Earnings Call Transcript - TWI Q4 2020

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. Fourth Quarter 2020 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. 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, sir.

Todd Shoot, Senior Vice President, Investor Relations and Treasurer

Thank you, Rocco. Good morning, and welcome everyone to our fourth quarter 2020 earnings call. On the call with me today, we also have Titan's President and CEO, Paul Reitz; and Titan's Senior Vice President and Chief Financial Officer, 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-K, which has been 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 risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. Additional information concerning factors that could cause actual results to differ materially 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, 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.

Paul Reitz, President and CEO

Thank you, Todd. Good morning, everybody. We're only at March 4th and this year is already looking like a completely different story compared to 2020. Late in the fourth quarter, we started to see demands trend in a positive direction, and that's really evidenced in our Q4 results that exceeded expectations. And 2021 has really kept on rolling, and as we've seen, the U.S. farmers' sentiment and farmers' capital investment index levels spiked to all-time highs already. The $25 billion of government payments late in 2020 certainly helped move these indexes in a favorable manner, combined with of course strong commodity prices with corn hovering around $550 and soybeans up above $14. Another significant positive indicator for 2021 is the low levels of inventory that exist in most channels, especially in the dealer networks. Therefore, our market uptick at the retail level should get that additional boost from inventory replenishment. It's definitely great to see agriculture moving in a positive direction in 2021, and it seems that the market upturn shared some pretty good legs on it as well. Looking back a year ago, I don't think there are many people who thought that coronavirus would turn into a global pandemic that impacted really every country, in every facet of society. I do want to take a second and reiterate our Titan team did an excellent job working hard to continually and safely operate our businesses during the pandemic, and our 2020 performance positively reflects those efforts of our team around the world. It also demonstrates the strength and resiliency of our people and our products. During times like that, those items really show, and again, it's our people and our products that make Titan unique in our industries. However, I think it's important to go a step further with those comments to give credit for how well Titan remained focused on our imperative that we really had at the beginning of the year to improve our financial position. It was clear. We didn't enter the pandemic in a position that allowed us much room for error. Our 2020 results clearly illustrate that Titan has strengthened our financial position, and we were able to make those improvements while dealing with the onslaught of the challenges from the pandemic. I think the success of that is seen in our 2023 bonds, which have been trading around par in recent months. It also gives us an opportunity to explore the potential of a refinancing. Now let's take a step back and look at the fourth quarter. We finished the year with a significant turnaround, especially in agriculture as demand for many of our customers continued to strengthen as the quarter progressed. During the quarter, our adjusted gross margin of 11.8% was the strongest margin achieved over the previous ten quarters. Also, our adjusted EBITDA over $17 million was our highest since the first quarter of 2019. A lot of these gains in financial performance were a result of our continuing efforts and focus to improve our financial position, resulting in a strengthening cash position along with net debt. We delivered our sixth consecutive quarter with positive operating and free cash flow and reached levels of cash and net debt that haven't been achieved since the end of 2017. Now as we look deeper into the business going forward, the positive trends in agriculture that we saw in late 2020 especially in North and South America have only increased during the first couple of months of 2021. In North America, the growth in small agriculture, within our small ag customer base continues at a rapid pace as we've seen our customers increase orders to address the need to restock inventory on top of their already expected growth this year. Large agriculture is historically a strength of Titan, as our plants and tooling are well equipped to handle the volume and complexity of SKUs related to that business. The signs are forming that suggest large agriculture is beginning to move in a favorable direction as well. The challenge for us, which is similar to many manufacturers these days, is that coming off the lower production levels of the pandemic, the surge in demand has created a high degree of volatility for our customer base and for Titan as well. We are dealing with constraints in labor as we are hiring rapidly, we're dealing with raw material issues pretty much all over the map, and we're dealing with logistical challenges that pertain to shipping containers and trucking that have sprung up as of late. Titan has, and I will make this clear, Titan has a long history of being flexible to adjust to market volatility. And we have the robust production capabilities that can meet the needs of our customers. In order to do that, we are hiring