Earnings Call Transcript - TWI Q2 2025

Operator, Operator

Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. Second Quarter 2025 Earnings Conference Call. It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Investor Relations from Titan. Mr. Snyder, the floor is yours.

Alan Snyder, Vice President, Financial Planning and Investor Relations

Thank you and good morning. I'd like to welcome everyone to Titan's Second Quarter 2025 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 this morning along with our Form 10-Q, which was also filed with the Securities and Exchange Commission this morning. As a reminder, during this call we will be discussing certain forward-looking information, including the company's plans and projections for the future that involve risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. Additional information concerning factors that either individually or in the aggregate could cause actual results to differ materially from these forward-looking statements can be found 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 a 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.

Paul George Reitz, President and CEO

Thanks, Alan. Overall, our Titan team had a solid quarter and we're pleased with our Q2 results that were within our guidance ranges for both revenue and adjusted EBITDA while also driving positive free cash flow for the quarter. Our Titan team continues to execute well. We're taking operational, commercial and administrative actions as needed in response to the extended market softness we are continuing to experience. At a high level, conditions for the OEMs and our end markets remain similar to last quarter as buyers of equipment continue to take a wait-and-see approach. Based on our conversations with dealers, farmers and OEMs, it seems clear that this cautious mindset is primarily a function of waiting for interest rates to come down coupled with a desire for more clarity on tariffs and trade policy. We have continued to experience some fairly large drop in orders similar to what I mentioned last quarter as OEMs need to adjust rapidly when they see lower inventory levels get out of sync with pull-through retail demand. Looking ahead, the macro environment appears to be similar to what we've seen and so for the coming period, our Q3 guidance indicates exactly that. Digging into the trade and tariff topics a bit more. We have seen the tariffs have an impact on our consumer segment this quarter as many aftermarket customers are choosing to wait for some resolution on tariffs to the extent possible before restocking the shelves. The positive is that we have seen some consumer customers in July place good-sized orders to get inventory back in line with sales. Recall, our commentary has been that trade policy applied somewhat consistently around the globe would benefit Titan in the long term and we still believe that. The bottom line remains, it is important that tariffs and trade policy result in a more level playing field in the end. The cases we have won with the International Trade Commission over the past couple decades illustrate we have not been competing in a level playing field regarding off-road tires. Again, I want to reiterate that our U.S.-based production amidst a strong global footprint has us well positioned to benefit as tariffs are levied on imports. A number of industries in the U.S. with steel and tires being a couple of prominent examples have had to compete with foreign producers that take advantage of cheap labor and significant government subsidies for many years. And on the whole, we are glad to see these efforts to end unfair competition. Our position is and our customers say it as well that Titan has an exceptional competitive position in the markets we serve and that is further solidified when irrational import pricing is removed from the equation. Central to that is our one-stop shop strategy. Our culture of innovation and customer service driven by our large product portfolio and production capabilities puts us in a good position. We pride ourselves on our ability to deliver products to our customers quickly, whether it be North America, Latin America or Europe. The markets we serve demand maximum uptime from their equipment and our ability to deliver replacement tires and undercarriage parts quickly helps make us a key partner for these customers. I also want to briefly touch on the recent legislation that was passed as we think it will be a long-term positive for farmers on the whole. With the increased depreciation rate as the most important element that's getting a lot of the attention, the ability to depreciate 100% of the investment in new equipment such as tractors in year 1 is obviously beneficial and should improve farmers' balance sheets over time. So bringing these