Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. Second Quarter 2024 Earnings Conference Call. It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Investor Relations for Titan. Mr. Snyder, the floor is yours.

Thank you, Karli. Good morning. I’d like to welcome everyone to Titan’s second quarter 2024 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 a reminder that the results we are about to review were presented in the earnings release issued yesterday, along with our Form 10-Q, which was also filed with the Securities and Exchange Commission yesterday. 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 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 Q2 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. Overall, Titan had a solid quarter performance generating good cash flow. Those of you that have been following Titan or the ag industry are likely well aware that industry conditions are difficult. Yet there are really several key positive themes for Titan that I want to highlight. First, our management team here at Titan has a deep reservoir of experience operating a cyclical business. The actions we have taken over the past several years have the company well positioned to manage through the cyclical trough and continue to drive accelerating growth as macro conditions improve. We firmly believe improving conditions are a matter of when, not if, as the secular demand drivers for the economic sectors we serve remain very much intact. Second, we have a strong aftermarket business in both consumer and ag, fortified by market-leading one-stop shop strategy, which we have talked about on prior calls. That strategy is helping to offset some of the OEM-centric weakness in the marketplace, and we expect it to be a strong attribute through all phases of the economic cycle. Beyond the strategic importance of the aftermarket, which was strengthened by our Carlstar acquisition, I also would like to say that the integration is progressing quite well. The last item I’ll touch on is our innovative product portfolio. That is something we’re proud of and a key differentiator here at Titan with our products such as LSW tire wheel assemblies, which we’ve noted still have plenty of opportunity for growth, both in Ag and potential new markets such as Canada, Brazil, and the military. So to provide some context on current market conditions, the primary headwinds can be summarized as interest rates where we’re seeing market participants await potential rate cuts and then farmer income. Agriculture equipment is a significant purchase for farmers. It goes without saying that financing costs are an important part of that equation. The prospect of rates coming down as soon as this fall has led many to defer such purchases and OEMs have responded by reducing their production schedules. Additionally, the USDA forecasts 2024 net farmer income to drop 25% from ’23, following a 16% decline from 2022 to ’23. That would mark the 2 largest dollar value drops in history. That has certainly created some paralysis within the industry, and we’re seeing some ag tire volumes down to levels well below the last cyclical trough in 2019. This is primarily due to reduced OEM purchases along with some inventory destocking. As recently as 2 years ago, when we were seeing record-setting sales, I don’t think many of us would have predicted volumes falling this far and this quickly. Nonetheless, as we look back on those periods, Titan has used that strong cash flow in ’21, ’22, and again this year to rapidly deleverage our balance sheet, knowing that doing so would create significant strategic and financial flexibility for the future. So if you look prior to acquiring Carlstar, our leverage was down to 1x. From there, we were at more than 10x as recently as 2020. And today, even after the Carlstar acquisition, we’re still at a reasonable 1.8x. Of course, David will expand further on our balance sheet and our capital allocation. But the point is, compared with prior cyclical troughs, Titan is in a significantly better position this part of the cycle than in the past. Over the last few years, we’ve also devoted significant resources to optimizing our operations. Through this consistent effort to drive process efficiency, you’ve seen it result in a better margin profile that we’re seeing in both good times and bad. As we work through the trough portion of the cycle, that improved margin profile is driving our ability to continue to generate positive free cash flow. So turning to the secular demand drivers for the sectors we serve, we see no reason to think anything has changed for the long-term, and those positive attributes are still there. Global population continues to increase, which will drive demand for food. While AI is the talk of the town and it’s causing changes in some industries, farming still requires putting seeds in the ground and nurturing plants through to harvest. This requires capital equipment such as tractors, sprayers, and combines. Farmers continue to work their fields to feed the world and use equipment that continues to age. This drives demand for replacement tires and slowly yet surely creates pent-up demand for new equipment over time. Our LSWs make both new and older model equipment perform better. The