Q4 2019 Earnings Call

volume environment in nearly all

Aspects of our business along with the issues we had noted in Q3 related to our North America's field purchasing and costs. Are fourth quarter is a. That normally has maintenance shutdown holidays and then when combined with the fall off at the it triggered a Q4 sales declined to 17% to 302 million again, a prime factor driving a sales declined was the major factor in stock either inventory channels and both large and construction looking outside our own business. I want to know that are under Carriage after market sales that are primarily focused on mining and our North American Tire aftermarket sales. We're at a much better level than what we experience with the oems with overall Q4 volume is down 19% We reached a level this. Where our plant efficiencies in overages cost absorption took a large hit especially in North America and Europe. I'll let that David died deeper into the financial results and now I want to shift gears and spend some time looking forward dead.

also breaking down Titans businesses

a bit deeper and doing so

Well, obviously already marching forward into twenty-twenty and look we know that we must have a much better financial performance than 2019 and we have numerous internal initiatives intended to improve our reserve a 2.6% ebitda margin is not acceptable and we are not going to Simply lay rest to wait for the market conditions to improve we had a 7.4% even a margin in June 2018 and let's keep in mind 2018 is recent history. So this is not some some hidden number from a dark Cavern of the past plus 2018 was not a particularly strong large Market, which is a major part of our business. So we fully believe it's within our reach to get back to our 2018 performance levels and fairly short order and we are taking action to do that.

We've noted throughout 2019 that we had Thirty to fifty million dollars of non-core assets that can be used to generate cash and further protect our balance sheet the United stated there. These are assets that would not have a significant impact on our female. I think it's important today to understand tight more effectively that I spend a few minutes breaking things down a bit further between poor and phone number for me potentially non-core businesses. Today's call not going to sit here and spell out exactly which of our businesses are looked at as underperforming. However, David our general counsel in our board fully understand this classification and how we view our company. So if you look back at 2018, we did 1.6 billion in sales and 119 million in adjusted even as I stated earlier.

That year are under?

How many businesses reduced are rebooted by nearly twenty million dollars on sales 170 million that means without these businesses. We would we would have posted a solid 9.7% even a month agent in recent years. We have put a lot of effort into improving the operations of our underperforming businesses, but we've reached a point with many not all of them that the additional investment of resources isn't going to result in a significant Improvement to the bottom line there for we are working on alternative Solutions including their passengers on notes as noted on prior calls. I'm not coming out here today and and and announcing that that's something new. We are already working on that and these are definitely ways that we can improve our business in a fairly short order. These underperforming operations are not included in the thirty to fifty million dollars. We've noted non-core assets sales, but I do want to add they have a net Book value in the eighty to ninety million dollar range. So there's additional cash that could be generated that goes beyond the positive impact.

our financial results from these

Now let's dive into our actions for 2020 first. Our operational cost structure actions will drive ten to twelve million dollars of improvements this year off next the eighty-twenty. They should give in North America that we've been talking extensively about will continue to improve our performance and is expected to deliver another five million in 2020. And I should also mention that decreased tire inventory by just under twenty million dollars through these actions are ready in 2019 with this rewind eighty-twenty product portfolio will have further opportunities to improve margins about our Tire Division through improved pricing on the bottom twenty percent of what we would call a lower volume be products the last couple of quarters. We pointed out an issue related to steal cost that impacted tightening our North American wheel this North American wheel will perform significantly better this year as we have now gained better control of our steel purchasing than negatively impacted us this year and with other business Improvement wage.

brought about a brought about

Operational changes we expect an incremental gains of at least fifteen million dollars in North America wheel in 2020.

Look as a company we have historically had a lean operating structure and we will continue to do so, but we have to deal with the reality of a decentralized framework with our heavy manufacturing operations team still have set a goal in 2020 where we expect to reduce our sg&a and R&D cost by over 5% to approximately $140 through a Vigilant focus at each business unit to further wage loss.

As a company, we have reduced headcount during 2019, but our queue for sales levels, especially the back after 4 in the in the moderate 2024 cast to start the year off for certain segments and geographies where we operate as required as to take further actions in the first quarter of this year. I stated this before Titan had been through many cycles and our management team's experience to take your quick actions of difficult situations to adjust to the shipping market trends and we will continue to do that.

So, what's that?

Through all the noise that we build good products that are important to our customers. It's a simple statement with a lot of meaning that gives us a lever to drive Improvement our margins through targeted strategic pricing as I've noted in Prior periods at North American Tire in our aftermarket business. We've invested a significant amount of resources and effort to improve our Market intelligence and our pricing models, which had been very good at combating the pressure from the Imports and a stagnant Market. I have reason to believe their Market intelligence and pricing capabilities are the best in that industry. We continue to see the package is impacting those actions and the twenty-twenty. We are going to bring that same approach as strategic pricing to other parts of our business even ones that are primarily sell to it doesn't hurt that in today's world aliens have to be more cognizant of a supply chain. That is to Reliance on China in India local originally produced products are a really good thing to have in today's risky wage.

Last quarter I spoke about product development being a heartbeat of our company and I want to reiterate some success that we've been having we continue to have with.

Using the aftermarket and I really want to point out a new R14 tire wheel assembly that is jumping into the OEM sector through our relationship with Kubota these new products off crucial in North America as we deal with the tough conditions and I gotta say in 2019. We've done a good job managing that as evidence in the fact that our North American tire sales are only down mid-single digits of this tough Market. We will continue to lead the way with new product development and it will be the heartbeat of our company that propels us into the future as we are well into the new year. It does appear that our customers in North America are stabilizing production with farmer dealer sentiment improving. This has resulted in more normalized sales in relation to production level at the oems and where you're seeing better q1 volumes prepared for I do believe their triggers in place with the potential to drive demand improvements throughout the year regardless of the concerns based in the world. People will continue to eat protein-based diets, and yep.