general comments together, I want to stress that we are by no means sitting back waiting for our markets to turn. We continue to be proactive on a variety of fronts to drive growth wherever we can and continue to invest in product development and constructive partnerships. Last quarter we highlighted our expanded licensing agreement with Goodyear. We are busy working to maximize this opportunity with the Goodyear brand, which we've been doing successfully for over 20 years, and we think it will absolutely help drive growth over time, the new segments of this partnership that we added with the new agreement. I'm also excited to announce that we signed an initial minority investment in a strategic partnership with Brazilian wheel manufacturer, Roderos. We have been actively looking for an opportunity to get into the Brazilian wheel market for a number of years and this is a great partnership to do so. Over the years we have been talking with OEMs about this and they have expressed enthusiasm about bringing wheels and tires and assemblies into that market just like we have done successfully here in North America. Roderos is the second largest manufacturer of agriculture wheels in Brazil and we look forward to working with them on the development of integrated solutions tailored to the Brazilian and South American markets. Brazil has become an increasingly important market for Titan as our ag economy has grown and we think this investment is an excellent use of some of our local cash to further extend our leadership in that market. We expect this transaction to close in the third quarter, which is subject to some customary regulatory approval. Turning more specifically to the ag segment. Farmers are guardedly optimistic about their businesses. I know I'm repeating myself in saying that the feedback we get from them centers around interest rates, seems to be a fairly universal opinion that they need to come down with farmers and dealers citing financing costs as one of the main impediments to a pickup in large equipment purchasing. That hesitancy is elongating OEMs' efforts to further destock their finished good inventories, but we are starting to see some pockets where distributors have let inventory get too low. As we did in Q1, we've seen some good large-size drop in orders this quarter and we think that sort of buy-as-you-need ordering behavior will persist until rates come down. At Titan, our priority is to manage costs effectively while staying close to our customers and being prepared to ramp up to meet demand when needed. Reiterating a point I made last quarter: when the cycle turns, it typically turns fast and our team and the breadth of our production capabilities are best suited to meet our customer needs in those moments. Shifting away into our non-U.S. markets, there are cross currents which are ultimately resulting in flattish demand in Europe while Brazil has generally fared the best of our operating regions. As a reminder, we have largely localized manufacturing in Brazil and Europe so our sales in those regions will continue to be a function of local economic activity. Our consumer segment was most directly impacted by tariffs as we mentioned earlier. Thus far, U.S. consumer-related economic data has not really shown any significant deterioration, but it's also clear that people are being cautious when it comes to discretionary equipment purchases. As with ag, we expect interest rate cuts will help spur demand in our consumer segment due to the obvious reduced cost of financing, whether it be at the dealer or end customer level. To the extent that settled trade policy will make various market sectors more stable in their staffing and hiring plans, that would also be a positive for our consumer segment as outdoor enthusiasts might feel more secure in being able to afford a discretionary purchase. Moving over to our EMC segment. There has been little change from Q1. We continue to view European infrastructure investment as the primary driver for activity. That investment is a function of many inputs, including trade policy and continued military conflict in the region. While those items remain unsettled, there really was no material change in our EMC segment activity. That being said, equipment continues to be used and wear out so the demand for aftermarket parts and the time will come when owners have no choice but to replace that equipment. So let me wrap things up here. We are really doing quite well and holding our own despite some significant macro challenges thus far in 2025. We are focused on our customers and our execution as success on both of those fronts is the best approach to delivering success not only this year, but beyond. We are well positioned to do so when the end markets start moving upwards, which they most certainly will.