second theme I noted at the outset of my comments was that our aftermarket business is one of the positives helping to offset some of the OEM weakness we face. Stating the obvious, a positive aspect of the tire business is that they need replacing over time. In both our consumer and Ag segments, people may be deferring purchases of new machinery, such as tractors, lawnmowers, and ATVs, but they’re still using their equipment. As those tires on those old machines wear out, they need replacing. Titan is well positioned because we have built a strong global aftermarket presence, and our recent acquisition adds to that strength with a one-stop shop strategy that has only expanded our aftermarket offering further. We are seeing our consumer aftermarket hold up quite well at this point, which is a testament to our dealers and wholesalers in this segment and the resilience of our aftermarket business even when OE market conditions are challenged. Using that to give you an update on the Carlstar integration, I’m pleased to see that it continues to go very well as our teams are working together to create additional value for our customers and shareholders. It is important to note that Carlstar’s aftermarket customers, especially wholesalers and distributors, are mainly complementary to Titan’s dealers. This creates a great opportunity to cross-sell Titan products within Carlstar’s network, and on the other side of the coin, we would sell Carlstar products within Titan dealers. Our sales and engineering teams have been working extensively on this effort, but we’ve really only scratched the surface since we’re only 6 months in at this point. Additionally, there are wide-open opportunities to sell Carlstar products in Europe and Latin America, where Titan currently has limited consumer presence. At the same time, Carlstar can benefit from existing Titan distribution there. These are just a couple of examples of commercial opportunities presented from the acquisition, and David will touch further on cost synergies, which I will at least note at this time are progressing nicely as well. The final theme I discussed at the beginning of the call is we continue to prioritize investments in R&D, as our innovation pipeline is a key differentiator here at Titan and in the field with our end users. In our press release, I detailed how our LSW tires provide a number of tangible benefits for farmers, ranging from direct cost savings on fuel, reduced soil compaction, and a more comfortable ride in both the field and on the road. We think we still have plenty of room to increase LSW penetration in the Ag market. I’m looking forward to an opportunity to meet with several key Canadian farmers who also happen to be key influencers in the farming community. Creating enthusiasm with end users is what got us here with LSW and is important for us as it continues to create buying with the dealers that serve those farmers and in turn the OEMs. The large farmers I’ll be visiting in Canada have a lot of influence among their peers, and people do pay attention to what they are saying. I use this opportunity in Canada as just an example of how Titan can see a continuing growth path ahead for LSW to increase penetration there and abroad in Brazil while also continuing to grow our base in the U.S. Beyond LSW, there are other significant areas of innovation going on here at Titan. We continue to work on those extensively across our portfolio in wheel tires and undercarriage using the strength of our Titan Carlstar and ITM brands. I really look forward to sharing more of that with all of you in the future and more specifically with our customers and end users who use our products. Before I hand the call off to David, I want to spend a few more minutes expanding on our market conditions in our key geographic areas. In the U.S., I already noted how interest rates and farmer income continue to be significant headwinds. Speaking about conditions in the EMC segment, purchases of construction equipment are impacted by some of those same macro issues as Ag equipment. However, that end market demand for EMC equipment also has positive differences tied to infrastructure spending and demand for minerals. At this time, we’re seeing that segment hold up better for us. Outside the U.S., European farmer sentiment continues to be weaker due to the ongoing geopolitical concerns, particularly the potential increase of some protectionist trade policies in that region. In South America, many of you are aware of the significant flooding that occurred in Brazil from late April into May. It hit Brazil's southernmost state, Rio Grande do Sul, which happens to be home to significant agricultural production, and will have a negative impact on current year demand in what was already a down market. So really taking that full circle in summary, macroeconomic conditions continue to be difficult, but really thanks to the superb efforts of everyone on the Titan team and what we’ve built here through recent years, the connection we have with our customers and our end users, we are continuing to produce solid results. We’re well positioned for growth as cyclical conditions improve, and we firmly believe they will. With that, I would now like to turn the call over to David.