aggressively at all of our agriculture and wheel and tire plants in the U.S., along with South America, and we will continue to do that throughout this year. However, there is a training curve to onboarding people into our operations. Therefore, we need to hire systematically during the ramp-up process to mitigate our training liability as our positions do require a rigorous training program. The flexibility and scalability in Titan's production base is a core strength, and we do expect to earn a good return on providing this to our customers during the times that we are in and currently entering deeper into. Anyone who has seen our plants, especially our tooling for our real business would understand what I'm saying. We are currently in discussions with major OEMs on long-term supply agreements that would be a win-win for both sides in today's changing world. So now turning over to South America, we've seen the market really jump to life in Q4 and then really proceed to keep on running into 2021. Since we acquired Titan Brazil in 2010, we've consistently invested in large radio agriculture and OTR capacity that at the time of the acquisition was really only a small part of the portfolio. We see the rewards from those investments through the years as we've significantly grown our output in both those areas along with expanding our market share. The reality is that this rapid increase in orders coming off the back of the pandemic means that we do have to allocate our production across our customer base. We will continue to invest in capacity, and we are investing in capacity, I should say in 2021, and we'll do that through both hiring, but as capital investments as well as we do believe the favorable volume trends that we are seeing will continue. Now looking over at earthmoving and construction. The full year 2020 results show a drop in sales, driven by the pandemic, but I do want to state that we finished the year with fourth quarter sales really moving in a positive direction, and we continue to see those trends in the first quarter as sales in our undercarriage business have exceeded budget by over double-digits. This is really good to see early in 2021 as our thoughts were more for growth that would come later in the second half of the year when the pandemic effects on this sector start to fade away, and you start to see infrastructure and development spending kick into gear. So, these early gains in construction, mining for undercarriage really only point to an even stronger year as it progresses. Now coming back to agricultural, over the past five to six years, we've been in a softer agricultural market that has put pressure on our pricing and margins. So these market improvements are really welcome from a pricing perspective for Titan. Now, when I say pricing, I'm looking at it from three angles. First, recovering your raw material cost; second, recovering other production-related costs; and then third, pricing leverage. We do have some raw material agreements with key OEMs that automatically modify pricing based upon raw materials. However, I don't think I have found anyone that can recall a time when we've seen steel go from $445 a ton to $1,200 in such a short duration and then also be in short supply as well. So the challenge for us is that our raw material agreements don't always protect us in these rapidly changing moments, and we will work to ensure we get raw material cost recovery throughout 2021. Our agreements in North and South America and Europe typically only pertain to raw material fluctuations. So the next piece of our pricing strategy focuses on the recovery of other production costs related to overtime shipping, energy, etc. Again, we believe this market provides us an opportunity to tackle pricing beyond just raw materials to address areas of production that are also facing cost increases. The third piece of pricing that we look at is related to leverage as demand improves. We certainly feel that Titan produces valuable products and with strong production capabilities that are quite unique in our space, and we believe as the market continues to progressively improve, we should see an opportunity to approach pricing with more leverage than we've seen in recent years. Now looking at the market again, the market is really moving in a positive direction. There is no doubt about that, but it has shifted quickly in such a short time period that it is difficult to provide a reasonable full year 2021 forecast for sales and EBITDA like we've done in prior years. Based on our strong finish in the fourth quarter and what we're seeing already in 2021, we are targeting good growth in sales, EBITDA, along with margin expansion. We intend, and we will remain diligently focused on protecting our balance sheet and realize that cash is going to be needed to fund inventory. As noted in the pricing discussion that I referenced, the market landscape gives us opportunity to do things differently than we have in prior years, and we intend to set production schedules using payment terms as a criterion, therefore we'll be looking for customers to adjust their payment terms. So wrapping up here, I just want to conclude once again by thanking Titan's 6,000 people around the world for their continuing hard work during these challenging times, and really their determination has enabled us to improve our financial position and performance. And most importantly, support our customers throughout the pandemic and now beyond. These efforts have enabled Titan to be in a really good position for 2021 as the markets are moving in a very positive direction. So with that, I'd like to turn the call over to David.