David A. Martin, Senior Vice President and CFO

Thanks, Paul. Good morning to everyone and thanks for listening in today. As Paul noted, our results in the second quarter were in line with our expectations as revenues were $461 million with adjusted EBITDA of $30 million. We were also able to drive positive cash flow in the quarter of $4 million. It's important to restate the fact that we continue to navigate this cyclical trough with agility and we remain in a strong position as a company. On a sequential basis, our gross margins improved 100 basis points from 14% in the first quarter with product mix being the main reason for the sequential improvement. Looking at margins by segment in the quarter, all 3 showed expansion versus the first quarter. Ag gross margin was 14.6% compared to 12.4% in the first quarter, EMC gross margin was 11.5% versus 10.4% and then consumer's gross margin was 20.4% compared to 19.6%. Year-over-year in Q2, our margins of 15% were down from 16.5% when adjusting out the impact of the Carlstar inventory step-up last year. This gross margin decline was driven by the leverage on overhead, which is expected with our organic revenue decline that we saw year-over-year. Our teams have done an exceptional job at managing production and our costs and our performance shows significant improvements in margins as compared to the last time we saw a market like this. Our SG&A expense for the second quarter was $52 million or around 11% of sales, which was up about 1.5% from last year and that's really generally due to inflation in the business around labor costs. R&D expenses were $4.3 million in the second quarter compared to $4.2 million last year. So not a big change year-over-year for the business, again inflation being the factor. We generated positive operating income for the second quarter of $10 million. Now turning to cash flow. We were able to drive the $4 million of positive cash flow in the second quarter by moderating our CapEx spend to $10 million in the quarter as we were judicious with our spending. Working capital was also a positive driver for free cash flow in the quarter when adjusting out the FX impact of the weakening U.S. dollar within the quarter. Our net debt at quarter-end declined $10 million from the first quarter to $401 million. As noted before, we expect free cash flow generation in the second half and we are confident we'll exit the year with a debt ratio closer to our target of less than 3x adjusted EBITDA. As a reminder, our debt structure provides us flexibility with our domestic credit line and our long-term bonds. Again, we are in a much stronger position as a company compared to the last historical cyclical low. Our second quarter income tax expense was $4.7 million with an effective rate well over 100%. This elevated tax rate continues to be a function of where our profits and losses are distributed geographically and the associated tax regimes within those areas. I expect it will remain at this elevated level for the short term as we continue to navigate this lower market. As we see a rebound in market conditions and our improved profitability across the globe, we can get back to normalized tax rate levels. Now moving on to our financial guidance for Q3. Our guidance ranges for the quarter are revenues of $450 million to $475 million, adjusted EBITDA of $25 million to $30 million and I also expect to see tax expense of around $4 million to $5 million, which is similar to our Q2 level. The midpoints of our revenue and adjusted EBITDA guidance imply growth in both metrics when compared to Q3 of last year as well as relatively flat performance versus Q2. That sequential comparison is notably positive as it runs counter to our normal seasonality in which sales traditionally drop from Q2 to Q3 due to normal plant shutdowns and holiday schedules in the summer. The main factor underpinning this positive dynamic is our expectation that the consumer segment will rebound a bit as channel inventories have gotten too low as Paul talked about earlier. Reiterating our prior comments on cash flow. We will continue to manage working capital tightly allowing us to reduce our debt. Our financial condition does remain solid and I'm fully confident we're putting ourselves in a position to accelerate future performance.

Operator, Operator

Our first question comes from Mike Shlisky from D.A. Davidson.

Michael Shlisky, Analyst

David, can you maybe clarify the last few comments there, I might have misinterpreted here. So in the third quarter you're saying sales could be roughly similar to what you just saw in 2Q, but the EBITDA could be down 10% to 15%. That's what the numbers are saying. So can you maybe break down a little bit what's behind that assumption? Is there any kind of mix or other issue that's just 3Q specific here?

David A. Martin, Senior Vice President and CFO

Yes. There's nothing to really call out, but we normally have our seasonal shutdowns of plant and equipment for the summer maintenance schedules as well as the holiday schedules in Europe. Overall, the product mix we don't think it's going to be quite the same as what we saw in Q2. So moderately off, but nothing significant. So again, we have the opportunity on the high end to achieve what we achieved in Q2, but a little bit of moderation in some areas.

Michael Shlisky, Analyst

Okay. I don't want to look too far ahead, but looking at the fourth quarter. If you recall last year, I think folks were thrown a bit of a curve. You had kind of EBITDA that was not seen since prepandemic when you were a very different company. I don't know if you would actually give us guidance yet, but are you getting any indicators that these OEMs are going to have a large shutdown again this fourth quarter or is that just kind of in the past at this point?

David A. Martin, Senior Vice President and CFO

Yes. We're seeing very similar schedules. I don't think it's really changing a lot. But certainly, I would be encouraged by them picking up production. But right now we're not seeing any indication of that. It's just kind of fairly flat at this point.

