Ladies and gentlemen, welcome to the Titan International Inc. Second Quarter 2017 Earnings Conference Call. During this session, all lines will be muted until the question-and-answer portion of the call. [Operator Instructions] As a reminder, certain statements made in the course of this conference call are considered forward-looking statements for the purposes of the Safe Harbor provisions Under the Private Securities Litigation Reform Act of 1995 and reflect the Company’s or management’s intentions hopes, beliefs, expectations, or predictions for the future. The Company’s actual results may differ materially from the intentions, hopes, beliefs, expectations and predictions contemplated in these forward-looking statements as a result of various factors including those discussed in the Company’s latest Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. In addition, today’s remarks may refer to non-GAAP financial measures, which are intended to supplement, but not be a substitute for the most directly comparable GAAP measures. The earnings release which accompanies today’s call contains financial and other quantitative information to be discussed today, as well as the reconciliation of the non-GAAP measures to the most comparable GAAP measures and is available within the Investor Relations section of our website. Participating from Titan International on today’s call will be Mr. Paul Reitz, Titan’s President and CEO and Mr. Jim Froisland, Titan’s Chief Financial Officer and Chief Information Officer. Please note today’s call is being recorded. At this time, I would like to turn the call over to Mr. Paul Reitz.

Thank you, Austin, appreciated. So, good morning and thanks for joining us. I am going to start off with the highlights from our business this quarter followed by a financial review from our CFO and CIO, Jim Froisland and then we’ll wrap up by taking your questions. Let’s start right at the top with sales. In the first quarter we reported our first year-over-year increase in sales in 18 quarters, so it’s great to report again that our Q2 revenue is up over 10% from last year. As you know, the duration and severity of this latest downturn was challenging. Therefore, it feels really good for our team to be part ourselves out of it. When you dive into our $34 million in revenue gains this quarter, it really comes from a good mix across our segments and business units. For example, this quarter, we had $26 million in gains from our Ag segment, as well as our business units or all up in Ag except for Russia, which was only down slightly due to some market conditions and pricing pressure. That is really something that we are watching the competition closely. They did not respond with price increases. We did do price increases due to the raw material fluctuations. So we did see a decline in our revenue there. As a reminder, we have the number one market share in that region and so, we certainly believe that we can sustain our market leading position and protecting our margin was the right move in the CIS area. Our North American Ag had a good Q2, as we saw our tire business report a double-digit gain that was led by gains in aftermarkets. The aftermarket wins we’ve seen through the first half of this year, really have been spearheaded by…

Thanks Paul. I will begin with a reminder that the results we are about to review were presented in our news release issued this morning and will be discussed in more detail in our Form 10-Q, which was filed this morning. Let's start with the income statement. Net sales for the second quarter of 2017 came in at just over $364 million. This was up more than 10% or just over $34 million from a year ago. This is the second consecutive year-over-year increase we have seen after 18 quarters of declines adjusted for acquisitions. Sequentially, net sales grew almost $7 million or over 2% from first quarter FY 2017. In terms of what this looked like in terms of our segments, both Agricultural and Earthmoving Construction segment, net sales were higher when compared to the same quarter last year. These increases in net sales were largely driven by 7% higher overall volumes in the agricultural and Earthmoving Construction segments, as well as overall favorable price mix and currency. Agricultural saw the biggest improvement in net sales of just over $26 million or 18%. Moving on to gross profit and margin, gross profit for the second quarter was $43.6 million, versus the $43.7 million in the prior year period. Overall, gross margin performance for the quarter was impacted by approximately $11 million of increased raw materials that could not be passed on to the customers. Titan, along with other manufacturers in the industry recently announced price increases to help offset this sharp uptick that everybody realized in raw material prices during the first half of the year. Despite these circumstances, we increased gross margin 84 basis points for the first quarter. Now taking a closer look at our segments. Our Agricultural segment net sales for the second quarter were $172.9…

[Operator Instructions] And our first question comes from Larry De Maria with William Blair. Please go ahead.

Hi, thank you. Good morning. Obviously, on the raw materials issue a bit more, first half $20 million headwind where you had price increases and OEM contracts in place and I think this is neutral in the second half. Therefore, are we going to recoup those costs or all or a portion of those costs or are we just trying to get back to where overall neutral?

