Good morning, ladies and gentlemen and welcome to the Titan International, Inc. First Quarter 2021 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. It is now my pleasure to turn the floor over to Todd Shoot, Senior Vice President, Investor Relations and Treasurer for Titan. Mr. Shoot, the floor is yours.

Thank you, Betsy. Good morning and welcome everyone to our first quarter 2021 earnings call. On the call with me today, we have Titan’s President and CEO, Paul Reitz and Titan’s Senior Vice President and CFO, David Martin. I will begin with a reminder that the results we are about to review were presented in the earnings release issued this morning along with our Form 10-Q, which has also been 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 risk, uncertainties and assumptions that could cause our actual result to differ materially from the forward-looking information. Additional information concerning these factors that either individually or in the aggregate, could cause actual results to differ materially from these forward-looking statements can be found within the safe harbor statement included in 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 SEC. In addition to today’s remarks, we 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. Today’s earnings release is available on the company’s website within the Investor Relations section under the News and Events tab. Please note today’s call is being recorded. A replay of this presentation will be available soon after the call within the Investor Relations section on Titan’s website. In addition, 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. Since our last earnings release in early March, Titan has really continued to move further in a positive direction, which I feel is definitely reflected in our solid first quarter financial results. On a currency-adjusted basis, we had our strongest quarter since the first half of 2018, with our sales up over 18% to $403 million and adjusted EBITDA coming in at $26 million. Along with that, we had a return to profitability this quarter. Those results are all on the high end of our outlook that we have provided for the first quarter. We were also able to leverage that growth into a 450 basis point gain in gross margin to a more reasonable level of 13.2% this period. This is definitely a good start to the year as all of our business units posted sales gains. And again, overall, this quarter was our best since the first half of 2018. So, let’s start by taking a look at where this growth came from. The strong recovery that we began to see in Ag earlier this year has only accelerated further as our Q1 sales are up over 20% in the segment. The drivers behind the growth in Ag do not appear to be short term in duration and are showing increasingly positive signs to support the strength of the market. For example, let’s take a look at inventory levels with both new and used equipment, which is clearly a strong indicator of where things are going. The prices in the used market have continued to rise to their highest level since 2012. This will help keep the new market turning as well with the higher trading values. We also need to combine those facts on inventory with the positive aspect that the…

Thanks, Paul and good morning to everyone. Thank you for joining the call today. Well, the first quarter was a wild ride, but we managed this very strongly through it all and we successfully delivered the results that we anticipated. Now before I get into the details of the results, I want to highlight some of the more important takeaways for the quarter. Again, sales grew by 18% and without the negative currency impact sales were up right at 20% for the quarter. The last time we had sales over $400 million in the quarter was in Q1 of 2019, before all the world disruption, including the tariffs, the global construction slump and the pandemic. Our growth between Ag and EMC was very balanced. Ag sales grew by 21%. EMC grew by 20%. The consumer segment reported a decline of 5%, but that was entirely due to currency devaluation. Without that, consumer segment sales would have been up by 2.4%. The point is we would have had growth in all 3 segments for the quarter. Our gross profit level was impressive at $53 million with a margin of 13.2%, which shows the power of our leverage on our cost positions within our operations. Despite the rapid rise in sales from Q4 to Q1, our cash position at $96 million was resilient due to the continued strong discipline across the business on the working capital management. Now let’s get into the details for the quarter’s performance. As I just mentioned, net sales were up 18% over Q1 2020. Sales in Q1 also exceeded fourth quarter ‘20 sales by 23.4%. We continue the recent sales momentum as we progress through the quarter and our March sales exceeded $150 million. This was the strongest month in sales we’ve had since March of 2019.…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Steve Ferazani with Sidoti. Please go ahead.

Good morning, everyone. Wanted to ask more – to ask a little bit more about the supply chain issues. Obviously, as we have been going through earnings season, we have certainly heard from other companies where the disruptions significantly affected volume and margins. It didn’t seem to be the case for Titan. One, I guess, how you manage through it? And then the outlook for many seems to be that maybe the disruptions are easing with uncertainty ahead and see if you would characterize it similarly?

