Ladies and gentlemen, thank you for standing by, and welcome to this morning's presentation. I would now like to introduce Todd Shoot, Senior Vice President of Investor Relation and Treasurer at Titan International. Sir, please go ahead.

Thank you. Good morning, and welcome, everyone, to our first quarter 2020 earnings call. On the call with me today, I have Titan's President and CEO, Paul Reitz; and David Martin, Senior Vice President and CFO. I will begin with a reminder that the results we are about to review were presented in the earnings release issued this morning, along with our Form 10-Q, which was also filed with the Securities and Exchange Commission this morning. As a reminder, during this call, we will be discussing certain forward-looking information, including the company's plans and projections for the future that involve risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. Additional information concerning factors that, either individually or in the aggregate, could cause actual results to differ materially from these forward-looking statements can be found in the harbor statement included in today's earnings release attached to the company's Form 8-K filed earlier today as well as our latest Form 10-K and Forms 10-Q, all of which have been filed with the 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 a reconciliation of the non-GAAP measures to the most comparable GAAP measures. Today's earnings release is available on the company's website within the Investor Relations section under News & Events. Please note, today's call is being recorded. A copy of today's call transcript will be made available on our website. I would now like to turn the call over to Paul.

Thank you, Todd. Good morning, everyone. I hope all of you and your families are as safe and healthy [Technical Difficulty]. The tremendous resolve of Titan and the people at our company in dealing with the many cycles we've seen in our industry and end markets over the past 35 years. The 2019 was one of those challenging years in Titan's long history, but we worked hard and believe we are positioned well entering 2020 to see a good earnings rebound, driven by our internal actions on what we saw as relatively flat expected sales levels. Needless to say, we now find ourselves in the midst of a pandemic of historic proportions and much has changed in the 2 months since our last earnings call. On today's call, we're going to discuss the impact of COVID-19 on our business operations during the first quarter and then the continuing impact into Q2, along with the actions that Titan is taking to deal with the crisis. Titan was impacted early on with our undercarriage plant in Tianjin, China. Our facility experienced an additional shutdown period after the China New Year that resulted in a few million dollars of lost sales and a little over $500,000 in lost gross profit. We monitored that situation closely. We adapted as required. However, as we all know now, the virus rampantly spread from China and hit central Italy in a major way, where Titan has a total of 3 undercarriage plants and 1 wheel plant. Then it moved into Spain, where we also operate a foundry and a casting facility. So as a result of that, the negative impact from the virus in our first quarter expanded, especially within our earthmoving and construction segment, where we saw volumes fall 23% and segment operating income decreased by…

Thanks, Paul, and good morning. Today, as normal, I will review some of the more important things, items from our performance in the first quarter, while I'll spend some time outlining our current actions to manage liquidity and profitability during this period of unprecedented volatility and uncertainty. As we all know, the first quarter was just a prelude to the challenges that have been brought on by COVID-19. As Paul said, the second quarter was much more challenging on our -- the second quarter will be much more challenging on our financial results. But we are responding decisively with the actions to ensure that we minimize the impact where possible and also have adequate liquidity to manage through it. When we reported in early March, we certainly didn't anticipate the acceleration of the virus and the impact on our global operations that have transpired during the last 60 days. That said, let me get into some detail. Net sales for the first quarter were $40 million or 13% more than what we saw in the fourth quarter of 2019, with seasonal upticks in the business, particularly in aftermarket. As we described in the release, activity was much -- was more in the category of normal for operations in the first two months with the exception of our small operations in China. But as the quarter progressed, the impacts of COVID-19 started to have a more material impact on the business. On a constant currency basis, revenues would have been down 14% for the first quarter or $56 million from the prior year. The negative currency impact was nearly $13 million or 3%, with much of the impact coming in Latin America and Australia. While ag sales lagged the prior year by 10%, the biggest impact on sales again this quarter…

[Operator Instructions]

This is Joe Mondillo from Sidoti & Company. So, David, could you just walk me through some of the liquidity just buckets? First off, what do you have right now, given the extended credit that you did -- have received on your revolver accessible? And were -- how much -- I assume at the end of the quarter you did not have the cash related to the CARES Act, how much was that as well?