Yes, I mean, the first half the year, Larry, the OEM contracts – so take that part of the business aside, the OEM contracts don’t give us any flexibility. So, on July 1, with most of our OEM relationships will see a price adjustment that will reflect the raw material index prices. So, at a minimum, you are going to be obviously neutral with the OEMs. What we’ve been doing throughout the first half of the year is watching what the competition does and also assessing our own situation and really almost going product class by product class determining where and how much you can change prices. So we came out with that in April 1. There is a little bit of a lag, existing orders that got repriced and so, in the back half of the second quarter but really leading into Q3, you get the benefit of that price increase. And then, we are also taking a look at other products where we can adjust pricing. Just this week alone, we’ve seen two of our competitors come out with price increase announcements and so, it’s still very fluid. Our comments, that Jim and I made on the call basically reflect that we believe based upon everything that’s in place today, with existing price increases along with where we see the forecast of raw materials for Q3 and hopefully staying relatively stable this year that will be neutral. Now, in a perfect worlds, we will be able to recoup some of what we lost in the first half of the year, but I am not sure at this point, we can cement that we will be able to start recouping, but we feel that we are – leaves at a comfortable mutual level as we go to the back half.

Okay, thanks. And maybe another way to look at this, how do we think about at this point, overall levels of gross margin in the second half? What should be thinking about for a model then?

Well, I think the simple way to look at it is, we locked in raw dollars for raw materials $20 million. So you got the 9 and the 11 and so, if you were to look at modeling or looking at historically Q1 and Q2, I would say that, the basis for the model in the back half of the year is that, you can say, look our gross margin was definitely impacted by costs that were higher relative to pricing by $20 million in the first half of the year. So I would use that as a basis for going into the second half of the year. For the model, now, the second half of the year, you do have at this quarter, you got the seasonality impacts or some of the shutdowns that always take place in July. You have the European August month that has additional vacation time. And so, I don’t think you can just take – excuse me, the first half of the year and say that’s going to be an exact replication of the second half of the year. But, so I think if you look at historical 2016 back half of the year, add back in the 9 and the 11 in first half of the year that we lost on raw materials and I think that gives you a good foundation for the back half of the year and obviously, we’ve experienced really good revenue growth in the first half of this year and we think those trends do have continuation into the back half.

Okay, thanks. And then, just one other question. Can you, maybe discern between the OEM replacement demand in your business? How the growth rates have bolt-on – both of those please?

Yes, I mean, what we are seeing is, it’s a different moving pieces to that. I wish there is an easy way we could just point to one indicator and so you had this is going to drive these particular movements. I mean, what we are seeing. I’ll start with the tire replacement business, we are seeing a very positive double-digit gains through the first half of the year. And I do believe that, the market conditions with the replacement business had improved, but we’ve also put a tremendous amount of effort and made significant changes over the last 12 months to get ourselves in a better position for growth in the market. So, the replacement business, you think about it with all the new equipment that came into the market, 11, 12, 13-ish, from a tire side, you are going to start getting the replacement cycle with a lot of those tires. But, it’s really a combination of – we’ve done a lot to reposition from a customer experience, from our product positioning standpoints, the opportunity for us in the replacement business in the tires and so, we’ve seen very good double-digit gains in the first half of this year. Now, the OEM tire business, it’s kind of a mix bag, Larry. As everything as with Ag these days, we got certain parts of the business where certain customers, certain parts of their business that we are seeing good indicators of growth and you have other customers that are still dealing with a little bit of inventory. So, I would point to our North American wheel business where we really - we had a good second quarter and that’s all OEM. We see the order book for Q3 with our wheel business in North America remain fairly strong. So it gives us optimism as we move into Q4, which is really when you’ll start to get the – signed for how the OEMs feel about 2018. I just spent a lot of time yesterday with my team talking about that. I think it’s a little early to start predicting 2018, but we had a good Q2. We had a good order book already in place for Q3 probably another 30 to 45 days it will start to tell us more about 2018. So there is definitely a sense of optimism from our North American wheel business which again is that business we are talking 90% OEM that there is some good trends there that hopefully will lead us well into 2018.

