Good morning, ladies and gentlemen, and welcome to the Titan International Incorporated Fourth Quarter 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. [Operator Instructions] It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Analysis for Titan. Mr. Snyder, the floor is yours.

Thank you, Forum. Good morning. I’d like to welcome everyone to Titan’s fourth quarter 2022 earnings call. On the call with me today are Paul Reitz, Titan’s President and CEO; and David Martin, Titan’s Senior Vice President and CFO. I will begin with the reminder that the results we are about to review were presented in the earnings release issued yesterday, along with our Form 10-K, which was also filed with the Securities and Exchange Commission. 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 results to differ materially from the forward-looking information. Additional information concerning factors that either individually or in the aggregate could cause actual results to differ materially from these forward-looking statements can be found within the Safe Harbor statement included in the earnings release attached to the company’s Form 8-K filed earlier, as well as our latest Form 10-K and Forms 10-Q, all of which have been filed with the SEC. In addition, today’s remarks may refer to non-GAAP financial measures, which are intended to supplement, but not be a substitute for the most directly comparable GAAP measures. The earnings release, which accompanies today’s call contains financial and other quantitative information to be discussed today, as well as the reconciliation of the non-GAAP measures to the most comparable GAAP measures. The Q4 earnings release is available on the company’s website, a replay of this presentation, a copy of today’s transcript and the company’s latest quarterly investor presentation will all be available soon after the call on Titan’s website I would now like to turn the call over to Paul.

Thanks, Alan, and good morning, everyone. The Titan team closed out 2022 in excellent fashion with fourth quarter results that push us up over the top for record performance in terms of sales, profitability, and cash flow. How’d we get to this point? It really comes from our global One Titan team that continues to be energized by working relentlessly to engineer and manufacture our market leading products that simply make off-road equipment perform better. Really, our vision and strategy as a company is formed by that premise, and it serves as our guiding light throughout our organization. A core concept of achieving on our vision and meeting the needs of our customers is through our strong technical connection to end users of off-road equipment, especially in agriculture. At Titan, we have a culture here that is centered around living and learning by playing in the sandbox with end users and really understanding their needs and then bringing that information back into our organization. With that important knowledge, we then let our product and technical engineers run fast, develop, and also our operational teams manufacture these market leading products, and that really creates a cool place for an exciting place to work. This entrepreneurial culture, this is at the root of our company’s foundation and has been for decades. We combined with our strong technical and manufacturing knowhow this flows vigorously throughout our day-to-day activities and is the backbone of the company that we are today. Moving over to our financial results. We simply had an exceptional year. Our revenue reached $2.17 billion, 22% higher than last year, but actually 27% higher if you exclude FX in our Australian divestiture. Along with strong demand in our end markets, this demonstrates our team’s ability to recruit, train, and retain people to…

Thank you, Paul, and good morning to everyone that’s on the call with us today. While we’re now closing the book on 2022, and it was quite the ride for Titan, it’s truly gratifying to see the success after all the hard work our One Titan team has put into moving the company forward. Financial success is just one aspect of those accomplishments of 2022. Our team has established new standards for operations planning, financial forecasting, and the most importantly, discipline and focus in the midst of tremendous volatility over the last number of years. Now, let’s walk through some of the key highlights for Q4 and our 2022 full year performance. Q4 sales continued to expand with our organic growth of almost 10% from Q4 last year after excluding the FX – of FX and the sale of Australia, which occurred in the early part of 2022. Our full year organic growth, excluding those same factors was 27%. Q4 adjusted EBITDA grew by $17 million or 46% from Q4 last year, and it capped off a record year for our earnings as Paul said earlier. Our full year adjusted EBITDA was $253 million, representing growth of 87%. Our earnings per share growth was also very impressive on both reported and adjusted basis. Adjusted EPS jumped from $0.14 in Q4 2021 to $0.44 in Q4 2022, and went from $0.60 per share in the full year of 2021 to $2.20 per share for 2022. Our cash balances increased by $43 million from Q3 on the strength of these earnings and the solid working capital management. And last, we paid down debt by $36 million in 2022 and grew cash by $61 million driving down debt net – net debt to $286 million. Our debt leverage now stands at 1.1 times.…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Steve Ferazani with Sidoti. Steve, your line is now open.

Good morning, Paul. Good morning, David. Appreciate all the detail on the call. You cited seasonality typical maintenance work around some of your plants and typical holiday shutdowns. But EMC ran really hot this quarter. You can see, given that it was Europe, that it’s – ITM was the factor. Why didn’t we see any of that impact to that particular business? Is that just because it hasn’t ramped up as fast so far?

Yes. You’ll note that during the year, it’s continued to ramp, it’s been a little bit different in the seasonality that the ag side of our business did. Earlier in the year, it was kind of – it was slower as we were coming out of the prior year it was a little bit weaker as well. So it’s been a momentum thing for the business as well. And again, high level production really solid pricing in place to manage a lot of volatility. And so we not only see the top line growth, but we’re seeing the margin expansion as well. Ag has been running hot, as we know through 2021, and we saw it all the way through the first half of 2022. And you started to see a little more return on the seasonality front as we headed into the end of the year.