Yes. The way I look at it from Titan’s perspective, and both David and I commented on it. I mean we put a lot of effort in our supply chain management. As David alluded, we made some investments starting last year into this quarter as well. We feel that the team has done a great job in working our way through it. There are challenges out there, as you noted in your question and we’ve all been reading elsewhere from other public comments. One of the things I will say that’s different about Titan compare to some of the other comments you’re seeing. We don’t build 500 horsepower tractors and we don’t build bulldozers and large loaders. And so when they see supply chain disruptions, they are talking about dealing with thousands of components that they are coming in and trying to assemble. We take raw materials and we convert them into a finished product. So you’re dealing with primarily steel paint, natural synthetic rubbers and fabric, a few chemicals and some nylon. And so we’ve seen some issues with pricing. We’ve seen some issues with deliveries showing up, maybe not on time. But as a company, at this point, we have not had issues that have disrupted our supply chain and our operations to any significant level. And we put a lot of effort into being able to say that comment. That one sentence takes a lot of effort to be able to – for me to be able to say that to you today. And I think our first quarter results are good evidence of that. And so far, what we’ve seen in April – in dealing with our operations, our challenges around the world, what we’ve seen in April is consistent as well as with what we reported for the first quarter.

Great. That’s helpful. Just also wanted to circle around on – you had talked on the last conference call about needing to ramp up labor to meet increasing demand and not only to add labor but to train labor, which can often pressure margins a bit. Just trying to – if you can walk through sort of your ability to add that labor, train them, continue with the strong margins. And if you’re at the headcount you think you need to be now.

Yes. We are continuing the hiring and training process. We are not at the headcount that we desire to be at, both short-term and long-term. So we will continue to hire. There are some disruptions to our margins because of the training liability incurred. The one thing I want to mention is a built a tire is not just a rubber that’s put into a mold. There is a tremendous amount of skill and building that goes into a tire – different stages of putting together the tire. And there is a skilled labor force that’s required to do that. So you’re looking at about a 12-week process to get somebody up to speed. So walking around one of our tire plants earlier this week, what you see a lot of is what would be a one-person operation, you now have two people there, one being trained and another person doing the training. So, that’s the type of disruptions that we see to our – really to our efficiencies. And so as those two people who are now working on one piece of equipment, they break off and they start to work independently again, that’s where we will get the return back to efficiency levels that we know we’re capable of historically. Again, that’s on the tire side. We are hiring. We are getting the people in place, and we will continue to do that. On the wheel side of our business, when you’re dealing with heavy steel and tremendously powerful equipment, it’s maybe not the same skill as how you build the product, but the amount of safety and the amount of training we have to put in place is still extremely significant. And so we take our time. We train our people properly. We do not shortcut the training process just to get more labor output as we prioritize safety of all our people ahead of that. And so we will continue to incur that liability. We will continue to hire as we have been throughout the first quarter in April and into May. I don’t see that slowing down. And all projections are for our business that we need to continue to bring that more labor. And we are getting the people and we are doing that.

That’s helpful. I have a couple of more, but let me get back in the queue and turn it over, let some other people take some questions. Thanks.

Okay. Thanks, Steve.

[Operator Instructions] Our next question comes from Larry De Maria with William Blair. Please go ahead.

Thanks. Good morning everybody.

Good morning, Larry.

Nice to see the turn. So, I guess Maurice’s comments in the release noted by Paul, your efforts to sign up customers to LTAs. How is this different than in the past? And have we gotten away from that practice in recent years? So just kind of – we’re curious – a little more curious about that because I thought a lot of the larger customers would have been on LTAs already?