Thank you, Paul, and good morning. It’s good to catch up with everyone on Titan again this quarter. We’ve been intensely focused on protecting our margins and cash flow as we work through the increasingly challenging market conditions Paul discussed. I’ll start with a brief review of the key items in the second quarter and then provide more detail on our margin and cash flow strategies. Revenues in the second quarter were $532 million, with adjusted EBITDA of $49 million and free cash flow of $53 million. We’re particularly satisfied to have significantly exceeded our free cash flow guidance for the quarter. We’ve been very focused on our aftermarket business, which has been central to our M&A and investment strategies. The results that we’re seeing validate the decisions we have been making and will be even more impactful in the long-term. Our adjusted gross margin for Q2 was 16.5% compared to 17.9% a year ago, reflecting lower sales. In order to facilitate an apples-to-apples comparison, the second quarter 2024 gross margin was adjusted to exclude amortization of stepped-up inventory values that rolled through Q2 from the acquisition. On a segment basis, Ag segment adjusted gross margin was 15.5%. Consumer adjusted gross margin was 21.8% and EMC adjusted gross margin was 13%. Our SG&A expenses for the second quarter were $52 million, or 9.7% of sales, compared to 35% in the prior year, or 7.2% of sales. Again, with the acquisition, SG&A increased. Without those expenses related to Carlstar, SG&A would have been down 1% year-over-year. R&D expenses were $4.2 million in the second quarter compared to $3.2 million a year ago. I’ll just reiterate here that our ability to continue to fund R&D is one of the many benefits that follow from our ability to continue to drive free cash flow, and we’re continuing to focus on those investments that will drive market innovation for years to come. Our operating income was $22.3 million for the quarter, and operating cash flow was $71 million. Working capital management has been a core strength of our team over the last number of years. This was demonstrated in the second quarter with a $44 million positive contribution to operating cash flow. Second quarter CapEx totaled $17.6 million compared to $15.9 million during the prior year period. This included $4.5 million related to CapEx with the acquisition. As we noted in the earnings release, we intend to reduce the pace of CapEx investments in the second half in response to the weaker demand environment, and we’ll continue to prioritize a flexible posture as we navigate the current environment like we normally do. We also used cash to fund our share repurchase program, buying back 775,000 shares for a total of $6.4 million during the quarter, and we have approximately $9.6 million of available capacity remaining on our share repurchase program. We will continue to be active with share repurchases in the third quarter. Net debt at quarter end was $326 million, or 1.8x leverage, compared to $370 million on March 31, a very healthy improvement quarter-over-quarter. Our priorities continue to be to pay down the debt we took on related to the acquisition, and we’ll pace that based on our cash flow. Beyond that, we will continue the strong focus on our investments in R&D and strategic growth, along with opportunistic share repurchases. It will be a balanced approach. The second quarter included a significant increase in our effective tax rate, which was 81.9% on a reported basis and 65% on an adjusted basis. This was due to the impact of where our different geographic entities produce profits and losses. With the reduction in our U.S. operations profitability expected in 2024, we’re now faced with additional non-deductible interest expense. We also have some temporary negative impacts from the tax structure of the acquisition, which we are actively managing through this year. In 2024, we’re seeing more challenging conditions on our tax rate, and it will be higher than normal. Cash taxes continue to be significantly lower than the reported income tax expense. For the first 6 months of 2024, our cash taxes were $12 million, and I expect the full year cash taxes will be in the range of $20 million to $25 million. Now looking ahead to the third quarter and the remainder of the year, we are cautiously optimistic that some of the macro headwinds will start to abate, but we’re managing the business as if it won’t. When and if the Fed will cut interest rates seems to shift with each round of economic news, so we’re focusing on things within our control. That means aggressively managing our labor and our production schedules, and we have strong plans surrounding sourcing of raw materials and other input costs. We’re also pushing hard to realize the various acquisition synergies we outlined last quarter. Immediate areas of focus include redundant back-office areas, raw materials, procurement, among other things. Regarding the latter, various inputs will see contract sunsets moving forward, and as that occurs, we expect to find more savings as market prices have come down. During the second quarter, we realized $2 million in cost savings and other acquisition-related synergies on our early wins. With our aftermarket business faring better than the OEM side, given the various dynamics we’ve been discussing, that higher-margin sales mix adds a positive bias to our margins that can offset some of the weakness elsewhere. The more we can hold margins as a result of these strategies, the better position we are in to generate positive cash flow, and that is precisely our focus. In the second half, we’ll manage working capital very diligently as usual. In discussing the CapEx earlier, I noted that we intend to throttle back on some of that spending in the third quarter in order to preserve as much cash flow as possible. Also, as we noted in the earnings release and our commentary, our leverage ratio is very manageable, so interest expense is not nearly the burden that it was during the last industry downturn. All these things will help us to build strength through the cycle. Moving on to our financial guidance, with conditions remaining uncertain, we have chosen to continue with quarterly guidance again this quarter. Our guidance ranges for the third quarter are revenues of $450 million to $500 million, adjusted EBITDA of $25 million to $30 million, free cash flow of $20 million to $30 million, and CapEx of $10 million to $15 million. Thank you for your time this morning and your attention to what matters for Titan. We would now like to turn the call back over to Karli, our operator, for the Q&A session.

