, royalty were down $2 million to prior year at 12.4% of sales we are up 200 basis points up to prior year. This being just a mathematical function of lower sales. There are series of puts and takes across the various expenditure categories. Paul mentioned the addition of Kim Boccardi; we are investing more heavily and marking specifically in support of LSW as well as our investment in the antidumping case. We have reduced spending in other areas in order to fund these investments and achieve a net overall reduction in our spending. Moving down to P&L, let's discuss foreign exchange gain. These gains primarily reflect the translation within our company loans at foreign subsidiaries denominating currencies other than their function of currencies. You notice in Q1 we generated an FX gain of $5 million. Over the course of 2015, we took a number of steps to mitigate exposure to currency as it impacts our inner company loans and balances. We did this through balance reductions, debt reclassification, conversion and hedging and as a result of these actions we fully expect significantly less volatility to earnings now in going forward. So let's summarize and bring this to bottom line for profit. Our Q1 adjusted net income attributable to Titan stands at a $9.2 million loss and EBITDA at $11.2 million. This compares to adjusted net income attributable to Titan of $3.2 million and adjusted EBITDA at $25 million from prior year. So I want to touch on a few balance sheet items briefly. We typically experience a build in both AR and inventory coming off lower Q4 level. While this occurred with AR, our inventory went down. For the quarter AR is up $39 million from 2015 year end, down $23 million from Q1 of prior year. The increase in Q1 from year end was driven in part by an increase in sales, but we are also using terms to selectively battle for business in this very competitive market which has had an unfavorable impact on our DSO performance. Our DSO performance typically rose approximately 7 days from year end to Q1; this quarter is consistent in that regard. Inventory, inventory actually went down in Q1 defined the customary Q4 to Q1 pattern. With the downturn we have been steadfast managing inventory levels more efficiently. We kicked off a series of initiatives this year; they are starting to impact this favorably and fully expect the impact to grow over the course of the year. AP has also increased $15 million primarily from a five-day improvement in DPO. We just kicked off a fire supplier financing program that we believe could generate another $10 million to $15 million of cash when fully executed. In regards to PP&E, we continue to spend under our depreciation by scrutinizing our capital appropriation to ensure strategic alignment, positive EDA returns in cash generation. May have note PP&E went up $8 million total beyond the net capital reduction. This is due to $16 million of CTA. Cash, so we talk about cash. Cash ended the quarter at $191 million compared to $200 million at the beginning of the year. We continue to be aware of the concerns of our liquidity and cash flow as we fight through these down markets. And we are very mindful of this and continue to manage it diligently. Outside any exceptional liquidity events, we are planning to be roughly flat to our prior year balance. In fact, we are back over $200 million as I speak. In regards to Q1, there are just a handful of key drivers comprising our $9 million reduction in cash flow. Primary drivers of the cash reduction are accounts receivable of $32 million and our $9 million of net loss. This was in part offset by $10 million accounts payable growth, $12 million of inventory reduction and $8 million net capital reduction as I indicated earlier. From a debt perspective, while our net debt to trailing EBITDA measure has risen, our actual debt level is slightly down from a year ago. So this is just a function of math as during the downturn we dropped our higher earning quarters and substitute lower earning quarter. So wrapping up, our markets continued to be challenging but we remain diligent and managing what we control. I want to make a few comments relative to the new role which I am very excited about. But first before I get into those comments. Mr. Jim Froisland has joined us in an interim capacity as CFO. He has extensive experience as chief financial officer, chief information officer, chief operating officer, corporate secretary and board member for both domestic and international public and private equity owned company. So he has joined us effectively yesterday in fact. So turning to the comments about the new role. We've actually been talking about our business leadership role almost from the time I joined Titan. And I have had experience in executive business leadership role in prior like before Titan. I am an operational CFO with the strategic bent. This is what I enjoy. While on a CFO role I have had significant engagement and many operational aspects of the business, at the IT pricing and supply chain functions all reported to me as CFO. I believe I can contribute significantly to the company coupling my financial acumen with my operational mindset. Over the next six-eight weeks I'll be spending a lot of time at the plant with sales, marketing and other business functions, listening and learning as much as I can about the business and operation. And at the end of that time I'll present a plan to Paul comprising my ideas, thoughts and strategy and how to move forward in this new business leadership role. So with that I'd like to turn the call over to the operator for questions.