Michael Shlisky, Analyst

Okay. I also wanted to ask about maybe the broader ag sector in general. It sounds to me as if you're seeing some inflection, but it's just still happening only in Brazil. Are you getting any sense that you'll start seeing an improvement in the United States or are the OEMs still just saying we're just not going to build anything more until we start seeing actual farmer orders get better?

Paul George Reitz, President and CEO

Yes. I think there's an overall tone that's just pretty quiet and I would say that's different than prior years, that quietness. I don't think that indicates negativity, but I think it just means right now there's definitely a pause to wait and see obviously what's going on currently with some of the tariff deadlines and then any Fed action later in the year. Where we see some positives though in our industry, you mentioned Brazil. I think Brazil continues on a good path. But where we're seeing some net positive in our industry is that wheel and tire inventory just has been dragged down too low or equipment inventory has been dragged down too low and that's where we get these drop-in orders that can be fairly sizable in size. As I've mentioned, we saw them in Q1, Q2. Seeing some good trends starting off Q3 so far in July related to our consumer segment as David has mentioned as well. So each quarter we're seeing some very positive trends with good size orders coming in from different customers serving kind of some different markets with products, but that's where Titan's ability and what we have been instructing our team all along is that when our customers need us, we have to be there. And so it's easy to say it on a call today. It's much more difficult and it shows the strength of Titan to do it in reality. And so we are positioned to take these large orders as they come and service our customers and we are starting to see them. And so I think, Mike, what we believe as we get into next year and it's very early to give you a fine-tuned comment. But I think because of inventory and some general positive trends kind of leaving tariffs and interest rates to the side, we do expect an uptick for next year. And quantifying that further is going to depend on again tariffs and interest rates and some of these elements that are causing the pause. But I think the underlying drivers that are there for us to see some uptick for next year.

Michael Shlisky, Analyst

Maybe one last question. I've only partially reviewed the 10-Q. Given the tax situation this quarter, are there any significant U.S. net operating losses that we should consider in our valuation moving forward?

David A. Martin, Senior Vice President and CFO

Yes. So there are some NOLs that could potentially hit valuation allowances needed if we don't see market conditions improve. But again, I think it's important to focus on cash taxes and how we're paying it. It's been relatively stable in that area. So that's really what we look at. There can be some movement in the NOL valuation allowance from time to time, but we'll call it out separately.

Operator, Operator

Our next question comes from Steve Ferazani from Sidoti.

Stephen Michael Ferazani, Analyst

Appreciate the detail on the call. Obviously nice job on the gross margin. I know in a difficult market to get that kind of sequential improvement is impressive and I know that's been something over the last couple of years you've been focused on. I'm hoping you can help me walk through what happened with a little bit more detail on consumer. The expectation was if tariffs were an impact, we'd see it on your gross margins. We did not, your gross margins improved sequentially. Is that a situation where you're trying to raise prices to offset and dealers and customers are rejecting that or can you just help out on what's going on in consumer?

David A. Martin, Senior Vice President and CFO

Well, the sequential improvement in margins was a little bit to do with just product mix, a different OEM versus aftermarket and that's really it. And I want to be clear, we're not going out trying to capture price per se. We're managing the tariff cost with moderation of prices accordingly. But it was not a material impact. In fact, there was no bottom line impact.

Paul George Reitz, President and CEO

Yes. Steve, pricing is a significant strength for Titan, both in consumer and agricultural markets. We have a good understanding of the market and maintain strong customer relationships. As David mentioned, we view pricing as neutral, meaning we're not aiming to increase volume through pricing, nor are we accepting losses due to costs. Our ability to respond swiftly to changes in our cost structure is reflected in our pricing strategy. I haven’t encountered any major pricing challenges that required my involvement, which addresses your question about pushback. The answer is no.

Stephen Michael Ferazani, Analyst

Can you clarify if the decline in consumer demand is not related to tariffs, but rather due to pure demand, consumer uncertainty, and dealer destocking? I'm trying to understand it better.

