Q4 2020 Titan International Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the Titan International Inc. Fourth quarter 2020 earnings Conference call.

At this time, all participants have been placed on listen only mode.

And we will open the floor for your questions and comments after the presentation.

If you should need assistance, please dial star zero and an operator will assist you.

And it's now my pleasure to turn the floor over to Todd shoot Senior Vice President Investor Relations and Treasurer for Titan Mr. Shoot the floor is yours Sir.

Thank you Rocco.

Morning, and welcome everyone to our fourth quarter, 2020 earnings call on the call with me today. We also have tightened as president and CEO, Paul Reitz, and tightened and senior Vice President and Chief Financial Officer, David Martin.

Again with a reminder, that the results. We are about to review were presented and the earnings release issued this morning, along with our form 10-K, which has been filed with Securities and Exchange Commission as a reminder, during this call we will be discussing certain forward looking information, including the company's plans and projections for the future and 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 today's earnings release attached to the company's form 8-K filed earlier today as well as on.

The latest form 10-K, and forms 10-Q, all of which have been filed with the SEC and.

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.

And to the most comparable GAAP measures today's earnings release is available on the company's website within the Investor Relations section under news and events. Please note today's call is being recorded a copy of today's call transcript will be made available on our website I would now like to turn the call over to Paul.

Good morning, everybody.

And we're only at March 4th and this year is already looking like a completely different story compared to 2020 late in the fourth quarter, we start to see demand trend and a positive direction and that's really evidenced in our Q4 results that exceeded expectations and <unk>.

'twenty, one has really kept on role and as we've seen the U S farmer sentiment and farmers capital investment index level spiked to all time highs already.

$25 billion and government payments late in 2020, certainly help move these index is in a favorable manner.

And with of course strong commodity prices with corn hovering around $5 50, and soybeans up above 14, another significant positive indicator for 2020, one as the low levels of inventory that exists in most channels, especially in the dealer networks and therefore, a market uptake at the retail level should get that additional boost from inventory replenish.

And then it's definitely great to see AG, moving and a positive direction and 2021 and it seems that the market upturn should have some pretty good legs on it as well.

Looking back a year ago I don't think there's many people who thought the corona virus would turn into a global pandemic that impacted really every country and every facet of society and I do want to take a second and reiterate our Titan team did an excellent job working hard to continually safety safely operating our businesses during the pandemic.

And our 2020 performance positively reflects those efforts of our team around the world. It also demonstrates the strength and resiliency of our people and our products.

During times like that that's what those items really show and and again, it's our people and our products that make Titan unique and our industries. However, I think it's important to go a step further with those comments to give credit for how well tight and remained focus on our parity.

And we really had at the beginning of the year to improve our financial position.

It was clear we didn't enter the pandemic and a position that allowed us much room for error, our 2020 results clearly illustrate that Titan has strengthened our financial position and we were able to make those improvements while dealing with the onslaught and the challenges from the pandemic.

The success of that has seen and our 2023 bonds, which had been trading around par in recent months and it also gives us an opportunity to explore the potential of a refinancing.

Now, let's take a step back and look at the fourth quarter. We finished the year with a significant turnaround and especially in AG and demand for many of our customers continued to strengthen as the quarter progressed during the quarter. Our adjusted gross margin of 11, 8% was the strongest margin achieved over the previous 10 quarters also our adjusted EBITDA over.

$17 million was our highest since the first quarter of 2019, along with these gains and financial performance are continued efforts and focus to improve our financial position resulted and is strengthening cash position and along with net debt, we delivered our sixth consecutive quarter with positive operating and free cash flow and reached levels of cash.

And net debt to haven't been achieved since the end of 2017.

Now as we look deeper into the business going forward the positive trends and AG that we saw in late 2020, especially in North and South America have only increased during the first couple of months of 2021, and North America, the growth and small AG and our.

Small AG customer base continues at a rapid pace as we've seen our customers increased orders to address the need to restock inventories on top of their already expected growth. This year large AG and historically a strength of Titans as our plants and tooling are well equipped to handle the volume and complexity of skus related to that business the size of our forming that.