[Operator Instructions] The first question is from Larry DeMaria at William Blair.

Good morning, guys. Few questions. First as far as improved gross margin, can you just delineate maybe how important the material cost were versus the productivity improvements and costs cutting you have done? Just curious how important the material costs being lower year-over-year were?

Well, material cost always helps okay. But generally it helps when you are going up. When material cost is going down it hurts you because really what you are pushing off into the market is higher price. So and the margin side once it stops going down it should actually then turnaround, if just stays flat you will probably get little pickup again in margin. Then what happens is as it starts to go up it reverses and you get to pick it up every month as it keeps going up. So in reality it is what you can call that productive improvement and that's pretty much what you got there.

Okay. So the lower material cost but it was a net positive obviously in the quarter. You were able to really capture that as opposed to losing on pricing.

Well, yes. There is no question because you are getting the material cost today is the differential before what you got stuck in working inventory and everything else. So the drop in the material, it is not as great in this last quarter as it was three quarters ago, okay. So but have we hit the bottom of it, it's hard to say because what happens is you have the bouncing around right now of oil prices. I am referring to tires right now. And I am also referring to the price of steel in our wheel business. So it's a moving -- in the wheel business you really get a pickup and efficiencies if the price starts to going up. So that -- I would always rather see the price of material go up.

Hey, Larry. This is John. Just maybe another comment in that regard. We did not give all the price back and I made mentioned about the long term agreement with the OEs and so we do have to pass back, the other portion of our business is aftermarket. And I think we've done a much more effective job in terms of managing price there. We got a number of initiatives that are focused on price management. So I think that's been the way we've not been passing back all the reductions in material costs that we are able to realize.

Okay. Thanks. And then maybe switching gears a little bit here. And obviously market share has been under a bit of pressure last couple of years. I mean now some competitors such as GKN are now offering wheel tire combination. I think that has historically been one of your main playgrounds. Is that something that you're looking at as a competitive threat? Or how are you thinking about that?

Yes, Larry, I just actually met with one of the companies that would be doing; potentially doing the mounting for GKN and I think what GKN is doing is just blowing a bunch of smoke in the air, trying to create a nice press release to get attention. I have not seen any validity to that. We have done some channel checks. Like I said I met in person with the mounter that would’ve definitely been contacted, has been contacted by GKN, there is no -- I don't want get into too much detail but I am just -- let's just say it, it seems like a lot of smoke in mirror right now.

To add a little thing. This is not the first time, Larry. There is nothing new except that they must have hired somebody who thought this is a great thing to publish. It's been out there for a long time. GKN has teamed prior with our competitor in France, Firestore, they have done a bag of anybody's tire any place in the world. But when we hit down to it in the range, there is no one, and no more that can produce 50,000 different SKUs in the wheel business. And there is no one else in the world that has the range of the various SKUs in tires. So it's --do you have them picking at you and certain high runners, they all figure out, and each going to drop the chip, they can get their foot in the door. Yes, you always going to have that. We had that since we've been in this business. But we also know from the OE side, our customers that when they decide to go with just the whole mounted program. It's not just the four sizes that have some volume. It's the other 200 that you don't have that volume. And so it's real simple. If you are going to take around and lose the 4 to1 then you might as well take the others, someone has got to do it. So everything else so just rock it up. I mean that's how it runs.

Okay. So you are still in a good spot there. Last question therefore --

Larry, the guy I was talking to, it's exactly the same thing that we talked about. I mean he does an extensive amount of mounting and what he does that he does it across the board with the full product portfolio. GKN is getting in this and doing very limited selective products with a limited line of manufactures. It really goes nowhere. And it doesn't have the potential to go anywhere.