Well, we have not accessed any direct funds from the CARES Act, but we will be able to defer payments on payroll taxes for the remainder of the year versus -- and then pension obligations. I don't have a number on the tax side of things. But it's, obviously, on all of our U.S. payroll, so it's going to be a fairly significant impact -- positive impact on cash flow. Pension obligations are in the several million dollar range, I believe, for payments that will be able to be deferred to 2022. So it's that. So -- but to go back to your original question, you -- talking about liquidity things. Go back to Europe, we have revolving credit lines that we've always had available, and they're working through particular government-backed lending facilities. The banks obviously have to get through a process with that. And -- but obviously, the government-backed piece of this in Italy primarily is going to come through, and it's mostly in our 1 operation one or two operations over there. So I do expect $15 million to $20 million of additional available liquidity will probably in the form of committed facilities for us to be able to access for the next several years. There'll be couple-year kind of maturity on those. In Latin America, we accessed $4 million of additional debt, and we extended the terms of $6 million on existing debt as well. So that's going to provide -- it's at least $6 million that we're not going to have to pay this year, and then we have additional capability in -- and could actually executed that in March. In the U.S., as I said just briefly that we have $62 million of headroom as of the end of March. We had roughly $30 million borrowed on the credit facility. As far as where we are now, I don't have any -- I don't have the borrowing base for April at this point, but we have borrowed additional funds in April, but we still have significant headroom. It hasn't changed dramatically at this point. So I guess the biggest question is what's going to be over the next several months? I do believe that it will be decreased somewhat, but we still have more than adequate headroom to manage the business.

Okay. So the $62 million was what you have available on your ABL as of end of March?

That's correct.

And inventory liquid management, you expect more than $25 million. I would have thought -- any way to quantify that? Or you're expecting more than the original.

I think obviously, with the decreased sales expectations for the year, that inventory levels will come down more than that. I think working capital is a balance. We have to manage inventories at the right levels for the right times to be able to manage the recovery. But obviously, working capital is more than just inventory. And you got receivables and payables that we have to manage as well, and those go up and down. The primary source of liquidity is really on inventory, if you really think about it. And so I think it will be more than that. That's why I think I'm confident that we're still going to be able to manage it pretty well.

Okay. And you said you're anticipating $15 million to $20 million of asset sales still? Is that correct?

No, actually, I said that I'm expecting between $20 million and $50 million of additional sales.

And what -- could you provide a little more color on thoughts there just given the environment. Is this going to be over the next 12 to 18 months? Or do you think this -- are you confident -- how confident are you that...

I am fairly confident in the numbers, and I expect that to be the 60- to 90-day range. And these are things that -- these are transactions that are in process, and I fully expect that we're going to be able to realize those.

Okay. And then last question, just regarding sort of liquidity and cash flow. Given your expectations with the inventory and what you stated, where you're expecting CapEx to be, do you have any outlook? Or do you think you'll be cash flow positive for the year on a free cash flow basis?

I believe that we have the opportunity and it will be a balance between how much debt we pay down versus how much cash we can bank. But with all -- everything weighed together, I would expect that we're at least at parity.

Okay. On your SG&A, R&D comments, you stated that you're looking for about $135 million to $140 million, is that correct?

Yes, that's what I expect the levels to be based on our current expectations. We're driving hard on some of these cost reductions. Certainly, we're saving money on the natural things, as we've cut out discretionary spending and those types of things. But we're also looking at other structured reductions.

Okay. And I guess last thing for me, and I have a few more questions, but I'll let someone else have a chance. In terms of your COVID impact, could you just talked a lot, Paul, on the prepared commentary on what you're doing and how it's affecting you. But I may have missed some of the details. Could you just help us explain more so, really, what's happened to your plant operations? I know there's a lot of effects with your customers and maybe the supply chain. But in terms of your actual plant operations, was anything down in the month of April? Could you just walk us through the sort of March, April, May to date time period in terms of where your operations are and where they were?