Suggest large AG is beginning to move and a favorable direction as well the.

The challenge for US, which is similar to many manufacturers. These days is that coming off the lower production levels of the pandemic. The surge and demand has created a high degree of volatility for our customer base and for Titan as well.

We are dealing with the constraints and labor as we are hiring rapidly with <unk>.

Neely with raw material issues pretty much all over the map and we are dealing with logistical challenges that pertained to shipping containers and trucking trucking that have sprung up as of late.

Titan has and I want to make this clear Titan has a long history of being flexible to adjust to market volatility and we have the robust production capabilities that can meet the needs of our customers in order to do that we are hiring aggressively and all of our AG and wheel and tire plants and the U S. Along with South America, and we will continue to do that.

Throughout this year.

However, there is a training curve to onboarding people into our operations and therefore, we need to hire systematically during the ramp up process to mitigate our training liability as our positions do require a vigorous training program.

The flexibility and scalability and tightened production base is a core strength and we do expect to earn a good return on providing this to our customers during the times that we're in and currently entering deeper into and.

And you want who has seen our plants, especially our wheel are truly for our wheel business would understand what I'm, saying we are currently in discussions with major Oems on long term supply agreements that would be a win win for both sides and today's changing world.

So now turning over to South America, we've seen the market really jumped to life and Q4, and then really proceed to keep on running into 2021 since we acquired Titan, Brazil, and 2010, we've consistently invested and large radial AG and OTR capacity that at the time of the acquisition was really on only a small part of the portfolio.

And we see the rewards from those investments through the years as we've significantly grown our output and both of those areas along with expanding our market share. The reality is that this was.

This rapid increase in orders coming off the back of the pandemic means that we do have to allocate our production across our customer base. We will continue to invest and capacity and we are investing and capacity I should say in 2021, and and we will do that through both hiring but as capital investments as well as we do believe that.

The favorable volume trends that we're seeing will continue.

Now looking over at Earthmoving and construction the full year 2020 results show a drop in sales driven by the pandemic, but I do want to state that we finished the year with fourth quarter sales really moving and a positive direction and we continue to see those trends and the first quarter as sales and our undercarriage business have exceeded budget by over double digits.

This was really good to see early in 2021 is our thoughts were more for growth to come later and the second half of the year when the pandemic effects.

And this sector is start to fade away and you start to see infrastructure and development spending kick into gear. So these early gains in construction and mining for undercarriage really only point to an even stronger year as it progresses.

And now coming back to add over the past five years to six years, we've been and it's a softer AG market that has put pressure on our pricing and margins. So these market improvements are really welcomed from a pricing perspective for Titan now when I say pricing and I'm looking at it from three angles first.

Recovering your raw material cost second recovering other production related costs, and then third pricing leverage.

We do have some raw material agreements with key Oems that automatically modified pricing based upon raw materials. However, I don't think I have found anyone that can recall a time when we see steel go from $445 a ton to 1200 and such a short duration and then also be in short supply as well.

So the challenge for US is that our raw material agreements don't always protect us and these rapidly changing moments and we will work to ensure we get raw material cost recovery throughout 2021, our agreements and North and South America, excuse me and North America, and Europe, typically only pertained to raw material fluctuations so the net.

Piece of our pricing strategy focuses on the recovery of other production costs related to overtime shipping and energy et cetera.

Again, we believe this market provides us an opportunity to attack pricing beyond just raw materials to address areas of production that are also facing cost increases.

The third piece of of pricing that we look at is related to leverage as demand improves and we certainly feel that Titan produces valuable products and with strong production capabilities that are that are quite unique and our in our space and we believe as the market continues to progressively improve we should see an opportunity to approach pricing with more leverage.

And then we've seen in recent years.

And looking at the market again, the market is really moving and a positive direction and there's no doubt about that but it has shifted quickly and such a short time period that it is difficult to provide a reasonable full year 2021 and forecast for sales and EBITDA like we've done in prior years based on our <unk>.