Got it. Last question and I will jump off, guys. The current offer for ITM, if no other bidders emerge, is this the real offer that you will consider and probably negotiate and close? What would you do with the cash? And then I will jump off, thanks.

While the cash, the cash will come in and then -- well the first thing is the end of this year I think it is, right of course at the end, we are going to pay -- we'll pay off our $60 million in convert all right. That still leaves us an awful lot of cash. And we will probably -- I am just one vote, in a group whether you buyback your bonds, a big chunk of your bonds or depending on how you have all these various things in bond covenants, my own personal belief is that we have excess cash, you just payout in dividend. So there is no big acquisition that we are looking at as of today. I mean we believe we got ourselves pretty well situated. We believe our internal cash and what we are doing with that, we think it will be very positive over the next couple of years. I hope that answers your question.

The next question is from Brent Rystrom at Feltl.

Hi. Good morning. Maury, when I went out with that sales call with you last year and we met with that farmer, he put the tires on, the LSW tires, he had been extremely happy with the tires. And really thought the performances has helped him a lot both tractors and combined. But in his case he told me that he kept the tractor tires and returned the combined not because of performance just where his capital is right now. When we cycle out of this tough farmer environment -- how do you think the uptick in the aftermarket will be for LSW? Will we see that uptick accelerate considerably quickly?

I think you are going to see the uptick -- we have I think it was in the press release. We probably -- we have a great number of LSW tires and wheels. In fact, at this point today we -- I am headed off after this call back up to one of our tire factories because we are going to have to start ramping up production and some of the big and the reason being is the fruits of our labor for the last three years just like you talked about with that farmer. The situation is and it is not a sales tool or anything but we make every piece of equipment run better. I am not going to say the OE otherwise idea because they are on the phone and they are going to get mad. But to show you the difference. A farmer, a fellow in Louisiana and he runs scrapers where they pull pans and he wanted to put our LSW tires on this big four-wheel-drive scrapper. While the OE, well we haven't approved it there. Well if so asinine because it is not only will make their scrapper perform better, you can turnaround and put a regular size tire which is a same D, same old D and there people thought well we don't understand this. If this and that and so it takes them three years to get it through unless somebody from the top banks them. But what happen is we put less -- the tractor won't bounce so you put less strain into the tractor so but they said, no, you can't, we won't let you warrant that. Well, it has been at the OE now, once we found out about situation the guys turnaround, he is buying our other LSW tires to put on it. But it's a really waste of money. He would perform so much better. So the big problem is trying to educate OEs and they make a lot of money when they sell LSWs. And it's just that you know OEs have a problem. They get so large that pretty soon they don't want you to talk to their engineer. They don't want to talk to their marketing and sales. So you try to help them but they are so arrogant, they don't want it. So what we do is just like you mentioned. You’ve got the crazy guy, and I go see the big farmers who all have more than one piece of equipment and away they go. Earlier this week on Monday, Monday or Tuesday, Tuesday, I was at a farmer in Alabama. And what does he do? Set a farm for 100 years, pickles.I never thought I'd run into pickles, peanuts, and I looked at this pickle harvesting machine and he just kind of smiled, and he was showing me how fast you could go with it and this and that. And I said as well, you’ve got a couple of these harvesters. Here is what I will do. I will put this on for six months, if you like them, here is your price, and I know for a fact that will do that, he will buy those, and then he will have to buy them for his other machine because it is going to improve and they will pay for themselves in less than a season, so it's coming. Its like -- as you just talked about that farmer up in Minnesota, I told them why you run on duals? You run duals, so you can get more floatation and you can get more power to the ground. But the joke is an LSW super single is like the military, and they have done that by 15-18 years ago. You put it on that, you get it all. And it makes the tractor perform better, so in all it is moving. Right now, as I just told you and ones that fellow has in Minnesota, our orders are coming in. I’ve got orders last night with Paul. We were at dinner, and we got -- the wheel business is no problem. We can do it. We’ve got to jack it up on the other. So that's my story there. So I am happy with it. And it's going to -- it keeps growing. Every month it is growing, and it's big.