Yes. One thing keep in mind, Steve, I mean, during the pandemic, the – our ag related businesses were deemed critical infrastructure around the world. So North America, South America, we had to keep running hard, like David alluded to. And we’d reach a point operationally where we needed to pull some days out and get focused on some maintenance. So we would be prepared to start 2023 in a good position.

Makes sense. When we heard from some of your large customers through this earnings season, they certainly noted continued supply chain issues, component shortages that you don’t have. Are you running ahead of your customers? Is that turning into a bit of an issue as we see this cycle extend, but clearly some of your larger customers are continuing to have supply chain issues?

Yes. Steve, I mean that’s – you kind of led into a pretty good explanation for why at this point, we feel that putting out a broad range of guidance just isn’t the way to approach things. I mean, we have a strong internal forecast, like you said, our – the market has a great backdrop. The OEMs all confirmed that over the past couple weeks. But to your point, one of the things we’re seeing is that their supply chains are starting to get caught up. So what does that mean for us? The OEMs have a lot of partially finished equipment that is on their lots in their inventory. And what I have heard and what we’ve seen is that Titan has done a very good job in 2022 and even going back before that, but specifically we’ve done a good job throughout 2022. That means that partially finished equipment already has wheels and tires on it. So as they work to get their supply chain caught up in other aspects of components that those deliveries are starting to come in, it’s creating this murkiness in our forecast. I mean, we have customers and when I say, murkiness in our forecast, it’s wheels and tires assemblies, it’s North America, South America. So this is a broad range perspective. This is not a micro issue related to Titan. This is bigger picture. What we’re seeing is they got inventory that they need to move, they’re going to move, it’s already got wheels and tires. They got some inventories of wheels and tires, and they need to get the two more imbalanced. And so we’re seeing some forecasts that are moving all the time. Again, this is broad, big picture North, South America. And we just need some time to…

Sure, that makes sense. That makes sense. Can you give us a peak on how Q1 is playing out since we’re two months in?

Yes, it’s a pretty good start. We’ve had a very good January and February across the business. And so yes, we’re – I can’t say, a whole lot more than that obviously at this point, but it’s a very solid start.

Okay. And then on another really strong free cash flow quarter you didn’t pay down debt, obviously you have over $150 million on the balance sheet now CapEx up a little bit, but as you noted, you still should be looking at a pretty strong cash flow year. Anything you want to offer in terms of capital allocation?

Well, what I said in my remarks earlier was that we would be looking at opportunism – opportunistic acquisitions, joint ventures, things like that, things that can continue to grow our business and our core markets. Again, these things don’t always come at the times that I can’t really give you any strong forecast for exactly what that is. But being a market leader that we are, we have opportunities and we will continue to pursue those things that make sense for us. We will be supportive of the stock on the stock repurchase program as we need to. It’s not like we’re going to be in the market every day buying stock, but as we need to support the stock, we will do so with that. And so we will continue to be building cash for in the meantime and be looking at ways to improve our returns very proactively.

Okay, Paul, David, thanks for all the answers, responses.

Thanks, Steve.

Our next question comes from the line of Larry DeMaria with William Blair. Larry, your line is now open.

Hi, thanks. Good morning everybody. So first just follow – hey guys. Follow up on the last question. I mean, from where we stand now, two months through 1Q, will we anticipate 1Q to be up, down, flat from a sales and EBITDA perspective? I would imagine we have some visibility on that.

Well, I will say that, know we still have March to go here, but we’re off to a solid start comparatively to last year.

Okay.

We can’t give you a specific number yet, but it is – from the – all the critical numbers we are continuing to grow.

Okay, that’s good to hear. Thank you. And secondly, I think you mentioned in prepared remarks, when talking about CapEx and capacity expansion, can you just maybe delve into that a little bit more, because obviously we’re talking about some mixed signals in the market and then some global capacity expansion. So could you just sort of delve – give into that a little bit more?

Yes. Larry, I’ll take that and let Paul chime in if he needs to. But when we talk about selective capacity improvements, it’s really surrounding large ag in large radial. And so we will – we focus our efforts on making sure that we have the capacity to run LSW, particularly here in the U.S. and Latin America. So we very focused on that and because we see demand continuing to rise with respect to that sector of the market. And so over the last couple of years we’ve put in programs that are been in place and we continue to follow that program. So yeah, very simple.

And going back to some of the comments I made earlier, I mean, it’s the culture of who we are as we’re going to adjust to the changing needs of our customer base and we’re good at understanding the needs of the end users that our customers serve. And we do not stop with product development. So some of that capacity increase is just really looking at our product portfolio and finding out where we can make that portfolio stronger. And we’ve consistently been doing that and we will continue to do that going further along with, like David said, expansion in large radial.

Okay, makes sense. And then last thing, obviously, there’s a – I just wanted to get your color on international broadly from your Russian business, maybe a reset on there and what’s going on. And then secondly, how important is this [indiscernible] on the Indian imports and a Russian oil, obviously. Could you just give us some discussion around how important Indian imports have become? And then secondly, just an update on your own Russian business. Thank you.