Paul George Reitz, President and CEO

That's a different question in terms of going to…

David A. Martin, Senior Vice President and CFO

Yes. There was some complexity, and it's difficult to explain at times. However, it is clear that there was a slowdown in the market during the second quarter due to tariff impacts, contributing to a wait-and-see approach and a reluctance to hold inventory. Consequently, we're beginning to observe some recovery and improvement in early third quarter as inventories had dropped too low. Does that make sense, Steve?

Stephen Michael Ferazani, Analyst

Helpful. I mean it's tough. I mean you see what's behind it, it is tough to walk through and obviously the consumer is much larger than it used to be and the cycles are a little bit different than EMC and ag. So clearly, I have a little bit more questions on that one. But that's helpful. If I can ask briefly about the balance sheet. Obviously your net leverage I think is fair to say it's a bit elevated here, but apparently you're taking that minority interest. Can you just walk through any kind of covenants, financial constraints? And just as an add-on to that question. By our model your year-over-year EBITDA improves in the second half, cash flow seasonality tends to be better. This should by our model be peak leverage. Is that fair? So I know it's 2 different questions.

David A. Martin, Senior Vice President and CFO

That's a very important aspect, okay? So yes, we see this being peak leverage. And as we see free cash flow in the second half improve, we'll be increasing cash. So all of that plays well within the leverage ratio. Again, I said it earlier, but we have great flexibility within the bonds and our ABL facility and there are covenants, but those are more like what I call springing covenants and we do not get ourselves in a position to where those ever come into play. And so from a covenant perspective, I don't see that being an issue and we manage it accordingly.

Operator, Operator

Our next question comes from Derek Soderberg from Cantor Fitzgerald.

Derek John Soderberg, Analyst

Wanted to get your thoughts on the Japan trade deal and then you've got this accelerating depreciation provision. Just to me it feels like the setup is quite good for ag. Paul, you continue to mention interest rates. It seems like that's the gating factor. But looking at some of these other trends going on in the market, it feels like that setup is good. And so I was wondering if you can kind of double-click on what you're seeing from a customer perspective and your thoughts on some of the timeline for if these things are really going to start to have a positive impact or it's really interest rates that are still the gating factor and we're going to be waiting until those rates come down and that's sort of the biggest hurdle at this point. Just wondering if we could get some additional thoughts there.

Paul George Reitz, President and CEO

Yes. It's a good question with a lot of thoughts. I think you're moving in a positive direction. Like you said, where we're seeing these tariff agreements settle is at a level that I would say is net positive for our business and really net positive for the sectors we serve overall. I said in my comments and I'll keep saying it, I mean the world we compete in was not a fairly competitive global marketplace and that was demonstrated when we went in front of the ITC twice, won unanimously and the weakness has always been the Commerce Department. So I think we're seeing the Commerce Department and the activity that's going on within the administration is what's really needed for companies like Titan. We make great products with great people, but it wasn't a fair playing field. So I think the Japan agreement, like you illustrated, is a good starting point for where we see the rest of the global market being settled related to tariffs. I listened to Bessent this morning. He's phenomenal at what he's doing. He didn't exactly give clarity to answer your question, but I think he did point in some pretty good directions with some of the key countries that these deals haven't been settled at this point. So I do feel good about where we're going. I think the farmer sentiment indicators are positive. I think the backdrop of the way the administration is stepping in with support for farmers. You look in the construction segment, obviously there's a lot going on there. But I think that both segments tie back to one thing, it's just interest rates. We still see interest rates being that cloudy factor that's hanging out over making purchases and holding inventory because people are looking at it going what I pay today is too high to what it's going to be in the future. I think once you remove that impediment, which maybe we got a step closer this week, then I do think you're poised for a market that is going to start rebounding. We've been in the ag cycle now for we're going on a 2-year downturn and I think all the indicators are that '26 will be an uptick. The question is going to be when does that springboard into place. One of the things we're going to be working closely with our customers to kind of find out the answer to the question. And with the products we produce, Derek, especially the wheel, we usually do get very good lead time. And right now they're still fairly quiet on next year. But as I mentioned earlier, I do think there's going to be an uptick for '26. The question is again does it really spring into place to be a major uptick or is it just sort of get the year started moving in a positive direction and wait and see for the back half of the year if it really kicks in. So I can't quite answer that question, but something we'll be over the next few months working to get some more clarity.