Strong finished and the fourth quarter and what we're seeing already in 2021, we are targeting and good growth and sales EBITDA along with margin expansion, we intend and we will remain diligently focused on protecting our balance sheet and realize that cash is going to be needed to fund inventory as noted and the pricing.

Discussion that I referenced the market landscape gives us opportunity to do things differently than we have and prior years and we intend to set production schedules using payment terms as a criteria and therefore, we'll be looking for customers to adjust their payment terms.

So wrapping up here I just want to conclude once again by thanking tightens and 6000 people around the world for their continuing hard work.

During these challenging times and really their determination has enabled us to improve our financial position and performance and most importantly support our customers throughout the pandemic and now beyond these efforts have enabled titan to be in a really good position for 2021 is the markets are moving and a very positive direction. So with.

I'd like to turn the call over to David.

Thanks, Paul and good morning to everybody and I appreciate all those who are participating in the call and those that are following tightens progress.

Wow and myself.

Times are changing and flash.

And very much and in uncertain times, and while the pandemic and other global volatility and economic uncertainty continues.

Tightens World is changing rapidly.

Our response to the crisis last year was critical as we now and into the recovery that is upon us.

I will focus most of my discussion today on the fourth quarter performance, but what is important and what we accomplished in the quarter and for the year puts us in a stronger position as we manage 2021 and beyond.

First our cash position and unit and $117 million for the year of $51 million from last year and.

And we accomplished this through strong operating cash flow in Q4 and for the full year, along with our efforts to secure liquidity through noncore asset sales and related transactions.

Operating cash flow from the fourth quarter was $10 million, which pushed full year operating cash flow to $57 million.

As anticipated, we completed further transactions and non core or non core assets of 16 million and Q4 and for the full year to top $53 million.

Second related to the cash improvement and our net debt position at the end of the year was $347 million down from <unk> 700, 166 million as he and the last quarter and $433 million at the end of last year.

And as we stated and released we haven't seen this level since 2017.

And third we took another important step forward and last week with the extension of our domestic ABL facility. This facility and now has run late for two more years and closer to the maturity on our overall debt structure.

Yeah.

And there are several other takeaways from our P&L performance for the fourth quarter that I want to pay attention to and know normally our fourth quarter is traditionally a seasonally low quarter, but this year was not normal we had quarter over quarter and sequential sales growth in both AG and EMC.

Second we also continued our strong adjusted gross margin trend with 11, 8% for the quarter.

Best margin performance, we've seen and 10 quarters.

Before I get into the normal review of sales gross profit and SG&A I want to get into some of the non operating items that occurred in the fourth quarter.

Sure.

During force during Q4, we recorded impairments related to two sets of long term asset categories for a portion of our smaller operations first we wrote down certain equipment to fair value related to our tire recycling operation in Canada and has resulted in a charge of $11 2 million second.

And secondly, we wrote off intangible assets related to our customer relationships from our acquisition of the Australian operation and many years ago and it resulted in a charge of $6 million.

Both of these resulted from recent trends and market conditions, triggering a review of our fair value of our long term assets specifically to these businesses.

In October we sell and our facility in Brownsville, Texas, garnering net proceeds of approximately $11 million and a gain on sale of the $4 9 million.

And finally in November we received further recovery related to an insurance claim from the fire and our Canadian tire recycling operation from 2017, and $3 6 million.

Now each of these items were included and a reconciliation of our non-GAAP financial measures and the earnings release.

From here forward I will review the results of the fourth quarter and for the full year, excluding these items and the other unusual and non operational transactions that occurred during the year.

Okay.

Net sales for the fourth quarter were up over 88% from Q4, 2019, representing a nice turnaround and a year, where we saw an overall decrease in sales of 13%.

And the fourth quarter progressed, the stronger operations.

And particularly as our OE customers began increasing production and demand for our product.

What is even more impressive and that is there is that on <unk>.

Constant currency basis total sales would have been up nearly 15% from Q4 last year or 45 million the.

And the negative currency impact was approximately $19 million and 6%.

And with most of the impact coming in Latin America, and Russia as we saw throughout 2020.