Couple of other quick questions. Can you guys give us a sense of kind of the detail of the process and timing for the ITM activity? And then are there any debt covenants tied to the asset that ITM holds?

I don't believe so. What happens is most of the debt is issued to us. What happens on that is, they met this week over there, the team from the banker and the management team over there, and then I expect that within probably 30 days, they will have their book and the data room set up, and they've already -- they have a list that has -- I never even thought of the lot of the people on that list. A few of them I think will cross but I would expect them by September 1st to be able to have it narrowed down to two or three real, real serious people. And I think that coming October they should be able to move on it. And I think that it will be done this year.

All right. That was going to be my question. And then a final question for your guys. Can you give us a sense of just what are the primary activities and timing for ramping up European sales?

The European sales?

Yes.

Europe, there is a -- our business in Europe is governed on two things. Number one, the biggest chunk outside of ITM is wheels. We are turning around, and Russia equipment is -- some containers I believe have left, the rest of them should leave by between now and June 1. So we will turn around over there. I would say that Europe, when they get back in -- when they go off for the whole month of August, and they finally get back in September, I would expect that their sales will probably pretty much stay where we have forecast them, but I think they will start to produce a little bit better profit because there is going to be a little bit more as Paul talked about, is One Titan. So even when you go to Europe, even though – they have been there for a long time, it's what happens in England, it stays in England; what happens in France stays in France, what happens in Italy stays in Italy, and then the Turkish facility.

What we've been doing already, like Maurice said, we got some really good equipment coming over here from the States to Russia that will increase not just their capacity and their efficiencies, but their quality as well, and so we are looking over there to bifurcate the brand, and we’ve got the leading aftermarket brand in Russia, so . So you don't want to screw that up. So, you are really going to need to bifurcate it and go more upstream with anything that we produce under the Goodyear label, and so that equipment is -- some of that’s already on the water, the rest is shortly coming after that. Our strategy thus far has been in Europe we’ve started seeding the market. We do have a sales group already set up over there, works out of our wheel plant there in Birmingham, and we've done some seeding into the market with US products to let them know that we are here and arrive and doing that with sizes that match the European market. We've recently gone over to our Russian plant and said, all right give us the products that -- from the OTR some of the light industrial and then kind of the smaller -- like with industrial and Ag overlap where we can start getting some of that product in there just -- to get our distribution channels warmed up and then get things rolling or prepared to roll when we get Russia up and running, and then looking at some other opportunities to get some products manufactured that would be able to hit the good markets over there on the smaller horsepower tractors that will run into smaller bias-sized tires that's a very attractive market over there. So we are moving some molds around, also moving -- shipping some molds down to Brazil to take advantage of the weak real. So, the only issue we are running into right now is just the timing of ramping it up, but I think the plans there are being laid out and we will keep moving forward on it. So, to answer your question specifically with dates and dollars and timeframes, I am not exactly at that stage yet but there are a lot of pieces that are moving forward.

Quick question then Paul, third quarter revenue, with that kind of when we should expect first revenue or will there be some maybe in June?

Yes. I would agree with later in the back half for the year.

All right. And finally, John best wishes. It has been a pleasure working with you as CFO.

Thank you very much.

The next question is from Joe Gomes of William Smith and Co.

Good morning, guys. I just wondered if you might be able to just give us a little more color, a little more detail and maybe some data points if possible on your aftermarket efforts. You know, last year you had mentioned that it was really an area of focus for you guys in trying to capture more of the aftermarket. And I’m just wondering when you talked a little bit about it, if you just could provide a little more deeper dive into what kind of efforts and results we are seeing in the aftermarket?