I think the market dynamics over the last few years was steering things away from LTAs. As you noted, there were some comments in our press release about that. We view the signing of LTA as a good positive indicator for Titan. It allows us to secure more consistent volume, kind of going back into the previous question on labor. We’re able to schedule our plants more effectively. We’re able to run our plants more efficiently. So we certainly view the LTAs as a sign of strength in the marketplace and a sign of strength in Titan’s capabilities. And I think what we’ve seen over the last let’s call it, 5 years when the back market, in particular, was soft. The prevalence of LTA had declined. And we certainly had some in place. And what we’re talking about, what Maurice’s comments in the press release are alluding to, is we are looking to secure that volume, and our customers are looking to secure that volume and the LTA is the way you do that. And that’s something that we are in discussions. We’ve had some discussions that have resulted in LTAs, and we will continue to further explore that. And the customers that don’t have LTA, that’s how we use – if you have a contract that obviously influences how you schedule your operations.

Yes, sure. Thanks.

It really is a win-win for both sides. But yes, I think the fact that we’re getting more LTAs, Larry, is a good indication of the marketplace.

Yes. No, it sounds like it. And also, it was noted that you have capacity to meet demand. But obviously, there are some labor issues and ramping issues because we all know what’s going on in the world. So I guess what I’m what I’m trying to understand here, do you guys have the ability to meet the demand that’s out there this year for wheel and tires? I mean, most of the companies, except maybe one, have given guidance for this year. There is a plan out there. There is an industry expectation on the amount of equipment that’s going to be filled this year. Can you guys – knowing what’s out there, do you feel like you can keep up with that demand?

We certainly do, and I’ll kind of break it apart into different geographies. Looking at North America, our wheel and tire capabilities in Ag, especially when you start looking at the tooling that’s required to produce our products on the wheel side, it’s been one of the biggest hit values we have as a company is the tooling that we have in the wheel industry. That’s not something that you just can replicate. It’s years of investments in knowledge that are sitting there within that our tooling war room. And so we certainly believe that based upon our tooling and our production footprint in North America, we have the ability to meet the demand of the marketplace. And in my opinion, I think that’s why tying back into your previous question, we are a really good long-term partner for these OEMs that are looking to secure a relationship with type and the LTA is a great way to do that. We have the capacity and the capabilities. When you look at Brazil, as both David and I talked about, it is a little different scenario. We’ve tremendously increased our capacity. We’ve seen our market share grow and our output grow, especially when you get into the large radio Ags. As the market has continued to shift to higher horsepower equipment, we will need to invest. As David said, that’s already included in our forecast for the year, but we will need to invest to continue to increase our capacity. And so, it’s a different set of challenges in Brazil where the marketplace is really ramped up extremely fast. And so we are – in 2021, we are basically on allocation and sold out and Titan Brazil. And so we will grow our capacity and output for ‘22 and certainly provide you guys guidance on our information on that as we get into what that looks like as far as the increases in output. So Brazil, I would call, sold out, whereas North America is more but as we add the labor, we will continue to meet the increasing demand of the marketplace. As you alluded to, Larry, we see the forecasts that are out there that are going up and we are definitely preparing ourselves to meet that demand.

Okay. Thank you very much. Good luck.

Our next question comes from Alex Blanton with Clear Harbor Asset Management. Please go ahead.

Hi, good morning.

Good morning, Alex.

Good morning, Alex.

Could you characterize if you can what your market share is relative to last year? For example, during downturns, stronger companies typically pick up share from weaker companies who can’t cope with the downturn as well. And I’m wondering if there was any of that included in your increase in sales?

Well, as, I mean, we certainly believe that we’re a strong company and our tremendous production capabilities would enable us to grow share. Really, in our industry, unfortunately, there is not good market share information that we can rely on, especially in North America. It’s just not available. We are one of – we’re really the only stand-alone publicly traded company. And what we’ve seen through the years that the information is just not reliable. So we do not participate in any market share information that you may read as we have found it to be completely unreliable. So I can’t answer that question specifically. Now in South America, where we are able to use government information to help back into what we believe are accurate market share reports, we have seen our market share increase in South America. Hence, some of the comments we made earlier about the investments we’ve made over the last decade in Brazil and so I think your question, I would say, in Brazil, is true that the strength of who we are, with our capabilities in Brazil has enabled us to continue to grow market share. And again, we’ve kind of used our government data to provide some information. I would say that’s definitely the case. I mean I know our market share with the OEMs from when we did the acquisition in 2011 to where we are in 2021, has increased significantly and as has our overall market share. So in Brazil, I got a little more information that I would say, yes, Alex, what you asked is correct. In North America, I don’t have any information, where I could even begin to answer that question for you.