However on sales volume on a consolidated consolidated basis was up over 20% from last year and price and mix and the fourth quarter was down 6%.

Mostly reflecting lower room entire growth raw material costs and related material pricing mechanisms with our OE customers.

Consolidated net sales in the agricultural segment improved by 15% and the fourth quarter with growth coming from all parts of the world.

On a constant currency basis agricultural sales were would have been up 25% and Q4 led by North America, Latin America and Europe for.

For the full year, the agricultural segment experienced growth on a constant currency basis of 4% on it.

On the healthy turnaround and the second half of the year. These trends are accelerating as we progress into 2021.

The E&C segment saw a nice turnaround in the quarter and what was what.

And as a software from the market during Q4, the EMC segment share growth of four and 5% on a reported basis and on a constant currency basis. It grew by over 6%.

The largest driver of the rebound came from ITM, our undercarriage business and construction markets in Asia and parts of Europe began to wake up from the effects of the pandemic.

And that we're seeing and recovery in the global construction markets may be premature but on.

Our order to ex for the businesses are stronger than they were three six and even nine months ago across the global business.

Our overall North American sales were up over 6% relative to last year all of this growth coming from agriculture, while the AFC segment was down slightly reflecting a slower recovery.

Aftermarket tire sales in North America and were in Q4 were up relative to the prior year and for the full year were slightly better than full year 2019 levels.

Our Latin American operations have seen a sharp turn upward and the market in recent months, our aftermarket business was resilient throughout the pandemic better always sales rebounded sharply in Q4 reported sales for Latin America, and Q4 growth almost 16% while on a constant currency basis sales would have increased by over 41%.

And.

Our gross margin performance and the segment continues to be an important driver.

Overall I should say.

From a financial improvement and our stability and 2020 adjusted gross profit for the fourth quarter was $38 million versus 18 million and the fourth quarter of 2019, representing a 110% improvement.

Our adjusted gross profit margin and the fourth quarter was 11, 8% versus only 6% last year and this performance was the best of any quarter since Q2 2018.

We continue to manage our factory overhead costs aggressively during the fourth quarter.

Net sales and trend and more strongly we have necessarily calibrate and our labor force to meet rising demand while it has been more challenging given certain marketplace constraints and the surge of demand that we've seen in recent months.

We have plans in place to drive production levels up to meet what we see from our customer forecast and our current order day.

It is important to note that in recent months rent raw materials have risen sharply across all market sectors from this more.

Favorable cost that we saw in 2020 and as Paul indicated earlier, and we're putting through corresponding price increases to customers to reflect these increases along with other rising costs, including labor and shipping costs.

We are responding to the significant forces and the markets that are moving very rapidly and we're working carefully to calibrate Oliver actions.

Now, let's go through segment performance.

Our agricultural sales.

Segment net sales were up 21, and a half million or 15, 3% from Q4 2019 currency translation was significant and the fourth quarter.

And affected sales by nine 4%, particularly in Latin America, and two and lesser extent in Russia volume.

And the segment was up 32%, while we had a decline and pricing of seven 6%.

Relating primarily to lower raw material costs.

Our aftermarket sales and continued to be strong well and the big driver was the turnaround and OE sales during Q4, particularly late in the period.

Overall AG sales in North America were up 16%, our Russia and sales.

We're up somewhat from a year ago and on a constant currency basis.

And our European AG sales were up almost 30% from Q4 2019.

Reported net sales in Latin America were up 22% from last year and while and.

Well on a constant currency basis, they were up 47%.

Once again the rigs the week Ray on the sorts of the real contribution of our Latin American.

Business.

Again, the AG markets have shown resilience and throughout 2020 through the challenging times earlier and the year and now we're in a totally different ballgame with solid tailwind across the markets.

The agricultural segments adjusted gross profit for the fourth quarter was $21 million up from $9 2 million years ago, a year ago, representing a 127% increase the gross profit margins in Q4 was 13% for AG.

Which was a significant improvement from the margin. We saw on Q4 2019, a six 6%. This was the strongest margin quarter since Q3, and 2018 for our AG segment, which we discussed last quarter as well, but we have seen improvements and plant efficiencies from our strong internal actions along with raw material costs and enabling this improvement.