Well, the aftermarket and the climate that you have today is a situation where you are dealing with everything that is out there for tires that are made for years, years, and years okay, which we make in almost every place in the world, we can make those sets. So what happens on that is price is probably -- you can get on the higher end, but it's still related to price. And it's how far they drop the price and how far you are going to go down with it, because consistently tire dealers work on much lower margins than an equipment dealer will, okay. We have very few dealers that we sell the LSW package through by our choice. And the reason being is that we believe that the situation is that because it’s tire and wheel, it's going to command a greater markup because it makes everything perform better as you heard the fellow from before, so we are working with the equipment dealers, and the situation there is that that is growing much faster in the aftermarket today than we really anticipated because what happens is the fellow that is in south right now, and he has had let just say 520 46’s on his combine, and they are getting the combines ready , because in probably 30 to 45 days, they are going to be out there in a field. But what happens is we walk up now with a great big 1250, but he bought this combine a couple of years ago, and his problem is that if its wet [ph], he can't jump in there as quick as he can, time is money. So we are going to -- we've set up a program with equipment dealers, and here they are. They are surely not going to buy them for the aftermarket through the OE because they would lose 4-5 months just trying to get an order processed, because the OEs aren't going to keep them on hand. They never do. So what we do is going through them, they make some fair margins, and of course so do we, and it's a bolt-on. So they are not per se mountain tires or anything else, it comes and it's going to replace those duals. We are finding out now that as we’ve started rolling this out, we've got a kick up production, and we will pick up that going through this year much higher than we forecasted it in December. Number two is, it was in the equipment dealer who basically said to us, you know, the big harvesters, the big custom cutters, they are going to -- we have – the OEs have a traveling team with them, covering like -- something like 100 miles apart or something, and so we are trying to figure out how we can do that and stage that. Because what happens with custom cutters if they hit rain, they hit wet conditions, sometimes it stops them, and with our LSWs you can -- big super singles, you throw them on, they can do the harvest. So we have a plateful of how to go about it, but that's pretty much how. So on the other side, your older tires, you go through the tire dealers, and that's price driven. The other, you’ve got to go through the equipment and get them there for they can sell them to the people who have more than a year-old equipment, and that's what we are doing. That's the new part for us right there.

Okay, thanks for that. On the fourth-quarter call, Maury, you mentioned that you thought revenues would grow in 2016. Four months into 2016, do you still think that is achievable?

I would say to you that the first two months, we are way off our target, okay. If we can continue what we started from March on, my answer is yes, and also I would throw the caveat out there that the starting of the TTRC up in oil sense, the thermal reactor, we were -- we have contracts, we have the business there, and we are off probably 30 to 45 days because of permitting. And right now, we are going to lose probably a week or so with the fire. You can see the flames are right in Fort McMurray. We are north of -- up in the Oil Sands that’s about 30-35 miles north, but that's what's going on. But do we have shot at it? Yes, and I think the shot is in the aftermarket.

Okay. Great. And two other quick ones. For John, in the fourth quarter, you were talking about SG&A, it was around the $36 million level, and you said that that was not sustainable. And in this quarter, we are again right around that $35 million, $36 million level, just trying to get a little more color on to that as -- are your plans that -- there are expectations that SG&A will increase off of these levels here? And then for CapEx, are we still looking at the $30 million to $35 million range? Thanks.

Sure. So for CapEx, I think we are looking from $28 million to $33 million, $34 million range. We continue to review those projects, those discrete projects one at a time. So that's the range that we are looking at right now. In terms of SG&A, I think we've been more successful in funding needed investments by reducing spending in other areas that are not either a priority to our business or adding less value, and so we are going to continue to try to maintain, if not lower, our operating expense -- expenditures while still funding our high priority initiatives.

The next question is from David Tamberrino of Goldman Sachs.

Good morning. I have a couple follow-up questions, some things we've already covered, but I just want to understand the thinking here. Raw materials, we've seen natural rubber which I think is a greater proportion of your tire than synthetic rubbers bounce up sequentially here. Wondering when is that going to begin to hit your P&L in terms of purchasing. And then just given competition within the market that you guys have been talking about, are you going to be able to pass on the price increase, again, in what are weak markets?