Relations will continue to grow so with all that being said through our internal actions and what we see in market conditions. We have presented a plan to our board that has twenty-twenty ibadah at six million, excluding currency impacts on relatively flat sales and one point four or five billion. In fact, our management bonus structure is tied to that level. So we're putting our money where our mouth in addition to the expected Financial Improvement that I've noted. We have the support of our board to review all of our non-core and underperforming assets as a means to further optimize our financial performance there continues to be uncertainty in the global economic economic markets and with the coronavirus. It's creating a patch of uncertain headwinds or undercarriage business.

We do we believe that visible visibility will improve it coming months and we anticipate bill.

Update when the picture gets clearer, but I do want to point out that we have presented a plan to the board that gets us back up to $75 million in ebitda. And again, that's where we are putting our money where my mouth is and how long has with bonus structure is is tied so we're not putting on a normal Outlook that we do at this time of the year, but we do plan on providing update as the year progresses Switching gears an important area of focus for our management team is to protect our balance sheet which includes eliminating the debt that we took on this past year to settle the Russian put options during the year. We generated operating cash in excessive 45 million dollars and paid off $36 million of the Russian put option. We have made it abundantly clear to our Global Management team that working Capital Management is a priority. It's like 2020 to generate another $25 million of working Capital Improvements.

We've also noticed a previous previous calls ability to generate Thirty to fifty million from non-core transactions. We we we told you before that we sold 10% of wheels of India 419 million. I also wanted to let them know that we sold another 73.5% for seven million in February. We also recently reached a settlement for five million dollars on the property component of the t t r c Canada fire and we were working towards settling the business Interruption fees. We have more to accomplish within our underperforming assets as I noted earlier and we will continue to do so for like our balance sheet and improve our financial results.

to wrap up

As seen in our 2019 results at 7 and we have been and continue to operate within a competitive involving landscape and prior to the radical Market volatility. We experience in 2019. We were quite proud of in recent years to improve our financial results and tighten over all the events in 2019 record bought it doesn't take away from the gains have been made a Titan and 2019. We maintained and in many cases strength and Leadership position in our primary Market through improve customer positioning through our market-leading Innovative products, which again is critical important critically important to our long-term success and will be future dividends. We remain cautiously optimistic that our markets will stabilize and perhaps improve the twenty-twenty, but we are not going to sit back and let it come to us as we will continue to take actions to improve our performance with 2018 is a barometer for a financial performance. We see a path to return to these levels and Beyond this will be a significant year of birth.

Like to turn the call over to David.

Thanks. Thanks Paul and good morning this morning. I'll go through some of the more important items from the fourth quarter 2019 performance and discuss current and ongoing actions to manage our financial position wage, which includes working Capital Management, but also the non-core assets sales as I noted as noted. There was this was one of the most challenging quarters in some time for the business and with the strong in customer demand into what can only be described as a major destocking event for the industry for both Ag and construction net sales for the fourth quarter of 2019 were three hundred thousand dollars representing a sixty-two million dollar decline or 17% from the prior-year. The first part of the quarter was much more reasonable, but the last two months sales were among the lowest we've seen the last five years with December sales being in the lowest since December 2015.

On a constant currency basis revenues would have been down 15% from the fourth quarter of 2018 were fifty five million the negative currency impact of six million or 1.8% came primarily from Europe and Latin America with while exhales lag the prior-year by 6.6% The biggest impact on sales. This quarter was in her Earth moving and construction stage where sales declined by forty two million from last year. The drivers were all around the globe and all the business units, but the largest impact was felt in I teams undercarriage business with a decline of two thousand million euro per year in the in the m c segment.

the remaining two

Plans were primarily in North America the UK and Australia.

The consumer segments experienced a decline of nearly ten million in the quarter reflecting the continued sluggishness in the utility truck sector truck tire sector in Latin America along with North America.

I can't construction sales experience and other sharp decline in Q4 on Lower OEM demand and all Geographic areas. But primarily Europe and Asia resulting from the Global Construction slow North American wheel volume was down 16% and a North American Tire Sales were also down 15% with the biggest driver being as customers lower suction Latin America was down 12% from Q4 2018 with all segments showing weakness in the quarter due to the same reasons mentioned previously our overall sales volume on a consistent basis was down by 19% from last year, but the largest declines being an undercarriage in North America, Australia and Latin America. Russia was slightly ahead of last year with price and mix and current wage more than making up just a slight volume decline overall market conditions have improved somewhat in Russia.

price

6 in the quarter was mixed between geographies and businesses with an overall slight positive impact on sales of over 3% I'd like to say that you know that it's mostly mix of products that were the prime drivers for this Improvement where they were pockets of price increases related to higher raw material costs.