A key component of this from it came from our North American wheel operations and as we continue to improve performance after significant headwinds that existed in 2019 surrounding raw material and inventory management and the trends have increases have been increasingly stronger throughout 2020, as the new management team's actions and operational strategy.

And to take hold.

Similar to Q3 2020 performance each of our geographic businesses experienced expansion of gross profit and margins and the fourth quarter compared to the prior year.

Moving and construction segment rebounded and the fourth quarter after seeing the most impact earlier in the year from the economic downturns and the construction market volatility.

And we're all on the E&C segment experienced an increase and net sales in Q4 of $6 million or four 5% from last year.

And on on currency constant currency basis, net sales would have been increased by six 3% versus a year ago.

Which meant that you know currency was only a minor impact at one eight per cent for the quarter.

Volume was up and the E&C segment by 11%, while the impact of price and mix was negative and at four 6%.

North America experienced a small decline in Q4, reflecting a slower market recovery than other parts of the world Itm's undercarriage business saw an increase and EMC sales by almost 12% from the fourth quarter and last year and on a constant currency basis. The increase was almost 14%.

Again global construction markets are only beginning to wake up and while the order books are steadily improving.

On.

And we believe that there will be a stronger recovery and the Atlanta part of 2021 and beyond.

Adjusted gross profit within the E&C segment for the fourth quarter was $14 million, representing and improvement of $6 9 million on 109% from Q4 2019.

The entirety of the Trc and impairment of $11 2 million was recorded and this segment and the fourth quarter.

The adjusted gross profit margin and and EMC segment was 10, 4% versus five 2% last year and this was the best quarterly performance and over a year and.

And the largest driver and the increased profitability came on the increase in sales and the ITM undercarriage business. While there were also increases seen in on Australia, and Latin America.

Okay.

Consumer segment since Q4 sales were down seven 7% from last year and the negative impact from currency translation was 13% to volume increased by 8% and price and mix was down by almost 3%.

And the rebound and the business and the fourth quarter, primarily related to the Latin America utility truck segment as the markets began to fall out after the pandemic effects. This recent rebound is expected to continue in 2021.

The segments and our gross profit for the fourth quarter was $3 2 million and a healthy improvement from Q4, and 2019 and gross margins were living and 5%, which was an improvement from seven 6% and the fourth quarter of last year, reflecting improved production efficiencies from the increased volume.

Selling general and administrative and R&D expenses for the fourth quarter were $39 3 million, but this includes $6 million in and.

Impairment charges related to the Australia and customer relationships and I described earlier.

And this we spent about $33 million and the quarter, which was a bit higher than our Q3 level.

Costs related to investments and improving our supply chain and logistics processes totaled approximately $1 3 million in the quarter.

We will have approximately the same amount of investment and Q1 'twenty one.

And we anticipate that this will drive savings in future quarters on a sustainable basis well in excess of these investments.

For the full year, excluding the unusual charges and 2020 of $11 million or SG&A and R&D costs were 129, and then coming in below the low end and a range of expectation of about $130 million to $135 million.

Foreign currency revaluation was less of a factor and on the results and Q4, and a $1 3 million loss and fourth but for the full year and the total negative impact from foreign exchange revaluation and totaled $11 million compared to a game and $4 million in 2019.

We recorded tax expenses in the quarter of $4 6 million.

And on a pre tax loss of $14 9 million during the fourth quarter for the full year tax expense was $6 9 million on a pre tax loss of $58 million. There were additional tax expenses recorded in Q4 related to the growth and income from our foreign operations during the latter part of the year.

Now, let's talk Q4 and fiscal 2020 cash flow.

And I realize on on beating the cash flow drove a lot lately, but it was one of the most paramount actions to take it tightened during 2020 and we achieved the targets we set out at the beginning and perhaps a bit more.

And again cash improved by another 18, and and a half million and Q4 versus Q3 and for the year and improved by almost $51 million.