Well, the first thing is very few people tell you this, but the true fact is which I said earlier. I love price, it is through material, it is a commodity. So if we have to pay it, my friendly Japanese have to pay it, my friendly Chinese have to pay it, and of course the friends over in India have to pay it. So, it is in a case when you are dealing with natural rubber that only the US boys get it, okay, so they are going to get it too. And so then what will happen is it will get passed out. It is also depends on a lot of the contracts we have which are basically OEs and tires. Aftermarket isn't much bigger for us, it is two thirds of what OE comes to tires, so what would we look for is passing it there, and now to answer your question that comes also from your competition from across a lot of ways. Now and that's an unknown variable, but what I personally believe is that they will try and of course we are going to put it out there, so we have at this stage, it will give us a bounce, and the reason it gives us the bounce, because as mentioned earlier, one of the things that we have that is pretty good is all of our mounted assemblies that can go in and out, it will give us a bigger bounce there. So that problem child as you go, does it keep going or does it stop or does it do a flip and come back down, and I personally believe that the reason you are going to see -- you see it go up is real simple. It is automotive driven. I mean folks, the pneumatic tire business in the world runs about $160 billion, $150 billion, and what your total worldwide every farm tire, every construction tire, and every mining tire, and you put them all together, it's probably now – it’s high was $6 billion. It is probably down to around $4 billion today. So that's -- we are so small into that whole big target, which uses and consumes the rubber, so once automotive moves down, then, hell man, price of natural rubber is going to drop like a rocket, and that's when I don't want see it, okay.

No. I appreciate the thoughts. It sounds as if it really remains on -- your competitors remaining rational if the move continues to go up. As we think about -- go on.

The other thing that you should understand is there is a duty right now on every Chinese tire, basically the main thing coming in, okay, and there are some people that are doing some things to cheapen. Yes. And are they going to get burned, , yes. And then we have the situation of the -- our friends from India, and I believe when their commerce department gets down with theirs and then we go before the international, they are going to get a lot, double digit duties, tariffs, and whatever else that you can throw at them, and then you have -- everybody can think that American public have just gone crazy because, you know Trump’s going -- I told everybody on this call he was going to win it, because I run around this country all the time, and now you’ve got the masses, and you can have the Fortune 500 and executives at the top there, and they are going to be sitting on the outside, and it's going to make a big difference. So I think it's going to be -- we are a basic US manufacturer, and I think the future is going to be good for us. And I also think coal is not going to be run out of business. They got the hell beat out of him, but I think it's going to come back, but that's my belief.

Okay. Thank you, Maury. Back on the competitive landscape, when we just think about some of the recent announced acquisitions that we've seen in the space with Trelleborg and Mitas, Yokohama buying ATG; do you expect that to impact competition globally for both Ag and mining tires? And in that vein, do you think consolidation in the space will be positive for Titan or a potential negative with smaller players doubling their size and getting larger here?

No. I actually think the sanity on some of those companies, they – well here, let's take the firms at Yokohama, okay. The mentality of that acquisition is no different than when they ran in and bought Pebble Beach, okay. You talked about over paying, it is nuts. And then where they do ship all their stuff. They ship basically US and into Europe. And if you think with the election and what's going on, you just watch the TV and it's happening now in Europe. You can't have people who on the elite side think all of this, and everybody on this call turns around, and you don't really -- they are working men and women, they are not going to work at a certain price, and by god they are tired of politicians, so hell's wrath is coming, okay. So for us, I think it's great. But I can't control what someone goes and pays, and then you look at the Trelleborg, I know both players very well. I think Tom Nimitz and his parter, they are going to just sit back there and smile. Poor Peter is going to have to really bust his fanny now because you pay that top dollar, and what happened, you’ve caught the down draft. So, you tell me you are more in the financing. How are you going to get it paid back? A business that did $595 million, that sales, and the sales now are headed south. And so, someone pays and what $1.1 billion, if the numbers are right, it's -- that puts us at -- if you want to talk about capacity and what you can earn. My God, the stock should be sitting there at $35 to $40, and then [indiscernible] probably double that. I mean it is really crazy. So my comments on it, lot of people in the coal business now spend in mining business, they’ve spent fortunes, and now they are heading for the bankruptcy. I don't understand it. But of course -- if you are going to buy money at negative interest, then I guess you can't go bankruptcy, and you have to pay it back. So, I leave them with their own thoughts.