Okay, thank you. You haven’t said much about the aftermarket today. Could you give us a little more on that, how that’s doing? Farmers are in better shape, should be doing at some replacement?

You got it.

No, the aftermarket has been tremendous. And you’re right, in kind of our comments, we addressed the OEMs because that’s a lot of 1,000 public space. But from an aftermarket perspective, we have invested tremendously and building in good distribution channel with the aftermarket. When you look at our tire business in both North and South America, when you look at ITM, our investments in building a stronger aftermarket distribution channel over the last few years has resulted in growth there as well. The aftermarket in North America is doing tremendously. And really for us, Alex, right now is trying to produce as much product as we can to serve the aftermarket. And that’s exactly what we’re doing with increasing our outlook capabilities but we see – to your comment, our order books for aftermarket are up significantly now compared to where they were last year at this time. I don’t see that slowing down. To your point, the farmers are – they are out in the field. They have strong balance sheets, a lot of income came in over the last 12 months, and they are looking to upgrade equipment. So our aftermarket is good. The one comment I will make on top of it is that’s where our LSW performs well in times like this, where farmers are looking to make investments to increase the capabilities, their equipment. LSW is a tremendous fit for that. And that is sold primarily through the aftermarket channels. And so our LSW sales continue to benefit through the aftermarket channels at times like this as well, Alex.

Why don’t the OEMs adopt the LSW? Does it mean they have to redesign their tractors? Or what is your problem there?

They do. They have it in their books. And so we feel good about the relationship with the OEMs on the placements of LSW, and they do have it as available as an option to their customers. But what we have seen is our tire dealers and our aftermarket channels have really embraced LSW products. They hold inventory, Alex. I think that’s a big component of it is when farmers want something, we have some incredibly strong dealers that have held the inventory on LSW, they have the availability. The other thing is they have the service. In LSW Ag tires, it’s 5 feet wide, so you’ve got to have the service equipment to be able to handle it as well. So we’ve been really, really strong, and quite frankly, really satisfied with what our aftermarket dealers have done to hold the inventory, have the service capabilities for LSW. So I would say it’s a negative against OEMs in any way. It’s just a different way of how you get into the marketplace. And so they do it through a book where it’s an option. Our tire dealers are out there pushing in the market. They are providing the service. They are connecting with the end users, and it’s been really effective for us.

Yes. I have another question on Russia, but I want to find out, is there anyone else waiting in the queue because I could let them in, but if they are not in, I might as well keep asking some questions.

Alex, go ahead and ask the question.

Yes. You are fine, Alex. Go ahead.

Okay. Well, Russia, you haven’t said much about that. What’s the situation there?

I’ll tell you, obviously, over the last several years, the Ag markets have been struggling, obviously, throughout the CIS. And – but our business has continued to improve. We’ve – it doesn’t show up because of the Russian ruble in terms of how that performance looks. But I would tell you that we’ve continued to make improvements over the last 3 years in the business. We’ve introduced new product lines across the business to get even better market share in certain aspects of it. And so we feel like there is been great progress and they are a positive contribution to Titan.

Our next question is a follow-up from Steve Ferazani with Sidoti. Please go ahead.

Yes. Thanks for taking a couple more questions. In terms of the SG&A line, I know – I think you cited the rise at least in some part due to increased sourcing costs. Do you have an idea of sort of run rate, are we going to be at a slightly higher level, obviously, with higher sales than might be expected?