The reported gross profit for the fourth quarter was only eighteen million versus thirty-seven million in the fourth quarter of 2018 a gross profit. Margin for the third quarter was 6.1% versus 10.1% life. It's Paul described earlier. We normally have a different margin in Q4 related to drops to volume from our Peak quarters. But this was an extraordinary one. We saw a 400 basis-point dropped off for it to Q4 2019. This drop was substantially due to a lack of Labor and overhead absorption across the business now the words with a sixty-two Million Dollar Dream and sales. We would have needed to lower labor and overhead by twenty five million and we were only able to reduce labor and overhead by 11 million in the quarter due to the high level of fixed costs in our plants Aleve about fourteen million of stranded costs and there by hitting our margin.

we have some other variances in the

But this was the principal driver for the margin degradation in Q4, simply put we have spoken for the last 2 quarters about the impacts of Steel purchasing on the results on our North American Wheels business and there was some residual impact in Q4, but it was significantly less than what we experienced in Q2 and Q3 now spend a few minutes on segment performance are a cultural segment sales were a hundred and forty million dollars down 6.6% on a year-over-year basis currency negatively impacted sales by only 2% this quarter volume in the cell phone was down 15% and we had a favorable price and mix of 10.3% sales in North American Tire were down 6% for the quarter due to customer slowing production as we talked about previously. There were also inventory reduction programs going on across the industry.

A Russian and European acts sales were essentially flat the last year while or Latin American axles were down twelve percent from last year in the fourth quarter with equal amounts of declined coming from currency valuation and volume our agriculture segment gross profit for the fourth quarter was 9.2 million dollars down from $17 million in the comparable prior. Unfortunately, this disclaimer decline relates to sales across North America and Latin America, but the largest driver of lower performance relates to the degradation and gross margins from lower labor and overhead absorption that I mentioned earlier.

Continuing on to the Earth moving and construction segment our Earth moving construction segment experienced a decrease in debt sales of $42 or 24% on a constant currency wage is net sales would have decreased about 23% versus a year-ago volume was down in the segment by 23% and what pricing mix were negligible itms undercarriage. This was the largest impact in the quarter is construction accelerated their sharp decline in demand. We saw the biggest impacts in Europe and China, but all Geographic areas suffered.

Are volumes in North America were down 19% in the in the fourth quarter compared to last year due to a variety of volume and mix we saw a decline in Europe wheel due to slowness in construction along and finally our Australian sales in the drug by 5 million as we have closed some branches and continued to Pivot from mining Tire Distribution.

Gross margin the gross profit in Earth moving to construction segment for the fourth quarter was only six point nine million compared to eight point six or or actually a decline of eight point six million from the year-ago the biggest driver that declined related to the lower volume and negative currency impact on the team's business with the largest component of being the largest component of the segment again fixed cost absorption the biggest driver of margin degradation now to wrap up with consumer segments that the the fourth quarter sales were Thirty million compared to fourth quarter 18 sales of forty million off. The negative impact from currency was about 2.3% in the quarter and volume increased by eleven decreased by 11% with our mix them and another 10.2%

this

Had little to do with real real price degradation the most significant impact was really related to volume and Latin America and the utility truck segment, which has been the market Trend all year.

The segment's gross profit in the fourth quarter was 2 million which was down 1.8 million from a year ago. Our gross margin was seven and a half percent with a representative decline of 10% from the fourth quarter of last year. Again. This is reflective of lower sales volume in the impact on our fixed cost absorption primarily in Latin America.

Now turning over to operating expenses sg&a and R&D expenses for the fourth quarter were thirty-three and half million lower than the level. We saw in the fourth quarter of 2019 and also 5% lower than a during the fourth quarter. We incurred another 400 21,000 of the costs associated with the proposed European for itm. And without these costs. We would have improved even more from last year by 2.3 million or 6.6% We have substantially completed our our peace stabilization efforts in in the first phases of our implementation that we had earlier in the year off which is approximately a a $500,000 decline year-over-year in an it costs. This demonstrates progress toward our efforts to lower sg&a costs across the business.

we were able to get

Full-year sg&a and R&D 247.6 million compared to our original Target of a hundred fifty million for the year, including the non-recurring costs.

We recorded tax expense of 2.7 million on pre-tax loss of twenty-three million during the fourth quarter. I've described this issue in previous quarters, but we encourage tax expenses. We can't record current wage tax benefits on losses in the United States Europe Russia in Australia do this and if cumulative losses in these jurisdictions, you'll note that there are no increases, you know, increasing the Redeemer non-controlling interest in the fourth quarter the impacts from the Russian put option are behind us. The only thing remaining is the issuance of the restricted stock of the 25 million related to rdif which still needs to call regulatory hurdles at this point in time. We do not intend to redeem the RTF shares with cash.

Now, let's move over to our financial condition and highlight a few key balance sheet liquidity and capital items despite the 25 million dollar net loss in the fourth quarter. We were able to generate positive cash operating cash flow at 4:30 million for the year was generated 45 million operating cash flow generated free cash flow of eight million on a $50 net loss. Of course. This comes on the liquidation of working, during the second half of the year or overall cash balance declined by twelve million from last quarter as we lower debt by 31 million. Our receivables declined by thirty six million from the third quarter wage has declined by fifty-seven million from a year ago. Of course, this is principally due to the sharp drop in sales. However, we have improved the SOS by two days this quarter from September in 5 days from the in the last year reflecting Focus from our collection teams.

our ending inventory

At the end of December declined by 18 and 1/2 million from the end of September and sixty-two million below fourth quarter 2018 levels are operating leadership and security teams make strong progress to gain focus on a management across the business that said there is still room for improvement across parts of the business worldwide, and I do expect to see further improvements in 2020 overall retargeting and took $25 million and working capital reduction this year not taking into effect any top-line growth, which we hope would only be a modest impact on working capital.