David Martin, Senior Vice President and Chief Financial Officer

Thank you, Paul, and good morning to everyone. I appreciate those participating in the call and those following Titan's progress. My plans are changing quickly. Although we are still in uncertain times due to the pandemic and global volatility, Titan is changing rapidly. I'll focus mainly on our fourth-quarter performance, but it's important to highlight what we accomplished this quarter and throughout the year, which strengthens our position moving forward into 2021. Our cash position ended at $117 million for the year, an increase of $51 million from last year, achieved through strong operating cash flow in Q4 and the full year, as well as efforts to secure liquidity via non-core asset sales. Operating cash flow for Q4 was $10 million, pushing the full-year total to $57 million. We completed further transactions in non-core assets worth $16 million in Q4, bringing the full-year total to $53 million. Additionally, our net debt position at year-end was $347 million, down from $366 million last quarter and $433 million at the end of last year—this is the lowest level we've seen since 2017. Last week, we extended our domestic ABL facility, which now has a runway of two more years and aligns better with our overall debt structure. There are several key takeaways regarding our P&L performance from Q4. Traditionally, Q4 is a low quarter, but this year was different. We experienced sequential sales growth in both agriculture and EMC. Our adjusted gross margin for the quarter was 11.8%, the best we've seen in ten quarters. Before discussing sales, gross profit, and SG&A, I want to touch on some non-operating items from Q4. We recorded impairments related to two asset categories from smaller operations, including an $11.2 million charge from adjusting certain recycling equipment's fair value in Canada, and a $6 million write-off of intangible assets from our Australian acquisition many years ago. In October, we sold our Brownsville, Texas facility for about $11 million, resulting in a gain of $4.9 million. We also received $3.6 million in recovery from an insurance claim related to a fire in our Canadian Tire recycling operation in 2017. These items are included in our reconciliation of non-GAAP financial measures in the earnings release. From here on, I will review the results for Q4 and the full year, excluding these items and other unusual transactions. Net sales for Q4 increased over 8% compared to Q4 2019, marking a turnaround in a year with an overall sales decrease of 13%. As Q4 progressed, our operations strengthened, particularly as OE customers began increasing production and demand for our products. Impressively, on a constant currency basis, total sales would have risen nearly 15% from Q4 last year, or $45 million, with a negative currency impact of about $19 million, primarily affecting Latin America and Russia. Our overall consolidated sales volume increased over 20% year-over-year, while pricing and mix in Q4 were down about 6%, largely reflecting lower raw material costs. Consolidated net sales in agriculture improved by 15% in Q4, with growth coming from all regions. On a constant currency basis, agricultural sales would have risen by 25% in Q4, driven by North America, Latin America, and Europe. For the entire year, the agricultural segment saw a constant currency growth of 4% due to a healthy turnaround in the latter half of the year. The EMC segment also rebounded well in Q4 after a soft year for the market, showing growth of 4.5%. Importantly, our ITM undercarriage business was a major contributor to this recovery as construction markets in Asia and certain parts of Europe began to rebound. Our North American sales increased over 6% compared to last year, all of which came from agriculture. Although the EMC segment was slightly down, our aftermarket tire sales in North America for Q4 exceeded the previous year, and for the full year, they were slightly better than 2019 levels. In Latin America, our operations have seen significant market upward trends recently. Aftermarket business remained resilient through the pandemic, and OE sales sharply rebounded in Q4. Reported sales for Latin America were up nearly 16% in Q4, while constant currency sales would have increased by over 41%. Our gross margin performance in this segment drove overall financial improvement in 2020. Adjusted gross profit for Q4 was $38 million, compared to $18 million in Q4 2019, marking a 110% improvement. Our adjusted gross profit margin