Okay, thank you.

You bet. Thanks, Larry.

[Operator Instructions] Our next question comes from Joe Montella with Sidoti & Company. Please go ahead.

Hi, guys, good morning.

Good morning.

Good morning, Joe.

Just wanted to ask you about the SG&A situation. So, it seems like the quarter trended very positively here with SG&A being down a little bit. Just wondering how much and what have you sort of cut right now and if you can quantify that? As well as, what you anticipate going forward as opportunities further?

Yes, Joe, this is Jim. As you saw real dollars $2 million this quarter and that was really looking at it. We started in the first quarter, but we really gained traction in the second quarter here and I am not going to – I would just say this that we are happy with the $2 million, but there is more to realize as I mentioned last time, really the one thing that I had a good chance of looking at as well as policies and procedures and when you do deep dives on that stuff, you start turning over rocks. So, but the real money relies on the – we are looking at a new ERP system and we started that process in the – beginning in the second quarter. So, we are ending the first phase on that and we are in negotiation phases right now, but there is huge dollars, I can’t quote them right now, but trust me, there is a nice ROI on that and we are talking large dollars. The other profit leads me that’s just looking at contracts, that’s looking at everything going through and adjusting our policies to make sure that we’ve always got two or three bids et cetera to maintain ourselves as competitive. But, I hope that helps.

And so, Jim, the $2 million, that was actual absolute dollars that would cut in the second quarter. So we are looking at maybe a $8 million runrate that we’ve cut at the beginning in the second quarter, that was fully realized?

Well, it’s $2 million in the second quarter. I would – time will tell, but I hate to – I’d rather deliver results and we delivered $2 million real dollars. So, I feel confident that we are going to do better than that as we go down. As I said, we are entering into a bit of an unknown. The big dollars are helpingly automate our processes and streamline it and actually have better information around the business and give power to the people. So that they can do their job in a more efficient manner. And we really are – off a better number on that after we get through this really total ROI study.

Great, okay, and is most of that you saw in the second quarter, at least variable or was some of that fixed?

That was both. As I said, we are looking at both variable and stable.

Okay.

I will point out, we did go down in SG&A as our revenue went up. So, we have taken a hard look at fixed as well as variable.

Okay. On the pricing side of things, just wondering, because if I recall, you implemented a new sort of system on pricing at the beginning of this year, I don’t think we touched on that much in the first quarter conference call, but I am just wondering how that’s been playing a role in more efficiency on the gross margin standpoint and pricing of your products?

We have, Joe, what we’ve done is just really improve our market intelligence in utilizing a lot of information before we make pricing decisions and so we’ve become more effective at our pricing and definitely we’ve got more efficient as well as you mentioned, but that process is really ongoing. That has become part of our culture. I think before, if I kind of look back in time, we had a tendency to get too focused on cost plus and now the way we price is in tune with the markets. So we are constantly looking at any deviations in our volumes. We are confidently looking at decisions being made by the competition and we are able to react very swiftly to it. And so, it’s really become – again, as I said part of our culture, and I think that’s what’s really paid off or as I don’t believe there is anybody in North America right now that can move as quickly as we do when it comes to setting prices and going to the depth of product classes and products to figure it out what that price level is or where the price level should be. So, you are looking at the deal with what’s going on in the market and sometimes react, sometimes you don’t. But I think, I am very comfortable with the decision-making process we have now with our pricing process in North America and we definitely seen the improvements in our business this – the first part of this year. So, as you see the – as you see the markets start to increase their prices and kind of gain back what we lost or at least get back to neutral and hopefully gain back what we lost in raw material pricing in the first half of the year, I am very optimistic that we’ll position our products at the right price to either gain volume or gain margin or do both. So, it’s really definitely paid off. But it’s some we started back in 2016, putting all the processes in place to be able to do this and get the benefits we’ve seen in 2017.