Yes. I would tell you that, again, it was a little high this quarter. I would expect this to moderate in the $34 million to $35 million per quarter range. And so it will be marginally up from where we were a year ago. But taking into account some of the costs associated with the initiative, it’s a little bit part of it, but some of it is variable compensation costs related to sales and profitability. So – but that’s really it. We’ve really controlled our costs across the business and don’t expect to see any significant rise from here.

I wanted to ask moving on to construction I know to some degree you don’t necessarily have visibility on the end use. Do you have a sense? Was – did you see a real spike in terms of mining and that you have reflected, but the fact that ITM was so strong this quarter with expectations, construction maybe picks up further out or would that not be the sense?

No. I think I would agree with your comments. I mean, we did see the mining segment pickup. We did see parts of construction as well, especially in the Far East and parts of Europe. I would say this, I mean the order books are really strong to start the year. There is a lot of strength in the second quarter, to the third quarter. I think the differences with construction right now is there is a lot of leading indicators that you can look at an Ag, and you can see longer and further into the future where Ag is going. Whereas right now with construction, there is good visibility through the next couple of quarters, but there is some more attributes out there that kind of see where they go, what our governments are going to do, how are projects going to pick up. So a little bit more of wait and see on what 2022 brings, but certainly, a great start to the year. We kind of expected this pickup in our earth moving and our construction segment to be more in the back half of the year, and it’s great to see it start the year off strong. And again, that robust order book is there that will get us through the second quarter, third quarter. But again, kind of looking to see how things building and look for continuing growth into next year. Where that – again, I think all the attributes are there and all the indicators are that the level of strength is really, really strong in Ag.

And then I did want to circle back a bit on capital structure. I know you did complete the refinancing that gets you out to 2028. Clearly leverage is going to come down a lot just on rising EBIT over the next couple of – few quarters. But how are you thinking about optimal capital structure now?

Well, we obviously, our profitability is going to be such they were we back in a range of, call it, 4x in terms of leverage. And we feel that that’s a much more comfortable place for the company to operate and with improving cash flow, it gives us other opportunities. We may take that down a little bit here and there as we need to across the international operations. But obviously, with the growth in cash too, we can do other things with – obviously, keep that cash in play or use that for further investments in the business as we move forward. So with $400 million being a pretty stable capital, that’s going to be there for a while, obviously. There is – again, we have a lot more flexibility.

And so on that, you didn’t raise your CapEx guidance as far as I can tell today. Given the opportunities and the demand out there, are there some other opportunities you might be thinking about in terms of investment though I know you had the capacity?

I would tell you that we obviously are looking at things that we can do to continue to invest in the business, and we’re going to be opportunistic to do that. Given – I have pretty good visibility into the programs that we need to do within those markets. And as we alluded to earlier on the Latin America side, we have stepped up our capital expenditures this year with relative to there. And there are some of the things we do are going in North America as well. So – but over the next couple of years, there are some things that will be put in play. But I don’t expect it to be significantly in excess of where we are today. But that’s where we are.

I think David has a great job outlining a really strong CapEx plan. And you’re right it’s similar to the level that we spent in previous years, but where David has done a great job at the business leaders, making sure that we have the right investment to handle the growth. And so in Brazil, it requires some deeper investments on the equipment and the fixture side, whereas in other locations, we will make all the investments that are required on the tooling and to make sure that we have the capability to meet that demand. So, with our production footprint that we already we have, the CapEx needs are not that significant and we will – if we have to go up a couple of million dollars to get additional tooling, we will do that. And David, it’s got that all aligned with our business leaders. And so I think it’s a sign of strength that Titan is able to meet the growth of the marketplace with the CapEx plan that David has outlined. So I think we’re in really good shape to meet growth and really not have to break the bank in order to do it.

Great. That’s helpful. Thanks so much. Have a great day.

Thanks, Steve.

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

Great. Thanks everybody for your participation today and really excited about where 2021 is headed. So look forward to talking to you in the near future. Thank you.

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