Yes. I mean, the Indian imports is really the similar situation that we’ve been talking about in the marketplace to seen for a number of years. We go to Washington, D.C. this week and we have the Sunset Review on the case that we put in front of the ITC five, six years ago. We did get a positive confirmation from the ITC when this case was initially filed five years ago, and now it’s up for that Sunset Review this week. And again, we feel that the facts and circumstances that we presented five years ago are very much still the case. Along with the additional information that we put out in the press release yesterday pertaining to the use of Russian petroleum products in tires that are produced in India that then are exported into the U.S. And so really what that, that letter that we released is addressing is a case again, Larry that’s been out there for five years and goes back to the original filing that we made in front of the ITC. So it’s not a new situation with India that’s changed but again, I – as we stated in that press release, I mean they are taking Russian oil, which has been sanctioned by President Biden. They’re bind it at a discount as their economic minister has stood in front of the entire world and said they’re going to do what’s best for their citizens. They do not care about any sanctions that are in place. And you look at the amount of oil they have been purchasing, it’s gone up nearly 10 times in the past year. And as we all know, oil byproducts are a big part of what goes into a tire in the form of carbon, black and synthetic…

Okay. Very clear. Thank you, Paul, and good luck this year.

Thanks, Larry.

Thanks, Larry.

Our next question comes from the line of Kirk Ludtke with Imperial Capital. Kirk, your line is now open.

Hello, Paul. Hello, David.

Hey, good morning.

Thank you. Thank you for the call. Just to follow-up on the Indian tire imports, do you know offhand how – what percentage of the U.S. market these Indian tire imports have?

Not off the top of my head, no. It’s really hard to get that clear data. I know there’s a publication – a industrial publication that puts out tire data. We have not participated in that since I think 2014. We found some inaccuracies in the data that was being compiled there. So no, I – we don’t have accurate information on that. Other countries, I know in Europe and Brazil, you’re able to kind of use some government statistics to pull that together, but in the U.S. not specifically able to give you an answer on that. If we come across it, maybe this week we might come across it with our ITC review. But I don’t have it off the top of my head right now.

Okay. That’s fine. Yes. I can imagine it can – tires can originate in India and go through any number of countries before they get here, so it’s probably pretty tough to pin down. With respect to input costs, I noticed a pretty big spike in hot-rolled coil in the last week. And I know that over time, you’ve talked about your ability to pass through input cost increases onto customers, and that, that seems like you were making some progress there. Can you maybe talk a little bit about how your contract protection has changed if it has with respect to passing steel on – steel price increases on?

Yes, Kirk, I’ll take that into couple different angles. One is, we carry less inventory than we used to from a raw material perspective. We also have tightened up our contracts with our suppliers with respect to trying to make sure that we’re not hitting spikes in peaks and valleys with respect to the steel because it’s been very volatile over the last couple years. And so first of all, we’ve tightened up the supply side so to prevent any major movement one way or another. And then that that’s enabled us to also to work with our customers to tighten it up on the pricing end so that we have again less volatility overall. And we do have contracts that are in place and we have them, they’re changing typically either every 90 days or – and sometimes there’s lags on how that index is used for purposes of pricing. So we got any number of ways to combat volatility. As we know, as we went through 2022, we were seeing a very strong drop in pricing on hot-rolled coils as well. So if you think about that in the U.S., it’s been pretty volatile and we were able to manage it through 2022. And we fully expect with the actions that we’ve taken that we’ll be able to lessen the volatility with respect to how it flows through our production.

Okay. Thank you. I – so I guess input costs were a tailwind in 2022. Is that safe to say?

Well, not on the tire side. We’ve had elevated costs throughout 2022 that we’re able to manage, and you can see that our margins have been pretty solid with all that. And I would say right now it’s become more stable as we enter 2023 than it was throughout 2022. In our assurance of supply is actually getting a little bit better as well. So I think as we look forward, I think we’re in really good shape with how we’re going to be able to manage those input costs. At the same time, we do face inflation on things such as labor and other areas as well that we’re trying to manage as well. But as far as raw materials themselves, we think – again the actions we’ve taken to manage on both on the supply side and the pricing side have lessened our – the amount of volatility that we could see from that.

Got it. Thank you. And then lastly, on the capital, back to the capital allocation question, just for a second one follow-up. You mentioned opportunistic acquisitions or JVs – and/or JVs. Which side of the business are you – where are you seeing the opportunities?

I think we’re in a good position where it could be in a number of different areas across the spectrum of customers and products that we produce ag mining or construction, but it will stay within our core. So we’ll be able to leverage that in a way that will be beneficial. We are not looking to reach and expand in ways that, again, don’t fit in from a – and it’s not just in a cost synergy, but it’s our ability to better serve the marketplace and take care of our customers. That’s – those are the synergies that we would expect to get and where we’re looking.

So it would be focused on improving the range of product.

Range of products and/or distribution, both of those products, correct.

Okay. Got it. I appreciate it. Thank you very much. Congratulations on a fantastic year.

Yes. Thanks, Kirk.

Thank you.

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

I just want to thank everybody for your participation in today’s call and really look forward to giving you an update at end of our first quarter results. Thank you. Have a good day.

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