Thanks Maury. I appreciate your thoughts. Good good work on the working capital, Paul, John, and team.

The next question is from Alex Blanton from Clear Harbor Asset Management

Hi. This is a quick one because I know we are running over time. But on the reclamation tire -- tire reclamation, you said in the -- I think in the press release that you can do 24 tires a day at that facility in Fort McMurray. Correct? [Multiple Speakers]

24 tires, each tire weighs on average of around 10,000 pounds.

How many days a year are we talking? Are you going to operate seven days a week?

They operate up there seven days week.

Okay, so that's 8,760 tires a year. How many dollars per tire is the revenue?

Well, if you take what our model, you get -- well first off I'll tell you all the prices, I going to get everybody all excited, you guys are going to put numbers .

You put the number -- you put the 24 tires.

I put 24 tires and I am going go to -- we are going to do 24,000 pounds, you get paid, your pricing is basically anywhere from $0.24 to $0.32, and that's tuned up dollars per tire per pound, okay. That's what you get paid to take this tire. And then you are going to process since you’ve got to cut it into four pieces, which are about 2500, you’ve got to wash the thing and it depends on how good you do that, and then you put in it reactor and what you get out is you get about 600 gallons of an oil, the heavy oil has a flash point just below kerosene, the light is just above.

I can't do all that math. Maury, just tell me how many dollars you're going to get for each tire [Multiple Speakers]

Oh I figure, you’ve got figure you are going to probably average right around CAD$5000 to CAD$5500 per tire, that’s your gross revenue.

Now these facilities you are going to put up in Chile, are they going to be the same size?

Everything is a same. One unit, every unit has three reactors.

Okay, so we could then basically triple whatever number we come up for Canada there. Right?

Yes. I'll help you with some numbers here. You’ve basically got a figure. Every unit will generate approximately if you running 24x7, and I am only using the number that is up there okay. There is no problem getting the tires or belting. And both of those have a high content of natural rubber which then in turns makes it a biofuel. So what happens is you end up with this oil and carbon black and so much steel. So I have given you -- so each unit I would think is probably between -- a low will be CAD$15 million and max right around CAD$20 million up in Canada. You’ve got between CAD$30 million and CAD$40 million year is what that unit up there will do.

CAD$30 million to CAD$40 million a year in Canada? And that is -- what is the CAD$15 million to CAD$20 million then?

I told you one unit has three reactors, all right. So you have two units right now up in Canada. So you are going to get CAD$15 million to CAD$20 million per unit. So there is your CAD$30 million to CAD$40 million in sales.

CAD$30 million up to CAD$40 million. And what do you expect this year, because you're just ramping?

I would expect us to be in that range.

But wait you can't be in that range for the year, because you are just starting.

Yes. But you got’ve six months, so I figure it's going to be between $15 million and $20 million.

Okay, so half of that six months. Okay. And the margin is 50%?

Your EBITDA is that.

EBITDA. Yes, well, okay, that is before interest and taxes. That is basically a pretax, right? Or is there DA [Multiple Speakers] is the depreciation associated with this?

Yes. You’ve got depreciations. You depreciate that thing. I’ve got to look because we have a situation up there in Canada. We are on Suncor property for the next 10 years, and we pay them for that. And they get a check and I don't have that right in front but they are 10 years agreements. With the agreement we have a situation for track, wheels and tires.

Well, the thing is I need to know what the depreciation is going to be on this thing.

I don't have that off my -- we've got about $30 million totally into that thing and I don't know how the accountants have the building, how they have it depreciating, I don't know Canadian depreciation laws.

Could you get back to me on what that is? Because I wanted to --.

Yes. John can you ask whoever is doing it. I have no idea.

Yes. I can get back with Alex with some of the details.

There is one more from Kirk Ludtke with CRT Capital Group.