Derek John Soderberg, Analyst

Got it. That's helpful. My other questions were answered. But I think maybe if you could just provide some detail, some additional color on this deal in Brazil. It sounds like you're investing in one of the bigger companies over there and I think I missed the name on that, but wondering if you can maybe help us plan for how we should model that? Any impact to cash outflows, inflows, revenue outlook? Anything that might help us model that impact would be helpful.

Paul George Reitz, President and CEO

Yes. I'm going to probably spend more time on the strategic side of it because it is a minority investment so the modeling isn't going to be quite as transparent because we will not be consolidating their financials. But it's a strategic relationship we've been working on for a number of years. We've watched this company, gotten to know this company, worked with them with some deals and seen them. They've really built a strong business for our particular products so large ag. They've put the investment into the plant. They have a great technical team. And really what we're looking at is if you can bring a wheel and tire as an assembled product to our customers, we are truly that one-stop shop and that's something you keep hearing Titan say over and over again. If we can do that anywhere we operate, we feel like we're going to win. We're going to have the best customer service and the strongest customer relationship. And so Roderos is the name of the company to answer your question. They've done a great job gaining market share in Brazil with the products they produce in wheels servicing ag and construction. And again just somebody we've been working with, talking to for a number of years and it's great to finally see it all come together. So I think you really have the formation of a healthy strategic partnership there, 2 companies looking for ways to continue to grow and expand our relationship together. So we'll start off with an initial minority investment of $4 million for 20% and then we do have some opportunities in the future to see that grow and expand. And at that point then you would start bringing in the full financial consolidation and seeing the direct impact to the financial statement. So I do think it will have a positive impact definitely strategically for the coming months and next year. We'll work more on the modeling side of it after it gets closed to see the incremental volume that we can drive to Titan through the strategic partnership. But again just to be clear, it won't be consolidated as a full set of financials.

Operator, Operator

Our next question comes from Joe Gomes from NOBLE Capital.

Joseph Anthony Gomes, Analyst

Just wanted to start just for some more clarity here around the consumer side. So what I'm hearing is what's giving you confidence that this was a temporary lull is the low inventory. And then if we get some positive resolution here or stabilization, let's call it, on tariffs and now interest rates, that could even be a better environment for us. Is that accurate?

Paul George Reitz, President and CEO

I think, Joe, you're on the right path with that and I know David has spent a lot of time talking about it and it does get complicated. I mean these questions, there are so many moving parts in how we try to respond and answer it and part of it is also because we have a ton of information available to us. And I would say as we went into the quarter, we knew that volumes were moving downward and there was a number of different factors like we've already highlighted and your question brings into play. Part of it is tariffs and interest rates were the obvious. Part of it was the timing of some of our sales that we had in kind of some programs from last year versus this year. So there's a lot of moving factors. But what we were really watching closely, David and I along with the leadership team from the Specialty division, was what do we see in July? And what we have seen in July, and we spent some time yesterday just confirming all this, is that some of our customers had paused in Q2 as you see in the financials for the reasons that have been noted and they're now realizing that the retail pull-through demand has remained stronger than anticipated and they're building back their inventory. So again inventories have gotten too low relative to the retail sales. And so we've seen some really good orders come back in July leading to the positive comments that you've heard from both David and I that this was more of a temporary slowdown still impacted by tariffs and really primary interest rates as we've talked about, but there is positive indicators in Q3 that the fundamentals in the consumer segment are stronger than what was indicated in the actual Q2 results. Does that make sense? I'll kind of stop there and let you digest it.