Capital expenditures for 2019 were thirty-six million versus $39 million in 2018 given the continued challenging market conditions were going to hold our Capital 4022 roughly 35 million or slightly less now wrap up a little bit with our discussion on debt and what we're doing to manage our cash and debt levels in the near-term as I stated earlier debt level declined during the fourth quarter, as of December 31st, thirty-six million was outstanding on our domestic line down from fifty-nine million at the end of last quarter of but the completion of the sell shares in Indian October. We paid down 19 million on the line and we also use excess cash flow to pay down another four million during the quarter.

in February

We've been able to pay another twelve million on the line relating to additional shares of Wheels into your soul into the market. And we also receive the five million from the insurance recovery related to the casualty claim in our Canadian tire recycling operation. I would like to address the status of the program to generate cash flow from non-core assets sales that we've been describing for some time with the most recent transactions February. We now at thirty 1 million from non-core assets sales and other similar transactions. We still have a few near-term transactions we expect to occur in the first half of 2020 which will take up slightly above the overall Target of fifty million dollars in other words. We're on track so far on this

I will restate that what I previously said given our current and anticipated near-term cash levels and our credit capacity on a global basis. We have adequate liquidity to manage the business in a healthy way on a daily basis. We have navigated a supremely challenging Market in the past year and through all this volatility. We've stabilized their position. We are also to taking strong actions to strengthen their Market positioning and invest properly in the business to set it up for the long term describe the Strategic actions that are underway and we're in each of these are designed not to not only help us continue to seem to thrive in the for the years to come. Now. I'm going to coordinate conclude with tidying up or overall guidance discussion that Paul talked about earlier. They're our business planning process as we started the year with an expectation that we would see flat to slightly improve sales for 2020 as everyone knows the world has seen even more volatility and certainty uncertainty over the course of the last few months making it ma'am.

Challenging project expectations beyond the immediate term that said the best estimates we have at this moment with moment would suggest flat sales at the same time we have enacted.

Appropriate steps to improve profitability in the business which if realized would deliver significantly improve profitability in the current year in these actions include first, we expect to see improvement from stabilize raw material purchasing and production control processes and our North American wheel business, which would be approximately 15 million and improvements to gross profit in 20 20 second month. We're taking actions across the business over the course of the last two quarters to reduce Staffing in our production areas along with other cost reductions in some non-core businesses, which were driving up approximately ten to twelve million of annualized get out of the business and improve gross profit third are 80/20 initiatives and our North American Tire business is designed to improve efficiencies and our production that should deliver five million of improvements to our gross margins. And lastly we targeted the reductions of seven million or 5% of our total sg&a for 2020. These four items are amount to roughly thirty-seven to thirty-nine million in, New Jersey.

An improvement in profitability without any meaningful growth in sales for the year. We will maintain diligence on these initiatives during the year. And we also remain Vigilant in our planning if we see any significant wage tax in the market up or down to adjust appropriately the 75 million even dies a Target is obviously a 2020 Target but this isn't our end game or Benchmark for our success is Paul talked about earlier and would be taking all the necessary steps to drive toward our longer-term goals now, I'd like to turn it back over to the operator for any questions you have.

I'll begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press star then to the first question comes from Joseph sidoti and Company, please go ahead.

Hi guys, good morning. Good morning. Just a question on the guidance and sort of the expectation of flat Revenue. I'm just wondering how you come to that conclusion given the visibility that you have and I know you don't have tremendous visibility. But one thing that we do know is that the OE production rates are going to be down, you know, Thursday from 5 to 15% So it's Joey is down so much. How are you going to achieve flat Revenue?

well, I

Are they I think Joe how we get to fly Revenue. There's through multitude of different approaches one. I mean aftermarket businesses. I I mentioned some of my comments is doing well, you know, the the wrong replacement Market Farmers continue to farm operators to continue to operate and and we do have a strong aftermarket business, you know, that that supports you know supports the fact that we projected for twenty twenty. You know, I would also say when you look at the the OEM forecast for the year, I think it's a little bit aggressive to characterize it that they're saying down 5 to 50% and they can search geographies. They're saying it's going to be relatively flat and you know, I would say looking at the action. They took in the back half of q46 really producing well under retail sales levels that there are enough triggers in place that the market really is right to object.

God's what they're forecasting now.

But I think that the comments from the DMS would support that now they're cautious with what they're saying. But you know, you look at the inventory channels. They're they're pretty clean, you know dealer sentiments improving Farmers sentiments improving and you know, I know in today's world where extrapolating all the bad things that are going on and assuming that it's just going to continue but I definitely think as we get into the spring season, you're going to see a lot more planting going on with you asked with the the first page of the China Bo signed and and I definitely think there's the opportunity to see those numbers up take Beyond again kind of the the flat down 5% that they're they're projected to get us back into that at least a flat level. If not possibly into a little bit of growth in the back half of the year.

Okay, and can you remind us what the OEM versus aftermarket is the break out amongst your the two major segments and off or smoking in construction.

Well, I can answer it for my my perspective. It may be a little bit different than what David and Todd kind of used to answer it. So if I'm off a little bit of what you guys have said, please correct me. But anyways, you know, I am the business this way and entire in the US were were around 50 50 now between aftermarket and OEM in our aftermarket strength is is continuing to grow with the success of Life have used. We do see the R14 really improving our our volumes in in 2020, especially with the way to vote is embracing that so if you took the tire business, I see a generally safety 50 in the US now if you go to South America where we have the number one market share in in the OEM businesses down there. We're tilted a little bit more heavily month towards OEM, so I call it more 60-40 split with OEM aftermarket in in our wheel businesses. We're typically right around ninety to ninety per-cent ninety-five per page.

in in in Europe

And then i t m has been continuing to develop their aftermarket channels really successful in the mining area over the last few years. And so they're around seventy-thirty split between OEM and aftermarket few days.