Thank you. Our first question comes from Steve Ferazani of Sidoti. Steve, your line is now open.

Thank you. Good morning, Paul. I appreciate all the detail on the call. I think I asked about this last quarter, but I’m going to ask again because the numbers seem odd in the EMC segment, which you noted is holding up a lot better because of infrastructure and mining. Sales were down only 5%, but sales were down about $9 million. Your gross profit came down $8 million. Your segment income came down $7.5 million. Given that you’re not seeing a collapse in that market, those decremental margins seem really high. Is there something else going on there?

No. It’s a bit of a mix of the volume that we have going through the segment. We had some challenges within our wheel and tire business, particularly here in the U.S. during the quarter. ITM itself is performing well; it had a quarter where it performed pretty much on par with where we expected them to be and actually better than the first quarter. So, it’s really entirely around the mix of the products that we sell more than anything. We do have steel prices that have come down. We don’t have as much leverage on that this quarter either. So those are really the key elements.

I mean that doesn’t cover why gross profit is down almost the same amount as sales.

Yes. I’m just saying that the mix of the products where we had the higher-margin products are the ones that we lost this quarter, and we had challenges in our production with volume on the wheel and tire part of the business.

Do you expect any kind of margin improvement in what would be seasonally slower second half?

I would expect margins to be pretty solid for the second half of the year, particularly for ITM.

Okay, thanks for that. And I know you may not want to say this, but can you tell me how Carlstar is performing year-over-year?

Qualitatively, absolutely. I would say that as we noted in our comments, Carlstar is performing very well, and there are solid reasons behind it. The business they’re in with their one-stop strategy, they do an exceptional job. With the aftermarket focus they have in the consumer segment, they’re doing an exceptional job, and the market that they’re in via the aftermarket is holding up really well. So I think on both performance and integration, and then you kind of throw in their synergies that David talked about six months in, we’re very happy with where we’re at.

Can you talk about the drivers of recovery? This provided you a little bit more diversification. Obviously, with that, you pointed to interest rates and farmer income. What’s the recovery? What’s the catalyst for a recovery in some of these consumer markets for Carlstar, and is it differentiated significantly from Ag?

Yes. I’ll answer that two ways. First, I think the key thing to point out is how Titan is rebuilding itself and diversifying our portfolio as a company. This acquisition was a great springboard for that; it gave us exposure to complementary products. It gave us good exposure to the aftermarket. Now those are things that all legacy Titan was building on. We have an exceptional aftermarket business for tires in North America and South America. This just really brings us to that next level. It opens up cross-selling opportunities, as I noted. And so I would say, let’s look at the diversification of Titan going forward, along with the fact that we can take that one-stop shop, our incredible global portfolio, and we can grow within it. We look to grow the brands that we have via manufacturing opportunities with partners and joint ventures. I look at the future as almost kind of like this endless picture that we’re starting to fill in. But to answer your question about the drivers within that, interest rates are significant. There’s no doubt about it. The news that we’re starting to see with interest rates looking like they’re going to crack is definitely a positive. With interest rates moving, I think those deferred purchases will get a boost. But again, we need to look toward the long run. I believe we’re in a good position for growth opportunities that can come out of the newly combined company.

As the markets – and you’ve been through these cycles many times, Paul, as the markets start to recover, how quickly will channels need to restock? How fast can that come? Or do we still need to work? Will we need to work through some inventory first?

I’m going to rely on history to answer that question and say that our business doesn’t go up or down 5%. When it goes down, it goes down more than that, and part of that is because they bleed the inventory out of it. We have seen OEMs be very aggressive during this cycle to get inventory out of the equation, both their own and within their dealer networks. Typically, this means when the catalysts kick into gear, you get that additional boost because inventory levels are not where they need to be. Dealers panic about losing sales, and OEMs panic that their dealers don’t have the product on their lot when people demand it. You see the order uptick move rapidly. Our experience is really important at Titan. I can say on behalf of the entire team that we are taking the actions needed quickly and effectively now so we don’t have to get together in a room and battle over it. We know what we need to do. I have also instructed my team to be prepared because when the market comes back, we better be able to serve our customers. They are counting on us. They expect it. We have the biggest and broadest portfolio in the industry. So when that uptick you're talking about happens, I expect my team and our company to be there for our customers. It’s a fine line. It’s an art, not a science, of how we manage through this cycle. But I expect there will be some inventory restocking when the catalysts kick into gear. That has historically been what we’ve seen.

Great. Thanks, Paul. Thanks, David.

Thanks, Steve.

Our next question comes from Tom Kerr of Zacks Small-Cap Research. Tom, your line is now open.

Good morning guys. A follow-up on that last answer; you were talking about the aging agriculture equipment that needs to be replaced. We know the catalysts are, but is there any way to put a timeframe on that? Are we talking six months, two years, ten years? What can we look at?

I would say with farmer income, we have to watch that first. Let’s start there. This year’s crops look solid. We mentioned Brazil with what’s going on with flooding, but it looks like there are plenty of stocks in place that we will get through the year without significant changes. However, I do think in ’25, you look at farmer income first. Then you start looking at interest rates and the age of the fleet. Updated equipment is good for farmers, and updated technology in what we offer in wheels and tires is good for farmers. They can make more money via both. When we talk about LSWs, it’s an income boost to our customers. It’s not just something that’s nice to have. As you look into next year, I think when those catalysts kick in, you will see inventory restocking. It’s too early to predict the exact timeframe on when it will tick, but I don’t think this is a deep, long, prolonged downturn. I would say for the rest of the year, there won’t be much catalyst to drive change.