This has put as much and and a more stabilized and positioned to manage the business and particularly as the markets recover as we've only begun to see and Q4 cash levels are the strongest since early 2018 coming from stronger operating cash flow and cash generated from non core operations and related transactions as I stated earlier.

We generated approximately 57 million and operating cash flow for the full year of 2020 as strong improvement over 2019 and again this came on and from our focus on working capital management.

Honestly it was an important to manage our inventories and a year of declining sales.

With the coupling factor of a strong operating cash flow and those non core operate transactions, we generated 89 million of free cash flow for 2020.

And I continue to have confidence and our ability to manage cash levels from focus on working capital and in 2021 and that will come from improved and continued improvements and our inventory management across the business. We have strong focus with our operating teams to manage inventory very closely and we collectively know that there's a balance between managing.

And because long term visibility of their customer demand and our kind of customer demand very healthy increases in sales are expected in 2021, and I do expect inventories to rise, but at a healthy ratio to sales we continue to improve our forecasting processes to manage demand within our production systems and I expect to get better even.

As we progress through 2021.

Capital expenditures for the fourth quarter were $8 3 million, which was more in line with our quarterly historical levels per capital spending and as normal we put through and maintenance spending and other investments to foster efficient operations for the full year of 2020, we spent nearly $22 million on capex again, reflecting beneath the control.

All our investments and the mist depend on it.

This compares to $36 million spent in 2019.

We anticipate spending to increase and 2021 to roughly $35 million to $40 million, but we will carefully calibrate these investments to work closely with our cash flow from operations through the year I want to stress. The fact that while we trimmed our investments we in no way put the necessary investments to keep us in front of the innovation to maintain and increase.

Our market leadership, we are and a strong position with our capital program and.

For 2021 to do this as well.

Our overall debt level at the end of the year was and a stable position relative to the end of the third quarter and one for the year the debt declined by $35 million from the end of 2019.

As of day end of the year there were no borrowings on the domestic ABL credit line because of the continued because of the strong operating cash flow and.

And results from the non core asset sales during the first nine months from here.

Short term debt at the end of the December was 31 million, which is down by over 30 million since last year and this decline is primarily due to repayments on our normal maturities of loan arrangements and certain of our foreign operations, primarily Russia and Europe.

A portion of this is this decline and also relates to extending loans on favorable terms and Latin America and responsive liquidity initiatives during the pandemic earlier and the year. The vast majority of our current maturities at the end of 2020 relate to foreign credit facilities and term loans, which will likely get rolled over an extended as needed in the coming year.

Just to restate, we took an important step last week to further secure our liquidity and the future with the extension of our domestic ABL facility and <unk>.

Charity is now February of 2023, we have the flexibility to manage and our U S and our corporate operations after freeing up borrowing capacity on the domestic credit facility and increasing our cash reserves to a certain extent and Q4 at the end of December the borrowing capacity when you take a little way and letters of credit and adjusting for the borrowing base calculations.

And they are and inventory was at $51 million on the ABL on we also anticipate some letters of credit to expire and the first half of the year, which could free up and an additional $8 million to $13 million and capacity and we also anticipate additional capacity coming on as our borrowing base grows with the business activity.

Our 2020 was a repositioning year for Titan and it was critical to take the Swift and decisive actions in the midst of the pandemic as the world has turned back on our improved and stabilized and liquidity position enables us to and we have the flexibility to manage our business we.

We are staying focused on managing our working capital this year as well the real job is ahead of us as we manage the growth and the business we have to keep a relentless focus on what has gotten us here.

And the last thing I want to discuss relates to our bonds and the confidence and our Titan financial position has improved and our markets have gotten better and we're now and a stronger position to review our options for refinancing and a more reasonable fashion and the days ahead, we will be actively reviewing the opportunities that are in front of us for potential refinancing.

And that concludes my remarks today, so I'll turn it over the call back to the operator for any questions you have.

Thank you we will now begin the question and answer session.

Just a question you May press Star then one on touched on so.

We're using a speaker phone we ask that you. Please pickup your handset before pressing the keys and withdraw your question. Please press Star then two.

Today's first question comes from Steve Volkmann with Jefferies. Please go ahead.