Okay. And then, in regard to revenue growth, specifically at the Agriculture segment, so you saw 18% revenue growth in the first half of the year. And you said that the trends you’ll expect will continue, but I think the comps – correct me if I am wrong, might have been a little easier in the first half of the year. So, just wondering, if you can sort of provide anymore color on what kind of sort of trend or revenue growth at the Agriculture segment you are looking at in the back half of the year? Do you think it still will be double-digit kind of – type of growth? Any sort of visibility or color on that that would be helpful?

I’ll add some color and I’ll let Jim talk about the numbers a word, he is comfortable. I don’t think we’ve really put out forecast down to segment level, but from a color standpoint, you do have some different comparisons in the back half of the year as you mentioned, Latin America has some comparisons that are a little bit different than what we saw in the first half of the year. So, some of the sales – the relative sales levels will continue on the same trend. But, again, some of those comparisons may change the percent differences that you are looking at. But I think we are still very optimistic of what’s going on in Latin America on the tire side. We certainly believe that North America has got some good potential there. We saw a good first half of the year. I think the key for North America is going to be what happens with the OEMs and where that goes into 2018. And we are watching the headlines carefully on what they are forecasting. So, that’s the part of the business where I am going to kind of point to the headlines out there that tell you where the OEMs are going. And I think we are optimistic that things will – we definitely feel that they will hit the bottom and we are optimistic that it will keep pushing itself off that floor. So, I think as we move into the back half of the year, for Agriculture, there is parts of Agriculture business, sugarcane in Brazil was down a little bit. So, we’ve seen actually that start to improve a little bit on our undercarriage business already in the back half of the year. So, there is just blinking answers to anything these days. You got to look at individual pieces and I think what we’ve done, that is a blinking answer I think we’ve positioned ourselves very well for growth opportunities on the replacement business of Agriculture and then the key will be is kind of what OEMs do. And that’s just, again, I am going to kind of point to the headlines, so you see from the large OEMs versus try to give you a granular prediction on what that means at the Titan level. I think, again, we position ourselves so well for growth. And definitely optimistic that things are going to keep pushing off the bottom.

All right. Great. I have a few more questions, but I’ll hop in queue for now. Thanks.

All right. Thanks, Joe.

[Operator Instructions] Our next question is a follow-up from Mr. Joe Montella with Sidoti & Company. Please go ahead, sir.

All right, so I guess I’ll continue then. So, I missed your update on TTRC. I was wondering if you could go over that again in terms of how the operations are going and sort of where we are at in terms of dealing with that asset.

Yes, we had the entire Board up there, which was a great experience for them and for us to get them on sites. The business is – all the reactors are operational. It’s definitely a learning process in getting something like that up and running and we continue to move through those phases. The comments I got from the Board were very positive of what they saw. We do have our work ahead of us to keep getting the business more efficient, more effective. I mean, there is lot of fine tuning that still needs to take place to get that business as again as effective as we possibly can. As far as, what to do with that asset, because we brought the Board up there for a reason. I am going to have to defer to the Board of Directors on that one, that’s their decision to make. My role and my team’s role is to get that business operate as effective as we can. I think, from a partner perspective, we positioned that business very well. I mean, we have some partners who are extremely invested and passionate, but everything I just mentioned about getting that business operating effectively. And so, I think that’s another part which the Board is very impressed to see is that, we – Maurice and the Board and what we’ve done as a team is to just get the right partners in place is really I think a critical part to the success of that business in the future. But, again, as far as, the Board’s positioning and their thoughts on what to do with that asset, that’s ultimately be their decision. I certainly have my thoughts on it and we will be sharing those with the Board as we move forward. But our goal right now is to keeping that business operating as effectively as we can and again the Board like what they saw as far as the business and the potential it has.

So, it seems like, six to nine months ago we were maybe actually potentially trying to get operations up to a point where we can sell or buy maybe early 2018. At this point in time, it is sort of a wait and see or do you not want a sort of timetable on it anymore or just trying to understand, given what you’ve said in the past sort of what the thinking is?