Okay, you don't have just a general between you know in the segment generalize this after market is this and same thing with the NC?

Well, I mean, I think he described all the businesses and how they operate, you know, obviously in North America were primarily Ag and if you think about itm, you know being a bigger portion of the EMC business office have a little bit of a different mix there.

Okay. Can you tell us what what's going on with your pricing strategy in the ACT segments pricing was up 10% volumes off $15 off which really was a big inflection relative to the trends that we've seen. Are you changing strategy at all with your pricing?

Would you were just getting more intelligent and better at doing it? You know, we we build good important products to our customers and you know, I think over the last five years we've seen a lot of a stagnant relatively stagnant Market where everybody is is chasing and trying to protect volumes. And so what we've done a really good job with through the eighty-twenty initiative as we've layered on with a real strong depth of Market intelligence to what what pricing actions are going on within really almost every corner the market, you know, we started that a few years ago and just so you know quite frankly when you come to you know, the after-market type of business in the I mean, we're we're really good at what we're doing is so strategically we're we're building a very important product to our customer we're pricing on a quarterly and and and you know, that can be a low balling product. It can be a high-volume product. It's it's it really just depends and what we're doing now in 2020 now that we kind of built the

The strength of that intelligence and and we're bringing 80 22 other parts of our organization.

We're also looking at doing that with with businesses that are tied directly to OEM. So that would really be you know, our wheel businesses when I reference that and and and and following the same approach. It's not just about cleaning up the portfolio. It's about strategically looking at our pricing, you know, where's the value and that product that we're producing for our customer and are we getting are we getting the right price for what we're doing and you know, again we are important to our customers and we need to develop a strategy around that it's it's not an easy path. But you know, I think we have the the depth and intelligence now to go do a job in more facets of our business than what we've done over the last couple of years.

Right and just follow up to that with the market off and your volume is off because of just the General market and then you guys probably checking out some some products with the any twenty and then your pricing strategy probably adding to that. Where are you on a capacity utilization? And do you anticipate more Footprints or or capacity being opened up? And what do you do with that? Is there any sort of consolidation plans at all as a result of of all this?

you know, I

I'm going to answer that simply cuz that's about all I can do on that one job, but it's it's a good question quite frankly. Our capacity. Utilization is too low and it's when I when I talked about the actions, we're we're back online with the board where we just can't sit still that's definitely an area that we're looking at and that can be a number of different steps that in past we could go down home and and we're looking at all of them, but I will say we argue ization is too low and and we're not just going to sit back in 2020 and let it stay where it's at and and we're aligned with the board on Thursday the actions that were were were undertaking, you know, we're not announcing it today. Meaning we're just starting that path. Um, you know, we're already were already looking at things and you know soon as we can update you further on that we will

Okay, and last question, I just wanted to clarify sort of your comments regarding non-core assets sales. It sounds like you still have the 30 to 50 million roughly that you're still expecting. Is that correct? Well, we we've had about thirty million of non-core assets sales, which you've used to you know, decrease our debt and you know, roughly we need another another twenty million remaining.

Okay.

And then regarding the underperforming assets, could you just repeat some of the metrics? I thought you said potential sales of under-performing access could attract $89 million dollars, is that correct? And and could you repeat what what the underperforming business is Wade on the 2018 Revolt. I thought you said twenty million, but if you could repeat that absolutely if you look back in 2018, we did 119 million on one point six billion a sales the wage underperforming asked business has reduced our ebitda by Twenty million on sales of 170. And then if you look at the net Book value of just those underperforming businesses that I included in that, you know hit of 20 million even. The network value is 82 ninety million dollars.

Okay, David's been mentioning in the thirty to fifty that don't impact operations. So the 30 to 50 is non-operational. What what I'm seeing here is these are operational underperforming businesses and are being treated as such where we need to look at Home ternative Solutions great and just to follow up I would assume so if they if they were realizing a 20 million dollar eBay at a loss in 2018. I think that loss is even greater in 2019 is that fair? Not at all cases, you know, we we have we have mitigated that in some cases. It's kind of It kind of varies each each individual business unit, you know, so what I'm trying what I'm trying to say is, you know, look, you know, even a margin was 7.4% in 2018, you know, obviously much better Thursday.

Was the 2019?

But really, you know that even in 2018 could have been 9.7% If we get this, you know this restructuring in place, okay, and and just last question regarding this took these businesses that you can that are already set up where you can sell them today or they intertwined within your facilities.

We've now structured room as we're in my opinion. They are not intertwined in in they could be divested.

Okay. All right. I'll hop back into you. Thanks a lot. The next question comes from komal Patel of Goldman Sachs, please. Go ahead. Good morning. Thanks for the time a couple of follow-ups from us on the point of liquidity and and some of these non-core assets sales again for liquidity. You said you don't need to repatriate any of the cash wage given non-core assets held an availability under the revolver. So the first question is is that up to the 50 million level that you called out that you expect for the first half or is it including this potential eighty to ninety million and I guess just the second question more broadly is just your confidence in getting these assets sales done. You know, what's the risk of them taking longer or not coming to a fresh and that could potentially offer to jeopardize liquidity position.

what first of all the the first the in the thirty to fifty million of assets sales, you know, we've already done Thirty and we have

Again, like I said earlier about another 20, none of it would need to be repatriated. So it's you know, it's in as far as the risk goes around it. I you know, we feel confident about where where we're headed with that. We're not expecting it to be you know, we do expect to be a first half of the year in and you know, but if it does move a little bit, you know, we're we're still okay. We we managed our abl line down to you know, roughly twenty twenty-five million dollar level and you know, we still have capacity on that line as well if we ever needed it, but at this point in time, we don't think we're going to need need any cash utilization on that. So we're we we feel like we're in a reasonable position.