for Q4 reached 11.8%, compared to just 6% last year, representing the best performance since Q2 2018. We effectively managed factory overhead costs during Q4, adjusting our labor force to meet the rising demand despite marketplace challenges. Plans are in place to increase production to align with customer forecasts and current order backlog. It’s essential to point out that raw materials have seen a significant rise across all markets recently, reversing the favorable costs we experienced in 2020. As a result, we are implementing price increases to reflect these rising costs, including those for labor and shipping. We are addressing these rapid market changes with careful calibration of our actions. Now, let’s review segment performance. Our agricultural segment saw net sales rise by $21.5 million, or 15.3% compared to Q4 2019. Currency translation significantly impacted sales by 9.4%, particularly in Latin America and, to a lesser extent, Russia. Volume in this segment increased by 32%, while pricing decreased by 7.6% due to lower raw material costs. Aftermarket sales remained strong, with a notable increase in OE sales, especially late in the quarter. Overall Ag sales in North America improved by 16%, with sales in Russia showing slight increases and European Ag sales up nearly 30% from Q4 2019. Reported Ag sales in Latin America increased by 22% from the previous year, and on a constant currency basis, were up 47%, showcasing the resilience of our Latin American business. The agricultural segment’s adjusted gross profit for Q4 was $21 million, up from $9.2 million a year ago, marking a 127% increase. Q4 gross profit margins for Ag were 13%, significantly better than the 6.6% we recorded in Q4 2019, making it the strongest margin since Q3 2018. Improvements in plant efficiencies driven by our internal initiatives alongside favorable raw material costs contributed to this progress. Notably, our North America wheel operations continue to enhance performance after overcoming the significant challenges of 2019. Each geographic business experienced a gross profit margin expansion in Q4 compared to the previous year. The Earthmoving and Construction segment saw a rebound in Q4 after earlier economic downturns. EMC net sales rose by $6 million, or 4.5%, from last year, and on a constant currency basis, sales increased by 6.3%. The volume in the EMC segment grew by 11%, even as price and mix fell by 4.6%. North America experienced a slight decline in Q4, indicative of a slower recovery than in other regions. ITM's undercarriage business increased EMC sales by almost 12% year-over-year, and nearly 14% on a constant currency basis. While global construction markets are beginning to recover, we are optimistic that the latter part of 2021 will see stronger growth. Adjusted gross profit for the EMC segment in Q4 was $14 million, a 109% improvement from Q4 2019, although the TTRC impairment of $11.2 million was recorded in this segment in Q4. The adjusted gross profit margin for EMC reached 10.4%, compared to 5.2% the prior year, marking our best quarterly performance in over a year, fueled by sales increases in ITM's undercarriage business and improved results in Australia and Latin America. Consumer segment sales were down 7.7% from last year, primarily due to a 13% negative impact from currency translation. However, volume increased by 8%, while pricing and mix dropped by nearly 3%. The business recovery in Q4 was chiefly driven by the Latin America utility truck segment, and this growth trajectory is expected to continue into 2021. The segment’s gross profit for Q4 was $3.2 million, significantly up from Q4 2019 levels, with gross margins improving to 11.5% from 7.6% the previous year, thanks to increased production efficiencies. Selling, General and Administrative and R&D expenses for Q4 totaled $39.3 million, which included $6 million in impairment charges related to Australian customer relationships. Excluding this, we spent about $33 million in the quarter, slightly higher than Q3. Costs associated with supply chain and logistics investments were approximately $1.3 million in the quarter, and we expect similar investments in Q1 2021, which should result in sustainable savings in future quarters. For the full year, after excluding unusual charges, our SG&A and R&D costs were $129 million, coming in below our expected range of $130 million to $135 million. Foreign currency revaluation had a smaller impact in Q4, with losses of $1.3 million, while the total negative impact for the full year was $11 million, compared to a gain of $4 million in 2019. We recorded tax expenses of $4.6 million in Q4 on a pre-tax loss of $14.9 million. For the full year, tax expense was $6.9 million on a pre-tax loss of $58 million, with additional tax expenses in Q4 reflecting income growth from foreign operations towards the end of the year. Now let's discuss Q4 and fiscal 2020 cash flow. I recognize I’ve focused a lot on cash flow lately, but it’s critical in Titan's strategy this past year. Cash improved by another $18.5 million in Q4 compared to Q3, and for the year, we saw an improvement of nearly $51 million, giving us a more stabilized position to manage the business as markets recover, which we began to see in Q4. Cash levels are the strongest since early 2018, fueled by strong operating cash flow and cash generated from non-core operations. We achieved approximately $57 million in operating cash flow for the full year, a significant improvement from 2019, based on our focus on working capital management. It was vital to manage our inventory in a year with declining sales. With the company returning to strong operating cash flow and non-core transactions, we generated $89 million in free cash flow for 2020. I have confidence in our ability to manage cash levels in 2021 through continued improvements in inventory management across the business. Our operating teams are closely focused on managing inventory balance against customer demand. Significant sales increases are forecasted for 2021, and while we expect inventory to rise, it will be at a healthy ratio to sales. We continue to refine our forecasting processes to manage production demand and expect improvements as we move through 2021. Capital expenditures for Q4 were $8.3 million, more in line with our historical quarterly capital spending. We maintained our regular spending and investments necessary for efficient operations. For the full year 2020, nearly $22 million was spent on CapEx, reflecting our need to control investments during the pandemic, compared to $36 million in 2019. We plan to increase our spending in 2021 to around $35 million to $40 million, carefully monitoring these investments in relation to cash flows. While we reduced our investments, it’s important to note we did not compromise on essential investments for innovation to maintain our market leadership. Our capital program in 2021 is positioned to support this goal. Overall debt at year-end remained stable compared to the end of the third quarter, with a yearly decline of $35 million from 2019. There were no borrowings on our domestic ABL credit line due to strong operating cash flow and results from non-core asset sales during the first nine months of the year. Short-term debt at December's end was $31 million, down over $30 million from the end of last year, primarily due to scheduled loan repayments in foreign operations, chiefly in Russia and Europe. Part of this decrease also pertains to extending loans on favorable terms in Latin America in response to liquidity issues during the pandemic. Most of the current maturities are linked to foreign credit facilities and term loans, expected to be rolled over as needed in the coming year. We took a significant step last week to further secure our future liquidity with the extension of our domestic ABL facility until February 2023. This provides us flexibility in managing U.S. and corporate operations while increasing our cash reserves somewhat in Q4. By December's end, net borrowings on the ABL line, after accounting for letters of credit and adjustments to our borrowing base from accounts receivable and inventory, were at $51 million. We anticipate some letters of credit expiring in the first half of the year, which could create an additional $8 million to $13 million in capacity. Further capacity is expected as our borrowing base grows with business activities. 2020 was a pivotal year for Titan, necessitating swift actions amid the pandemic. Our improved liquidity position provides us with the flexibility to manage our business effectively. We are focusing on working capital this year, with significant growth ahead of us. We must maintain our focus on what has brought us this far. Finally, I want to address our bonds. Confidence in Titan’s financial position is growing, and with better market conditions, we are well-positioned to explore refinancing opportunities. We will actively examine these opportunities in the near future. That concludes my remarks, and I will turn it over to the operator for any questions.