Joseph Anthony Gomes, Analyst

That's great. Very informative. And then I was wondering maybe you could talk little bit about some of your efforts that you've talked about in the past getting some third-party sourced product and your move again back into the military market. Maybe you could just give us a little update on how those are going.

Paul George Reitz, President and CEO

Yes. I mean we are going to continue to be that one-stop shop, which includes our incredible portfolio of production capabilities around the world, but also where we need those third-party partners or the JVs that we have in the ones that are existing and the new one that we just announced. But we are going to be that one-stop shop to service our customers. And what we bring to that equation with the third-party sourced products is we bring distribution, branding and an incredible technical resource team that can stand behind the products. So we are willing and looking consistently to fill in either geographical or product gaps in our portfolio to service our customers with a high degree of confidence that if we find the right third-party partner, we will service that product and we will service the customers and do it well. We have been doing that, we are currently doing that and we believe strongly we can continue to grow via that strategy. And so really pleased with the progress. And to be honest with you, we have an incredible team. So doing this requires resources and strengths of people and market intelligence and that's where Titan can really outrun and outshine the competition because our breadth and the depth of the places of the globe that we can touch is a step ahead of everybody else. So we're going to keep running and growing in that area. Military, we see the opportunities. In fact, I had a really good week with military. To be honest with you, I'm glad you asked that question. It's a pretty busy week with earnings, but I've had some good meetings with the military this week and now it's just kind of getting the technical needs from their side corroborated with what our team and our capabilities are and really moving forward with. So at this point there's nothing discrete because projects do take time from an engineering standpoint. If it was just up to me, we'd sign a deal and we'd be running. But there's a lot of technical stuff you got to work through, but it's a timely question because it was a positive week. Again, a meeting that I was involved with directly this week was moving in that direction and we've already scheduled some follow-ups. So we're going to continue to chase those military opportunities because the way I view it from Titan's standpoint in my tenure here as CEO and President, our military sales have been closer to 0 than anything. I know Titan historically had military sales, but during my tenure it's been close to 0. And so I think the direction the administration is going, where the military is going favors manufacturers, producers like Titan. We're building those relationships, like I mentioned, and I see it as only as a positive. So we're not at risk of losing anything because we really don't have anything. So again, I think the meetings that took place this week are positive. And I'm investing my time and so will my team.

Joseph Anthony Gomes, Analyst

Great. And then one last one for me. You really haven't talked about LSW today. And I know one of the goals you talked about was some penetration into the midsize tractor market. Just wondering how those efforts are going and then the overall LSW efforts.

Paul George Reitz, President and CEO

We are committed to advancing LSW behind the scenes, focusing specifically on marketing towards midsize farms. We've received excellent feedback from a contract farmer managing multiple parcels, which provided substantial data supporting the yield improvements LSW offers with each piece of equipment used. Our aim is to develop a tool, leveraging AI and technical resources, that provides an intuitive marketing experience for farmers, allowing the sale to drive itself by plugging in farm size and needs to calculate potential returns and yield improvements associated with LSW. While this process will require some time, the data we are gathering from external testing is exceeding our expectations, confirming the quality of our products. We are in the process of refining this initiative. Additionally, we hope to offer attractive financing options to farmers, but we've faced challenges in the current market. Recently, I spoke with our Canadian team, and they are exploring discussions with Canadian agricultural banks for financing solutions. If we can combine effective marketing and financing, I believe we can significantly boost LSW sales. We're actively pursuing these opportunities, though high-interest rates remain a challenge that we hope to address soon.

Operator, Operator

Our next question comes from Kirk Ludtke from Imperial Capital.

Kirk Ludtke, Analyst

A couple of follow-ups. On Roderos, do you need to make an investment there?

Paul George Reitz, President and CEO

No, not beyond that initial $4 million. They've done a great job investing in operations and transforming it into the world-class company it is now with a good market share in Brazil. We've been monitoring this closely over the years to answer your question, Kirk, regarding their investments in both equipment and technology, which they have already made. So Titan's involvement is not about needing capital to achieve their goals; they have already reached that point. The focus now is on how to enhance the two companies together. It's a great opportunity for Titan shareholders, and it once again highlights the strength of Titan, our brand, and our identity.