And but as far as the that does not include anything that Paul talked about in terms of the $89 related to these other underperforming assets.

Okay. Got it. Thanks with further, you know our our position or liquidity position would be even improved more than that. Okay. Got it. Thank you. That's helpful clarification and then second one on the initiatives that you've outlined the 37 to 39 million. How can we think about the Cadence of these benefits, you know flowing through the year and Beyond is it safe to assume that most of this would be pretty much back half loaded or how can we kind of think about it from a quarter-to-quarter basis? That's a good question. I would say that it would probably over Q2 Q3 and Q4 off fairly fairly equal.

But you know with the largest.

You know the second half of the year.

Okay, got it. And then last one for me, it seems that you know, whether there's a big differentiator this year versus last year. Can you talk about the impact that you expect, you know, whether to have for the first half of the year or kind of read through their data points that you might be seeing early on as you kind of were a couple of months into the year now, but anything that you'd want to call out particularly on the weather front or differences this year versus last year.

Well, I just think we we're all hoping it's a lot better than last year and I think we believe it will I think last year was a complete anomaly. I think what you've seen is that you know, the the snowfall levels of the month. So I think there's definitely less risk going into the into the year and I think you're seeing that the farmer sentiment index is that are are quite hopeful for for the planting cycle for this month. So, you know, I don't want to jinx things by getting ahead of ourselves by by saying that we're okay on the weather, but it's definitely looking like it'll be much better than last year and I think I think Farmers excited to get in the field again expect that phase one of the China deal in place. You know, I I think get get things in the ground and and there's going to be a lot of demand for it.

Thanks for the color.

Thank you. The next question comes from Larry demaria of William Blair, please go ahead.

Thanks. Good morning question trying to think through a little bit about Corona and also the destocking obviously occurred last year and still cannot get curious how your first I guess your age have changed say in the last six weeks has been a noticeable change.

Yeah, I think both Dave and I referenced that q1. We've seen the order DEC pick up with the oems, you know, especially in our businesses that are tied to the to the oems and I'm talking, you know, mainly on on the side and Thursday that you know constructions been a little bit more volatile as the you know, they continue to destock as as you mentioned. I think the corona impact is is more severe in the construction, you know, the construction side of the business that's more heavily reliant on a Chinese supply chain, you know, the impact the Coronas still, you know yet to be, you know, God be determined for for most companies but I will say for tighten our exposure to China is is much much less than many. You know, we do have our our it and business does have a point there is a fairly small operation that you know does feed in other parts of our business does sell some product domestically, they they, you know, obviously we shut down for their their new year.

extended that shut down a period of time beyond that but you know, they've been back up and running and

There will be there will be an impact that we experience in q1. But again our exposure to China is is much less than others. So, you know, I guess we gotta kind of wait and see what the read-through is on the overall construction Market, but you know again, I think I think in in in election cycle the in in a lot of other economies around the world, you gotta protect your so I don't see the construction cycle just fallen off a cliff be political suicide for for a lot of folks and I think the farming sector is still got a lot of pent-up demand. I think you know, you look back at the end of 2018 the only the 2019 that pent-up demands and took away. It's still there in your lair in that the the Chinese us, you know trade situation is is a baiting I think especially on the farm side, you know, obviously they don't know what's going on with the the swine flu over there in the in the in in China. So, you know, I think there's there's positive triggers there and there's just a lot of negative ones that are in front of us today.

But you know, I I think the oems have the ability with their retail channels now being more properly aligned with the man to to see an uptick. So, you know, we're seeing we saw a good start, you know businesses as far as the owners did a year and you know, kind of kind of wait to see how that plays out.

Okay, I guess so maybe I would have thought that it'd be incremental concerns of a Corona and the impact on the economy. That would have potentially lower production. But I guess you probably right back with some pent-up demand out there too. Especially the outside I guess alternative to that is either the I guess you mentioned, you know regionalization and production. Are you seeing or is there an opportunity that you guys had to get bigger with your OEM? They're even in the aftermarket Channel because of your domestic production or as most of what's being sold and source of this point domestic at this point.

I think there's there's a really good opportunity there and and it's a great sales pitch for us when we walk in the door. They obviously already know it we build good high quality products. We've been a reliable partner to them for for decades and now you later in the risk of having a supply chain that's connected to China and India and other other far-reaching places around the world, you know, the wage hike Titan is set up, you know, as I mentioned in my comments, it can be challenging from an sg&a perspective cuz we have a decentralized framework with heavy manufacturing that's originally positioned around the world, but I look at what's going on with the Corona and I I don't mean to make light of it but it definitely brings the the reality to the Forefront that there is a lot of risk and Global Supply chains off and and a lot of our customers been able to sit back and and increase their margins in in in increase the risk of their supply chains and not really think about it too much. You know now they got to think about

And we are originally positioned.

To to be a a fantastic partner to them wherever they're based, you know, we can supply them with high-quality products and we can be risked their their supply chain in a fairly significant way. And and that's that's something we're definitely going to be pushing to the Forefront with with all our customers in 2020 and it should be at the front of their minds already.

Yeah, this a follow-up when you mentioned better, I guess order a OEM through through the first quarter here. Are you referencing large egg or a small box specifically?