Yes, what we did late last year is, Jim and I have – we certainly did approached the market with getting their feelings on what the value of that asset would be and I would say, Jim and I were impressed with those meetings and the response we got. At this point though, I do have to say, look what the Board make that decision, I think the business - we put all the investments into the business. So, there is a lot of opportunities that also come from having that operation up there as far as the relationships we are building with the partners in the oil sands. And potential sales that drives into our three core products, wheels, tires and undercarriage. So the decision really becomes the Board as far as this investment that you believe is going to provide ROI. From an operational perspective, and the additional sales that it can drive or is this asset better positioned in the market to sell. And I think that’s the debate and the discussion that needs to take place with the Board and that’s where – that’s not the question, I am going to try to answer today. I think, as you said, we do need to have that discussion because we have talked about what we see this asset having a – asset has a market value. And again, Jim and I did go out there and do that and we feel that the asset does has value based upon the feedback we got. But, right now, again I am going to let the Board make that decision when the time comes. Our focus is going to be on the operational side of it. The investment has been made. It generated positive EBITDA for us in the second quarter. And so, let’s just keep getting that, let’s keep driving that EBITDA higher and getting the business more effective, again when the Board makes the decision on what to do with the asset, that time will come.

Okay. Good enough. I did want to return to gross margins, I think that was the biggest downfall here in the quarter. It starts up 20% here right now. With what you’ve done with the prices, and with the OEMs as well as the aftermarket products I imagine going into – especially going into the fourth quarter when comps get a little easier and then first half should be a lot better. In addition to the leverage that you see with revenue that gross margin should see some pretty good expansion at least starting in the fourth quarter. Would you agree with that process?

I definitely agree with it. Jim, I don’t know if you want to add some thoughts?

I think, Joe, as you said comparable to the prior year, if – I think your question was, we have the 10% uptick in revenue and I think your question is, do we – nobody has got a crystal ball, okay. But you are saying, as we look out in the future, is that 10% double-digit is going to continue. And I guess, if I had to guess today, hopefully, yes. So, I mean, as we talk about in this call, what we are seeing is green shoots and if it continues to grow, we will be harvesting. But, if not, we will be farming next year.

And if rubber prices stay consistent where they were July 1 or whenever you made the contracts with the OEMs, given where your pricing situation was a year ago, you should have really good comps on pricing situation and then the leverage of revenue and the trend that you are seeing should leverage even more. So the gross margin should see some nice expansion. I just want to make sure I am not missing anything.

Yes, right. If you do look at the rubber prices, they have come down, I mean, it was a huge spike in the first and second quarter, it caught everybody by surprise. Now, Paul mentioned that we have in place – we do dollar day averaging for a certain portion of it and we do some forward buying. This is just good purchasing. So we take a look at what we control, but we don’t control a lot of things. So, we are doing the best we can on the raw material side, but the good news is, that we see rubber prices have really dropped – quite frankly about as quick as they went up. But, who knows, there could be monsoons again for the rubber trees. We consume a lot of synthetic. So, but we are hopeful. I’ll just say that.

Okay. I also wanted to ask you about the redemption – that the non-cash redemption value that hit the income statement. I believe that’s related to Austin, related to the joint venture partner for the Russian assets and I believe that comes up in less than a year, July of 2018 and I am just wondering what your anticipation? When that does expire? What happens with that whole scenario?

Yes, Joe, you are right. It is on our radar and we are currently looking at that and we will have discussions internally and then we will share the different options naturally with the Board, get their approval and implement the plan, but it is on our radar.

Okay. And then, last one from me. The taxes – the tax reserve been all over the place I am actually a little surprised that you’ve been paying so much taxes in the first half of the year relative to your financials. Just wondering why that is and is there any way you can provide anymore guidance relative to taxes, maybe in the back half of the year or going forward?

Well, taxes are a funny area. We all have to pay them. But we are in so many different countries and with this valuation allowance that explained in my note, I know what appears really funny and FX is another thing that bounces around. I will say this that, one of the initiatives I got unlikely front burner is coming together our tax professionals. We are taking a look at all our legal entities, our balance sheet, it’s all at a time. So, actually that – we are meeting next week. So, that is clearly on the table, as well as what you just mentioned the put options et cetera. So, we are looking at that growth soon here.

Okay. All right. I appreciate it. That’s all for me. Thanks a lot.

Thanks, Joe.

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

Well, I just want to appreciate everybody’s time and participation this morning and look forward to you talking again with you on the third quarter conference call. Thanks, have a good day.

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