Kirk Ludtke, Analyst

Interesting. I guess I missed that. I guess you said there was a $4 million investment upfront.

Paul George Reitz, President and CEO

I didn't say it in my script. It was part of the Q&A. I didn't have that in my script. So no, you didn't really miss it from that standpoint.

Kirk Ludtke, Analyst

Okay, got it. Since you're enjoying success in the tire segment, this seems like it could be a significant development. When do you expect it to impact your results?

Paul George Reitz, President and CEO

I think moving the needle, obviously if we increase our investment to the point where we consolidate or our operational involvement increases and we consolidate it, that would move the results. And it's added a valuation that is attractive and reasonable for Titan shareholders. So I think from that standpoint, it's accretive because it's a profitable and successful business. But as far as moving the needle, I think it's what we can do with our product portfolio together. Obviously now we can sell wheels and tires assembled to the OEMs. We can push more of the LSW together into the marketplace. And so it's all areas that are good growth. But also what it does and this is not answering your question directly, but it protects what we have. So if you think about they have good market share, we have great market share. When you are a wheel tire assembly type operation like we are in North America, the value and the leverage that you have and really the protection you can put around the relationships you have with customers only increases. And so again looking at it from a strategic perspective, it's very difficult in Brazil to compete with a formidable combination of Titan from the tire side and Roderos on the wheel side. And so more to come as we kind of get the deal finalized and think about the strategy for next year. We'll make a trip down to Brazil once it closes and work with them on the strategy of where we can market and move some additional products for next year. So at this point because it's a minority investment, moving the needle financially isn't directly there. Let's lay the groundwork strategically and then we'll build the marketing tools around additional product sales for next year.

Kirk Ludtke, Analyst

Interesting. And what percentage of Roderos would you own?

Paul George Reitz, President and CEO

This initial 20% and then we have mechanisms that would drive that higher as time progresses.

Kirk Ludtke, Analyst

It's interesting. We've been hearing about tariffs for at least four months now, and it appears your customers in the U.S. would be making plans since imported tires are likely to face tariffs of at least 15%, and potentially higher for some countries. What feedback have you received from them? Are they inquiring about your capacity in case they need to shift to U.S. suppliers? Can you share any insights on what your U.S. customers are saying?

Paul George Reitz, President and CEO

Yes, that's a good question. We have had customers inquire about our capacity for next year. I was with a customer last week who subtly mentioned that Titan is in a good position for '26. Currently, discussions are more focused on our capabilities for that year, and while customers feel confident that we can meet their needs, they aren't discussing '26 extensively at the moment due to ongoing concerns about tariffs and interest rates. I appreciated the discreet comment from the customer; it was not necessary, but it signals to me that we need to stay agile. We must have the right staffing and resources in place to respond effectively. This is why I emphasize our ability to handle variations in orders. Many companies in our industry may struggle with this, and it is against the backdrop of cost management and maintaining margins that Titan has performed well this year despite significant market downturns. Our readiness to meet customer demands signifies Titan's strength. I encourage our team, investors, and the Board to remain agile. We perceive potential for market changes, but it's likely to be gradual, and we need to be prepared to serve our customers effectively. And so that's what we're doing and I think we're doing a good job getting through that so far this year. I think the guidance that David highlighted for Q3 in a period where you have significant holidays and shutdowns signifies that we're on a good pace for Q3 as well. So again a lot of additional market commentary. I'll stop there. I got 100 thoughts in my head, I could keep talking for 20 more minutes, but I'll stop.

Operator, Operator

Thank you very much. We currently have no further questions. So I'd like to hand back to Paul Reitz for any further remarks.

Paul George Reitz, President and CEO

So everybody, I appreciate it. Enjoy the rest of summer and we'll talk to you at the end of Q3. Thanks a lot.

Operator, Operator

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.