Operator, Operator

Thank you. We will now begin the question-and-answer session. Today's first question comes from Steve Volkmann with Jefferies. Please go ahead.

Steve Volkmann, Analyst

It sounds like there are definitely some changes happening, which is positive. My first question is more of a big picture question for Paul. Many of your OE customers are now able to share their insights on volumes and profitability for 2021. What sets your company apart that makes it difficult for you to provide that information?

Paul Reitz, President and CEO

What distinguishes us, Steve, is that we engage with a variety of markets through three main products, which brings about different responses and shifts in the market. Looking back to the end of December, our expectations for Q1 seemed promising, and we are surpassing those projections quite quickly. The challenge we face is recognizing market trends—we are aware they exist and are moving positively, and we are hiring as quickly as possible. We’re also noticing signs in the market regarding certain customers that suggest the inventory replenishment cycle might not align with the forecasts being released. There are inconsistencies between the forecasts we receive and the orders that are coming in, which are exceeding what’s available in the market. Consequently, we are modifying our allocation, hiring, and moving promptly. However, it is challenging to accurately determine our order levels across different regions and product lines due to the labor availability. In South America, for example, meeting the existing demand is difficult with the speed of hiring, and the same applies in some areas of North America. We are working towards creating a better forecast and gaining greater visibility for the year. At the moment, things are changing quickly and heading in a positive direction.

David Martin, Senior Vice President and Chief Financial Officer

I want to emphasize that we are updating our forecasts almost every couple of weeks and they are showing improvement. I aim to avoid a situation where we favor a forecast that we then have to change quickly as we move out of Q1. Everything is progressing positively, and I wouldn't describe it as negative in any way. By the end of Q1, we expect to have greater clarity about the year ahead, and we can discuss this further at that time.

Steve Volkmann, Analyst

So, let's leave the volume aside and assume that that is going to be better, but a little bit unforecastable, but it sounded Paul like in your commentary that there were a number of potential headwinds on profitability and you talked about price cost, you talked about labor availability, it sounds like you're actually trying to capacity constraint from what you're describing, but that it would take some time to get new people sort of ramped up. So maybe the right way to ask it is, I'll make my own forecast for volume, but how should I be thinking about incremental margins?

Paul Reitz, President and CEO

My comments about pricing reflect positively on the market's direction. Pricing has become complex due to fluctuations in steel prices, which have ranged from $445 to $1,200, as well as volatility in production costs like trucking. We are adjusting our pricing for raw materials and exploring changes for other production expenses. Additionally, as demand exceeds capacity, we're further adjusting prices to align with market conditions. In terms of forecasting, there are many variables at play, but they are trending positively. Over the past few years, the initial phase of recovering raw material costs has sometimes been challenging, as we mentioned in previous discussions. However, we anticipate recovering those costs in 2021. The significant price increases we've had to implement for steel highlight the complexity of determining incremental margins in the current environment. David and I believe the trends are more favorable than we initially expected when developing our forecasts in mid-December. We trust that we will effectively manage these variables due to the strong market. However, it's important to note that there is considerable work ongoing at Titan to address these challenges, such as hiring and training staff to meet demand. While these are all positive developments, they present hurdles we must navigate to understand our future margin positioning.

Steve Volkmann, Analyst

So last time we saw a spike in commodity prices, there were some timing issues on your side in terms of when you could pass them through and how much inventory you were working off, etc., is there any scenario where we have a quarter that has like down margin quarter because we're sort of absorbing some of the stuff before we get the price increases through or is that kind of what you're flagging for us, or would we expect margin improvement each quarter?

David Martin, Senior Vice President and Chief Financial Officer

I believe there could be some quarterly variations, but I don't anticipate significant swings in margins. We have carefully calibrated our approach to customers, allowing for quicker reactions to pricing compared to the past. This is a unique time with a rapid market recovery, and we plan to make faster decisions and take necessary actions. Looking at our Q4 results, an 11.8% margin serves as a solid benchmark for our expectations moving forward. We expect to see incremental margins as volume increases, although there may be some fluctuations related to pricing in specific quarters. Overall, the trend should remain positive.

Operator, Operator

And our next question today comes from Steve Ferazani with Sidoti. Please go ahead.

Steve Ferazani, Analyst

Hi, good morning everyone. I'm interested in understanding the unexpected strength in Earthmoving and Construction. Could you share more details about where this strength is coming from in terms of end markets and geography? Also, how do you see this developing moving forward?