Sounds good. That helps. And on the consumer segment, is there a way to let us know what the legacy business revenue decline would have been without Carlstar? Do you have a sort of the same-store sales decline in the consumer legacy business?

I certainly don’t believe it was deep. I don’t have that number off the top of my head, but it’s not as deep a trough as we are seeing in agriculture. As you saw, not as much a deep impact on EMC either. So, I don’t have a precise figure for you, but it’s down somewhat, probably similar to…

Okay. It sounds good. Two more quick ones: any more color on the negative impacts of the tax structure of Carlstar? If that's a detailed answer, we can do that offline. But just any further color on that?

I can give you further color. This higher rate increase this year is probably a third of the impact due to the higher rate than what we're seeing. The rest relates to the non-deductible interest and other reasons why the U.S. tax rate is really high because of that and among a couple of other things.

Okay. Alright. Lastly, I think last quarter you gave a framework of what a normal year would look like. I think it was EBITDA of $250 million, free cash flow of $125 million. Are you still thinking of that guideline for a normal year outlook?

Yes, absolutely. Again, that’s a normalized year. There are a lot of variables in the market right now that would prevent us from getting there. But normal sales level, along with the operations that we have set up, it’s all there for the taking. It doesn’t even include the significant synergies we see from the acquisition.

It sounds good. Alright, that’s all I have for now. Thank you.

Okay. Thanks, Tom.

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

Thank you, Paul, David, and Alan. Thank you for the call. I noticed the guidance, and that’s very helpful. Is there anything additional? Are there any additional cash requirements we should be thinking about, maybe cash restructuring costs, debt amortization? Any thoughts on working capital in the second half would be very helpful.

Well, you will note from the guidance we gave for the third quarter, obviously, volume being down pretty significantly impacts margins. But we are able to impact working capital to the extent and drive positive free cash flow in the third quarter, similar to the level of EBITDA. So, that’s really it. As far as things that are unusual requiring cash, no, there really isn’t.

Okay. Thank you. With respect to the third quarter guidance, is that consistent with the underlying market activity, or are we still seeing some destocking of dealer and OE inventories in that number?

Yes, I think there is an impact of destocking still in that number. As they have lowered their production schedules, we believe there is some destocking that’s still taking place and causing additional decreases to our Q3 output. However, as we mentioned earlier, I think that destocking will probably lead us down a path that will result in some restocking when the catalyst kicks into gear. So I think the answer is yes, ‘24 will continue to be impacted by destocking, but we are prepared for that restocking event to take place. I envision that sometime next year.

Got it. Thank you. Also, you mentioned some operating issues in the second quarter. Do those continue into the third quarter?

Well, maybe it’s misconstrued on operating issues. It’s just the volume levels are so low in certain aspects of our plants that it creates pretty tough absorption. That’s reflected in the margin. It’s not really issues.

Just under absorption.

Yes.

Got it. That’s helpful. Thank you. How much visibility do you have at this point into the fourth quarter?

I would say at this point, it's probably not what it has been in historic periods. We are clearly operating in a different environment when you listen to the comments coming out of our sector and the large customers. Part of it is just a lot of uncertainty in the world. I do think there are some hopeful catalysts that take place later this year, whether it’s interest rate visibility or other economic events. You get those events behind you, and you can start moving into next year, we will get back to more of a normal visibility outlook that we can provide and that we will get from our customers. I would say right now, we are in a different environment because of all the uncertainty. For that – to answer your question, the visibility going into Q4 is just not historically what we would normally see.

I appreciate it. Thank you. And then last question on seasonality. I know the old legacy business was seasonally weakest. I think the December quarter, if I am not mistaken. Is it more seasonal now with Carlstar?

I wouldn’t say it’s more seasonal. I think we’re going to see the typical seasonality in the second half and a little further exacerbated by the OEMs taking a lot of production out. For Carlstar, they have a more even-keel quarterly seasonality, maybe a little bit in Q4 just because of the end of the year and holidays. But Q3 is very similar to Q2 in that regard.

It might be less seasonal with Carlstar?

Yes, I think if you add everything up, you can make that conclusion.

Fantastic. I appreciate it. 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 want to thank everybody for their attendance on our call this morning and your participation. I really appreciate your involvement with Titan. Thank you. Have a great rest of the week. We will talk to you in Q3.

This concludes today’s call. Thank you everyone for joining. You may now disconnect your lines.