Yes. The way I look at it is we've seen really 3 waves of the COVID-19 impact. The first one was the government-mandated closings. And so where we saw that most significantly would be in March, for this quarter, would be in Italy, where we operate mainly undercarriage. We've got 3 undercarriage and 1 wheel. And then in Spain, where we have an undercarriage foundry. The impact at first was really just government-driven, the restrictions on operations and/or closing the plants down for a period of time to sanitize them. That took place in March. And then as you saw, the virus moved around from March into April. We saw another government decree in Brazil where we had to close down for 2 weeks. All the locations now are back operational. So what you're seeing is kind of the second wave that started impacting us in April, which would be our customers and their fluctuating demand. As they started shutting down some of their facilities, we had to adapt to that. We've done that by extending some shutdowns, taking some furloughs, reducing headcount, reducing temp labor, reducing overtime, basically controlling your output levels in relation to the demand that was coming in the door. And now you're kind of seeing the tail end of April into May is kind of what I would call the wave 3 of the virus impact, which is the supply chain issues at some of our customers. So really to answer your question, it does kind of vary on what time period you're looking at, what wave of the crisis and that -- the waves all took place at different times of our operations, whether you're talking North America, South America or Europe. So at this point, we continue to look at it, Joe. And as David highlighted as well, we're adjusting our work schedules. We're adjusting our labor output, and we'll continue to do so whatever it takes in the second quarter and into the third to make sure that we're keeping them aligned. But the biggest impact this period, really, as you saw in our results, was to earthmoving/construction, where that first wave hit us most significantly in Europe at our Italian undercarriage facilities.

And just a follow-up regarding that. Could you give us an idea of how much that Italy and Spain facility makes up of -- is that ITM business in Italy? Is that a large percentage of the ITM business? And how long was that down for most of April?

Yes. So, we for the Italian business, we basically were down for a couple of weeks, if you want to -- at 100%, if you will. But then other weeks, we were at varying levels of production. For the undercarriage operations, it's interesting. I don't have a specific number as to dollars and cents and things like that, but the -- it is the feeder for the global supply chain for undercarriage from Italy and Spain. And so it's an important aspect of that business. But again, think about, call it 50% of productive levels, if you will, in the month of April. In Spain, for example, we have various aspects of that business, but the primary undercarriage aspect of that business was down for just a couple of weeks as well. And -- but other parts of that operation that supply different other markets was running 100% due to high levels of demand.

Your next question comes from the line of Kirk Ludtke of Imperial Capital.

Sorry, I was disconnected for a while, but I think I've gotten most of it. And by the way, I'm glad to hear everything is -- appears to be well under control there. You guys are doing well, keeping your employees safe. I mean, that's -- it's job one. With respect to the liquidity measures you've outlined, these are -- this adds up to quite a bit of additional liquidity. I just want to make sure that I'm not double counting anything, but you're talking about $15 million to $20 million of additional banking availability through banking transactions.

Yes.

Another $20 million to $50 million of noncore asset sales.

Yes.

Additional net working capital reduction.

Yes. Through the course of the year, yes.

Were you able to quantify? Or were you in a position to quantify how much working capital you think you can take out?

Our initial target was $25 million, and that was based on stable sales year-over-year. So I -- certainly, I believe that's a really achievable number given where we are, but we -- it certainly could be more than that. And again, I'm being careful about this target because as recovery occurs in the second half and then if we start to see a nice recovery, which we have absolutely no idea as to how quickly that happens, we have to manage inventories to be able to meet the demand levels and our customers' needs. So I'm going to be careful about how much more we can predict for it. But I still believe that at least $25 million would be achievable.

Okay. And then I believe you mentioned operational levers, and I was hoping maybe you could expand on that.

Operational levels for liquidity, you mean?

I mean levers of ways that you can improve liquidity through other operational means. I didn't know what that meant, but maybe that's...

Well, I think I alluded to it a little bit earlier, but obviously deferring payroll tax payments, lowering capital expectations. We had original target of $35 million. And obviously, with lower profitability and need to preserve cash flow, we're going to be cutting that back to $20 million to $25 million for the year. And then again, the extension of pension obligations, that's several million dollars as well. So all the things that we can attach ourselves to. And then we're also in certain operations globally -- and I'd say this is more the case in Europe, where we're able to get government reimbursement for payroll protection. And these aren't loan facilities, these are just direct reimbursement to keep our payroll or and keep our workforce together. And that's particularly in the U.K. and a little bit in Italy as well.

Okay. Great. And then I think you mentioned that you've borrowed another $30 million under the revolving credit since quarter end.

No. No, that's not the case. We had $30 million outstanding at the end of the quarter. We borrowed a little bit more since then, but not significantly. And so that was actually -- we had $36 million outstanding at the end of the year, it dropped to $30 million at the end of the first quarter, and it's in and around the range of that now.

And your next question comes from the line of Joe Mondillo of Sidoti & Company.

Guys, just a few follow-up questions, if you will. So just to clarify, I would assume it's fair to say that the second quarter is going to be softer than the first quarter. Is that your expectation?

Yes, that's the case.