Paul Reitz, President and CEO

Yes. We're seeing it come out of certain segments in Europe where they're getting ahead of putting more spending into the marketplace than we see here in North America. We're seeing strength coming out of China. And again, I think both David and I said that, we expected that strength more in the back half of the year, certainly as infrastructure builds kicked into gear, and even here in North America we still plan on the second half of the year to be moving in a much better direction. But I think what surprised us is it's early already both coming out of the gate in January and February already, again we put together what we thought was a really good forecast in December and were double-digits above that forecast. So it's moving in a very positive direction. I think we're seeing it in a couple of key areas, but as we move into the back half of the year it'll become more broad-based. And we certainly feel that that momentum in the first half of the year is just really a good sign for the second half of the year. To answer your question kind of primarily Europe and Asia right now, out of the gate is where we're seeing that exceeding budget. Really out of our ITM business just to be clear with you, when we talk about Earthmoving and construction, it's really our undercarriage business that I'm referencing.

Steve Ferazani, Analyst

So in terms of ITM, you're obviously seriously explored or closed on options for that, or for the market downturn. Is it too early to reconsider those options?

Paul Reitz, President and CEO

Yes. I think that's a fair statement. I mean, we're sitting here in early March, and it's definitely positive where that business is going. We've always believed in the core strength that ITM has in the marketplace. They've built great high-quality products with a strong brand. We've been expanding their aftermarket presence through a number of efforts over the last few years. And so, Steve, to really answer that question, I think the cards are moving in a positive direction for what ITM is capable of doing in a good market, and we're in a good position to sit back now and really reap those benefits. So really no thoughts at all right now of how we would position in the marketplace like we have in the past of seeing if there is any potential interest. It's a good quality business. It's a core business for us. And again, it is moments like this where you really see the value of ITM or how quickly when the market is starting to turn, how quickly they can go and grab that share of the market and really turn it into the sales quite rapidly, so now looking forward to a really good year out of undercarriage.

Steve Ferazani, Analyst

And then I know you both mentioned potential for debt refinancing early. At this point given your improving cash flow profile and improving industry fundamentals, are you engaging with your credit rating agencies at all? I would think an improvement there could make refinancing that much more positive.

David Martin, Senior Vice President and Chief Financial Officer

We have regular discussions with the credit agencies every quarter and those will continue for sure. And that's certainly part and parcel to the entire process of going out there.

Steve Ferazani, Analyst

And then last one would just be on low sidewall, given that if we're going into a replacement cycle for Ag, is this the time for seeing more market share in terms of new equipment used in low sidewall and what's your success rate you're seeing there, potentially granting that new replacement cycle?

Paul Reitz, President and CEO

Absolutely, it's always a great time for low sidewall. The benefits it offers to the market have been demonstrated. Our aftermarket business in North and South America has performed well over the last four or five years. As you mentioned, the opportunity to increase low sidewall placements will continue to grow as farmer income rises. The potential for premium products just adds to that. Additionally, we're looking to expand low sidewall in South America. The farms there are large, and we see significant opportunities for penetration in that market. We need to apply what we've learned in North America, although it takes time. I can't promise immediate results in selling low sidewall, but I'm optimistic about our prospects in South America, even though our presence is currently small. I believe as farmer income increases and the markets advance positively, it's the right moment to pursue more market share in South America, while it's definitely a great time for low sidewall in North America.

Operator, Operator

And our next question today comes from Larry De Maria with William Blair. Please go ahead.

Larry De Maria, Analyst

Thanks, good morning everybody. First I just wanted to clarify that ITM is now considered core and we're not considering any alternatives including a listing, is that a done decision than listings off the table, etc. And we should just assume ITM stays part of Titan for a long time now?

Paul Reitz, President and CEO

Yes, that's been off the table for over a year and a half.

Larry De Maria, Analyst

It's been off the table previously, but it's returned to consideration now that the market has improved, leading to a better valuation. We have been waiting for this and now feels like the right time to move forward. So, while you acknowledge it's essential, can you elaborate?