I guess I didn't really I can't really characterize that I think definitely for us small black has been strong. You know, that that is definitely part to answer your question. I think you know large egg is is is better than it was in in Q4. So, you know to answer your question clearly. I think there's an uptick in both but let us the small business is is definitely been a a strong Source, you know for for growth for us throughout 2019, you know in South America, you know, South America finished 20 2018 pretty volatile. But again, I think they'll pick things back up. They they they have and they will historically in the past. So, you know again the answer your question. I don't think Thursday we can't really break down RX segments that carefully to say small or large egg and exactly which is which is going which direction but definitely small lag is continuing in a very favorable trend of the beginning of the year.

Well, that's good, I guess.

He said, you know we seeing a seasonal up ticket ordering or is this above and beyond the change in order rates? That would have been expected this time. I'm just trying to see if there's a inflection or if this is the season this normal.

It's going above and beyond that. But again, I think part of that is, you know, we're doing a really good job of some of our our customers the products we reduced introducing and in the direction we're going so I I can't log on behalf of of everybody in our industry. But you know, especially on the small leg as I alluded to before with our product introductions. I mean, we are seeing an uptick in in what we're seeing to start this year off I characterized as being above and beyond just a seasonal uptick, you know, cuz the small light doesn't have that same seasonal cycle, you know as as as large egg cuz you do have a lot of small equipment to end up in the snowbelt. You have a lot of small and Equipment ends up in the South and then obviously it's used as you till the equipment throughout the Midwest. So it's not typically going to follow that same pattern that you see a large egg. So yeah, I'd be very pleased with where ever seen small like start to hear and and again, I didn't large eggs got a ton of pent-up demand, you know, Larry, you know it we all know it and you know, I I spoke in English.

The chairman of of a large egg company two years ago and he said just look at the trends. Look at the 30-year trendlines. I mean large egg is is is well below the 30-year trend lines at some point. It's going to get back up to those levels and and and seems like in 20, you know, definitely the back after 2019.

All been forgotten and you know, I I think there's going to be triggers out there in the future that are going to get us back moving towards that that 30-year trendline, you know, I can't sit here today and point out exactly when that is dead. But you know, I think that whole that whole historical trend of where large egg is have been has been totally pushed off into a corner. And again, I think we need to pull it out and look at it and realize that there's a lot of pets out there that will get released into the market right now. That's all that's all very fair just sounds like the small increases are probably seem to be fairly tight and specific cuz you guys have kind of a Kubota and listen to prod. I guess understanding that that correctly and I'll leave it there if you can confirm that or not but sounds like it's very tight and specifically you guys are doing a good job in that segment and obviously I told etcetera. Yeah. We're very pleased.

The next question comes from Keith Hogan of a Monday Pioneer, please go ahead. Hi. Good morning. How are you? Good morning. Good A lot of my questions have been answered so I don't.

That many more shouldn't take too long the R14 tire that you talked about with Kubota. Um, I'm pretty sure you're highlighting that because that's an LS W Tire wheel, is that correct wheel tire it has it has an LS W. It can be an L S W Tire but it's also a reading a dying of really taking our one tire and you really take a nag Thai or turf tires in a construction Tire to put them into one and so a lot of small add equipment operates in a multiple conditions. And and if you have you know, if if you need an aggressive tire, then you know, you would have one designed for that. And then if you need a less aggressive Tire where you don't want to touch the ground or you want to wrote it, then you would have to put on a separate set of tires. And so what we're giving our our customers like Kubota and their end users the ability to do is to is to put on the armor.

For an individual to run through the entire season whether you're dealing with with Turf tag loading or even smoke.

Which a lot of customers with that Utility Equipment uses up in the snowbelt. We're we're enabling them to do with one tire.

Okay, great. So I guess to follow ups to that one is so when you say it's kind of both is the is the wheel component of it design a round a l s w tire but then you can put a high side wall tire on that same wheel or is it is it just multiple configurations it gets you to this month. It's one tire. The equipment gets his R14 goes on larger equipment than it's an LS W now on some of the smaller equipment that the R14 is suitable for as well that it's going to be what we would call a a standard Dimension tire. So so that's where you end up with having both LSW Fitness and in standard so we don't want to you know on a small Tire if u l s w a g you're going to have a side wall that makes it impossible to mount. You reach a point where you can't put in LSW. It's hard to put an LS W can help W anything but we had a lot of make it to the point where it's too difficult.

Gopher and users to mount it. So, um, you know, so we're able to offer both actions and but definitely as we get into the larger sizes, then that's when we we bring in that LSW technology and we do have a nice a different size wheel that we would go in that that out the

Patient, you know along with the smaller side Walter. Okay, and my second follow up on that the mechanics of this contract. Are you guys that's standard wheel tire package for this Kubota line, or do they need to check a box to find themselves within our one Floyd R14 tire package on their equipment here. They they check a box. Okay and from your perspective, I mean you talk is pretty positive on it. Can you talk about you know, percentage change of the the the the sales that they're checking the Box on this is it a 5% hit rate is a 20% hit rate it look I'll look that has done a great job promoting it absolutely fantastic Partners doing a great job promoting it, you know, I can't talk to I'm not I'm not authorized to release those types of that type of information on their behalf. I dunno It Off.

And I will say that the take rates are beyond what I expected. So, you know, I think I think about has done a great job promoting. I think you can tell by their their promotional material. Okay, great on the 20 roughly twenty million that's left on the non-core assets sales team. I know this point you did some Tyre India share sales in the fourth quarter. You also indicated. He did some share sales in the first quarter like sounds like seven million. How is the $20 million that that's left is that a fact is that include the potential to sell more Tire India, or are you done there? And and this is other non-core assets it would not go ahead.