Good morning, everyone. Thanks for taking the call. You've got quite a bit of liquidity, and particularly if you can complete the sale of ITM, but there's not a lot of visibility into your end markets and so it is not entirely clear when they will turn. So I am just curious if -- what metrics do you have in mind at which point you decide to do something maybe more fundamental like sell additional assets or reduce capacity? Is there a date in mind or a minimum liquidity level or -- what are the -- how do you --

Well, the matrix that we are trying to do that Paul's busting his fanny with the bunch of his team members and everything. It's real simple. You have to run your factories; the situation that we have is that Des Moines and Freeport can turnaround and make whatever, each one. So right now they reduced their capacity and the situation is that you take that -- you take it by just dropping it basically down, which is human people [ph], and you condense at a certain point and you are better off to run it as a breakeven, and because the fixed costs are going to set there whether you temporarily shut it down or you don’t. And then the Bryan facility, they knew it could be a positive generator in 2016, but because the termination of -- at the end of the fall when they listed how they were going to take Bryan down, they crossed the threshold of what happens with the WARN Act. So that they didn't -- Bryan did not finish the last reduction of employees until the end of February, soyou look into 1st of March is when they are starting to go. Now Bryan, because the orders and what we started, Bryan has a number of SKUs they are behind that. So they start to go into overtime. And you are going to run overtime up there until such time that you can't produce the tires you got until you start bringing people back, but you want to run those 48 hours because that's the most economical way to run a facility. So all of this has been played out -- and your - so to speak as you say, you have -- you don't really have a strong visibility to it. But we are doing the other things to make it so that you can run this thing, and when it does start to pick up, you just notch it up. And I think we are going to get to there between now and the end of June, we will have this thing pretty well tuned up. Like you say, we got the liquidity, and I think we are going to have a very successful situation with ITM, and the situation from there is -- there is no other except for TTRC which I mentioned; the board will have that decision. There is no question it will bring profit, but then you have to -- we've already had the contacts from mining companies both in Australia and in Chile that have gone to see what's doing on Canada, and we want to do that. I mean it takes every place, it is not one of the nice places like New York City. You might be considered the concrete jungle. But it is pretty nifty. My wife even loves it. She was born there. But you trust me, it's not where you would end up in Fort McMurray even though there are so many great people, that's where they are living and that's where they are going to be. But the other places, Antofagasta is in Chile and you go down to Australia, all those places. They are not in Sydney, they are not in Perth, they are not in Melbourne. So, right at this moment, you are talking to the guy who has to go to those places, and my feeling is I rather take a little bit of profit, pay it back, and then I really flush - we are flushed with cash and let someone else run with it, and that’s just the way I see it.

So you've got another lever to pull with that business.

That lever will end up with environmentists loving it, everything else, it would be like the fellows from, you know who knows, maybe I will get the Swedes or the Norwegians, we just love the Danish, who knows. They’d be running all around. I mean this work is for all these big tire dumps, but when you go to big passenger car, you don't get the biofuel because it's a synthetic rubber that is used. All right, so that's the story there. So, yes, our future is really pretty bright, and we are taking care of -- getting everything set, trust me I am more positive now. I have to go down and watching the peanut farmers and watching the guys planting pickles, and it's great what you see some of these stuff, but the farmers are pretty happy. They can be sitting in their backroom with millions of dollars, and they still tell you, oh it could be better, it could be better, and they want to bargain. That's -- but it's an interesting time. I think for manufacturing, everybody is going to be surprised how things start shaking up. It is about time. You in New York?

No, Stanford

Oh, you are from Stanford, that's where my grandson wants to go to school, scholarship there for-- are you up in Connecticut.

I am in Connecticut. I should mention, yes, Stamford, Connecticut.

Okay. You are up in Connecticut. Well, you are in a high tax area. Did you hear what Illinois was trying to pass?

No

The poor Democrats in Illinois, they felt so bad for California, New York, Connecticut, all the high taxes and all the rich people. They want to graduate income tax up to 11%. They can't keep -- they are nuts. Like everybody wanting free college, free this. It's I guess we are just going to look up and we are going to beam everybody up, so interesting.

Thank you. That's it. Everybody appreciate your time. And again, if you ever get a chance, come out here and visit us. We are pretty proud of what we do. And we’ve got a pretty unique team. So with that from the old man, have a great week.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.