Paul Reitz, President and CEO

It's a really good business. We pulled the listing as we said over a year and a half ago where we started to go with the Board in the future is the value of the business goes up if not all the table right now here today, what's here today is it's a really good business that's performing well. That's really what we've been emphasizing for a period of time. I don't think we've talked publicly about another listing with ITM for quite a while.

Larry De Maria, Analyst

No, I agree. I just thought we're waiting for better market environment to reconsider that, which obviously we're in now. But can you guys talk about the possible debt refi timing for rates that are available to you guys and how you're thinking about that debt refinance?

David Martin, Senior Vice President and Chief Financial Officer

Larry, I'd say it's premature to even talk about that, given we're kind of just coming off the year and now we're obviously have some good momentum in front of us in the expectations for the year. We'll have these discussions at the appropriate times with our advisors, and look at the market and we'll know, obviously know in the coming days what that would look like. It's a little early to say.

Kirk Ludtke, Analyst

Great. Well, thank you for the call, and for squeezing my question in. It sounds like we're headed in the right direction, but as you said, a lot of moving pieces, maybe stepping back for a second, Titan generated over $100 million of EBITDA as recently as 2018. Just putting steel and staffing cost aside for a second, how would you compare, how would you compare the overall demand of our environment now versus then, and how much structural cost do you think you've taken out between 2018 and now?

Paul Reitz, President and CEO

Well, I think, as we sit here now, the surge in demand is much better than what we saw in 2018. Now looking at it from a broader perspective, we are still at what I would say below, kind of mid-cycle. So there is plenty of room to run, and I think that's what we're all looking forward to, as the year progresses. Is that you kind of buzz through those mid-cycle levels and keep expanding. I mean, as much as Brazil has surged in the last three, four months, it's still 45% below where it was running six, seven years ago. And I mean, Brazil's agriculture market is not Titan. So I think the opportunities are definitely there. And so I think what is going on now is the surge very quickly, again, very positive and I think if you take that and extrapolate through the rest of the year, then you start buzzing through some mid-cycle levels and you get some pretty long tails on it, where with the government incentives, the strength of commodity prices, the low level of the dealer inventory that now you're looking into an opportunity for the market to run favorable for not just the first half of this year. But you're looking at a couple of multiple two, three-year run on this if you just take all those factors combined. So I think it's dealing with the surge now, and then extrapolating that into the future, that's really positive.

David Martin, Senior Vice President and Chief Financial Officer

There are many variables in that situation as we work on turning unfavorable aspects into favorable ones within our plants. However, I would estimate that it's nearly $20 million considering the reductions in SG&A costs along with certain expenses in our domestic and international operations; it's at least that amount.

Kirk Ludtke, Analyst

Got it. Thank you. And on the steel side, how far out can you lock in or are you locking in steel?

David Martin, Senior Vice President and Chief Financial Officer

Yes. When considering steel, the situation varies by location and operation in domestic areas. There is a timing difference in contracts regarding how pricing aligns with volume commitments, which typically spans a quarter.

Kirk Ludtke, Analyst

Okay. How far out are you booked for orders? What month are you currently accepting orders for? I understand it might vary by business, but can you provide some insight on that?

Paul Reitz, President and CEO

It does vary so much by business and all of our businesses have different lead times. We are booked very solid. I'll just kind of leave it there. I know it's a very generic answer to a specific question, but we're booked very solid. We're looking at aggressively again how we're going to ramp up to take on more higher production levels, but we are allocating product right now. I can't sit here today and tell you we're not.

Operator, Operator

And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Ms. Reitz for any closing remarks.

Paul Reitz, President and CEO

I just want to thank everybody for their attention and time today and look forward to talking again in the future. Thank you.

Operator, Operator

Thank you, sir. Please note that a webcast replay of this presentation will be available soon within the Investor Relations section on our website under News & Events. Thank you for attending today's presentation. The conference call has concluded. You may now disconnect your lines.