And so I guess, I was wondering if you could expand on sort of what you're thinking for the back half of the year in terms of a rebound? And I guess, more so in the context of your comments that you made in the press release regarding sort of flat year-over-year EBITDA. Just curious on how you're thinking about the rebound in the back half to sort of make up for the weak first half?

Yes. I mean, it's tough to sit here today and say we have visibility into the back half of the year. And so our comments were around our internal actions that we believe will have a significant impact that we can keep EBITDA flat looking at 2020 compared to 2019. What we see at a broader level for the back half of the year is primarily related to Ag, where we have more aftermarket exposure. We know for a fact that farmers are going to be very active. We're already seeing that here in North America, where they're ahead of the trends this year compared to last. We know that in Brazil, where we have a significant aftermarket business, the same thing will take place as well. So we feel more comfortable with ag from the perspective of the mix of our products being more aftermarket-driven, combined with the fact that agriculture is such a big part of the broader economy. Governments have to protect their supply chain related to agriculture and food. And so the risk of further downside to ag, assuming they have a good planting cycle in Russia, North America and South America and Europe is fairly mitigated because of that. And so we don't necessarily have the exposure into the OEMs, what they're seeing right now. But I think we all can say the back half of the year, there's going to be some pent-up demand that will get released into the agricultural space. And I think we feel pretty confident that there will be a portion of the sales lost in the first half that will be recovered in the second half. Now to the extent of it, the timing of it, we clearly don't have that type of visibility at this point. But that's the ag side of it. The construction part of our business, where you saw a more significant decline already in the first quarter, visibility is tough there. I can't sit here today -- David made some comments about the mining business in Australia being a little weaker. I think there's less visibility on exactly what that will look like, but we've already seen a stronger impact to our business in the first part of the year pertaining to earthmoving and construction. And so again, I think as we look to the back half of the year, it points us in the direction where we believe with our internal measures, we can keep EBITDA relatively stable. But we're not able to sit here and give a sales forecast per se on what we see really beyond what we've already commented on the second quarter.

Joe, let me just add on to that is that, I outlined it in my comments that current forecast would have us in the range of being down 12%. And obviously, first quarter and second quarter there will be higher levels of comparison in terms of a decline year-over-year. But the second half of the year, we already know. If you go back to our performance in the second half of last year, it was fairly weak. We started to see the impacts in the construction markets particularly, and we went to very low levels of volume in the fourth quarter. So that forecast would suggest that we're coming much more in line with what we did last year. And that obviously averages out to what the year-over-year performance full year would be. So that's really the premise for how we develop the forecast and the expectations around sales and EBITDA. But again, I will caution, in fact, that the visibility is limited, and this is the best we can estimate at this time.

Yes. I was actually curious on what your thoughts were on that third and fourth quarter, especially the fourth quarter with the earthmoving. I understand that's an easier comp even though the visibility is still sort of not good at all.

It is. Again, there was a severe destocking effort in the fourth quarter last year. So we feel like that -- I don't think inventory levels are at high levels right now. So the expectation is that maybe we can kind of see flatness in a comparative way.

Okay. And last question for me, we're getting extended on time here, but I was just hoping to understand a little bit more on the gross margin and your cost of goods sold regarding cost actions and how you're trying to support your gross margins.

Yes. Again, it's -- as Paul outlined, we've taken all the measures of taking out any excess of labor out of our plants all across the globe. And in some cases, we're getting government reimbursement for furloughs overseas. So that's a nice impact. So, we don't have to have the impact of those costs. We have already, all the things that we took -- that we actually have been working on for some time, the 80/20 measures that we took across our North American plants and tire that have created better efficiency, you can -- we actually saw some of that coming in Q1, where we actually had a year-over-year better performance in margins, and I expect that to continue through the year. We had -- last year, if you think -- if you remember, we had some pretty high cost at inventory that went through our North American wheel operations. That's, again, a very significant year-over-year impact that we believe is out of the way, and it's not longer there. So we're -- that should be a significant improvement in that profitability. And we can -- and notwithstanding the fact that we have all these things going on across the globe, we have taken costs out in just about every single operation and created better efficiencies. Our Australian business is in a better place than it was a year ago. We've had to destock a lot of the tire inventories over the course of 2019. That should help us improve profitability as well. And then the final measure really being our SG&A reductions.

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

Well, I appreciate everybody joining the call today. Stay safe, stay healthy, and we'll talk to you again at the end of second quarter. Thank you.