No, it would not include any additional shares sold at this point time and that and just to clarify its Wheels India, which is public company in India. Yeah, big big wolf producer. So what we're talking about are just some other transactions that we're looking at primarily in some low-hanging fruit on some assets that are just not productive today. Okay, great you highlighted early on that the bonuses for this year are tied to that seventy-five million dollar Target. What about you also have highlighted a goal of twenty five million of additional working capital Improvement as in this year are the bonuses tied to that working capital goal as well.

That yeah, that would be no limit of the program. Yes. Yes. I'm sorry. You broke up a little.

I'll I'll answer it. It is definite. Yes. It is part of our incentive program for this year and not just not just an overall perspective, but it would be with our operating units plans as well working Capital Management is a is a component of their plan. Okay, great and just sick of working off of the the whole working capital Concept in the fourth quarter. It looks like you'd made a lot of really great progress on inventory guy from the third quarter of the fourth quarter almost twenty million. So it kind of when I look at the fourth quarter you talked about your customers under-produced wage retail demand and the fact that you reduced inventory by Twenty million, it would argue that you also you also under-produced to your customer the the dog

please

If if you hadn't sort of under produced a year customers demand, or maybe I'm misreading this somehow, what would the what would would be even look like, you know, if if you would produce to the to your customers Demand versus sort of under-producing to to focus on the working capital contribution.

To be clear, you know, we sold what we could sell to the customer and obviously we managed our inventory levels to manage to that demand specifically, so we're not going to produce. I mean, even if we had it would have stayed in inventory wouldn't have been part of a sale anyway, so, you know, we couldn't that this is exactly we we just met the demand of our customers and that's that's what I well if if you produced to your if you produce everything you could sell then your inventory should have what was left over your inventory should have been flat but wouldn't you say you under produced to the what you could sell because your inventory was down by Twenty million. So internally, you didn't produce as much as you could sell you sold as much as you could sell, but you didn't produce as much as the same amount.

so I'm just

Need that would me you're actually further under utilizing the the production facilities and the the fourth quarter detrimental contribution from reducing agent or E. You wouldn't look at it that way. Yeah, I would say that now there there is a portion of that. I don't I can't argue that. Okay, as far as what that means in terms of you adopt wage production. I'd have to think through that and analyze that a little bit to figure that out. But you know again, we we tried to manage our inventory levels to the to the demand and we had as well as expected that one. Okay. So, you know, we we looked at our inventory levels to make sure that we could meet the the increase in demand going forward in the early part of the q1000. Okay. Okay. No, that's fair. You don't want to be caught short going into the season either I get that and then the second part of my soda working capital. Process here is dead.

As it relates to that sort of twenty-five million goal for 2020.

You can come from you know, the accounts receivable the inventory the accounts payable the biggest line item. There is still after all the progress you've made the inventory line, but I don't want to make any assumptions. How should I look at how that $25 million comes out. Is it extending payables is it accounts receivable? Is it inventory. It's inventory. Okay. Got it. Just to be clear some of the reasons why we can do that is we put we're putting in place or have put in better tools to help us manage lead times. We both have done things within you know, obviously the 80/20 program will also help us reduce inventory home as well, you know not having as many excusing him to have as much in stock to manage demand and we will continue to prove that through the year and you know, our our procurement teams wage.

Doing a better job managing raw materials.

a great

just 1 second.

Okay. Yeah, so the eighty-twenty I think all of us generally understand the the whole concept of the eighty-twenty, you know, trying to take out inventories or excuse just don't move that kind of thing. How do you and I like the thought process and the the logic behind it. How do you sort of manage that against you specifically call out a press release that we're the only global company that can produce tens of thousands of unique wheels and thousands of different tires. So that that's the exact opposite approach of choice of an 80/20 kind of let's get rid of all the lower volume scuse how you going to balance that actually the fact that we are the global leader and have the massive product bath bolo that we do gives us the ability to really put in an effect of 80-20. So you're right to that the simple easy twenty that everybody understands is you you you pair down your product portfolio.

You know, but what we're doing because we have the ability to produce basically everything our customers need.

So you're paying tires, we're looking at it as those those customers and those products here in the lock will produce some but we're going to charge the right price form. And if our customers say they want to we have the ability to do it. But what we're looking at is we go through a T20 is that our portfolio our pricing on our portfolio is not always matched to the white the right quadrant off. It should be an 80/20. So I I think I would I would look at it as you know, if I had a limited portfolio 820 would scare me because I'm basically taking away potential volume and just wage and what's more important is the manage the efficiency of my my production we're able to do both we can manage efficiency of production. We can transition customers to an alternative products where they choose not to page a a more reasonable price for a lower volume product or if they choose to take that lower volume product. They will pay the right price for it. So, you know because of that large portfolio, I think eighty-two. Yep.

Perfectly for us where we can we can benefit on both sides. Be more get more margin out of the products. We do produce but also get more efficient.

We we eventually dumped it. He's got it. Okay. Now that that's really helpful. I I guess I was looking at the eighty-twenty much more from Askew reduction perspective is as opposed to a multiple ways of looking at that 20% So that makes a lot of sense. Thank you. That's it for me.

This concludes our question-and-answer session. I would like to turn the conference back over to mr. Rights for any closing remarks. I just want to thank everybody for joining the call today and look forward to give you an update at the end of the first month. Thank you.

Please note that a webcast replay of this presentation will be available soon within the investor relations section on our website under news and events. Thank you for attending today's presentation. The conference call has now concluded.

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