Hey, good morning, guys.

Morning, Steve.

So it sounds like things are definitely sort of geared.

Gears are switching here I guess that's good.

On.

Maybe my first question. Maybe this is Paul question, a big picture question I mean, most of your OE customers have now kind of gotten to the point, where they're able to provide us some thoughts around our volumes and profitability in 2020 one what's different about you guys that you still can't do that.

Well I think what's different Steve as we touched a lot of different markets with really three different core products and and so theres a different response that would be and.

Different response or different movements going on and the market as we sit here today.

You look at what we and where we were at the end of December what we thought was going to be a pretty good forecast for Q1 weird, we're exceeding that quite rapidly and so the challenge for US is that we see the market trend we know they're there they're going into good direction, we're hiring as fast as we can.

And we are also seeing indications and the market, Steve and I kind of talked about in my comments with certain customers, where the inventory replenishment cycle is.

Is not necessarily what you see in some of the numbers theyre, putting out and their forecasts and so there there are some discrepancies and forecast that we get our orders that we're getting.

That.

Exceed what is out there and the market and and so we are addressing are as I said and our comments were adjusting our allocation. We're hiring we're moving rapidly and so it's just really difficult to pinpoint exactly.

And where those order levels are going to be across all of our different geographies and end market.

Market products that we produce but also just with the amount of labor that we're gonna have available.

Quite frankly, and South America, you just can't bring on enough people fast enough to meet all the demand is there and and similar as in certain situations as well and North America. So.

And we were working on building, a better forecast and and getting more visibility to the year, but right now it's moving rapidly and it's moving rapidly and good direction now.

And I'll, just restate that and in a way that we're forecasting.

Almost every couple of weeks and then.

Forecasts are improving and I'll say that and where I didn't want to get us into a position, where we were locking and something and then we have to change it pretty quick pretty rapidly as we get out of Q1 and these things are all moving in a positive direction and I'm I'm on.

I'm not going to say, it's a negative direction and anyway. That's so you know where we.

We will come out of Q1, and probably have better clarity about where the year will be and we can we can talk to you again about it then.

So so let's leave that the volume aside and assume that that is going to be better but.

A little bit on Forecastable, but it sounded Paul like in your commentary that there were a number of potential.

Potential headwinds on profitability and you talked about price cost you talked about labor availability.

It sounds like you're actually kind of capacity constrained from from what you're describing but that it would take some time to get new people sort of ramped up so.

Maybe and maybe the right way to ask it is I'll I'll make my own forecast for volume, but how should I be thinking about incremental margin.

Well my comments about pricing are and are in a positive manner related to where the market is moving pricing is complicated Steve.

Because of steel going from $4 45 to 1200.

Does the volatility with other costs related to production areas trucking et cetera, and so pricing is complicated and so my comments were we.

And are adjusting pricing for raw materials.

But also then looking at adjusting pricing for other production costs and then on top of it where to what you just noted where demand exceeds capacity and the marketplace and thirdly, adjusting pricing to leverage where the market sits.

And so again kind of tying back to your question about forecasting and Theres a lot of moving pieces. They they are favorable I mean, you're sitting here at any point and the last few years, just that first phase of price recovery raw material cost at times could be a challenge and we referenced that in prior year's comments.

What I'm, saying is we are going to recover raw material costs and 2021.

But if you look at some of the price increases we've had to introduce and Q1 for steel again going from 445% to 1200 Ah you're talking very sizable price increases. So again it makes it difficult to pinpoint exactly where your incremental margins are going to be with all those moving pieces, but I think the point that David and I are really illustrating is that they are moving and a very positive direction better then.

Better than we had expected when we were putting together our own internal forecast and plans for 2021 and in mid December.

We know and we believe we will manage all of those pieces successfully because of the market strength, but I can't sit here and tell you today that there is not a tremendous amount of work that's going on at Titan to manage all these variables to hire people train them and meet the demand and so it makes again just makes it difficult to pinpoint exactly where it's going to fall those are all positive.

Live things, but challenges that we need to overcome.

So last time, we saw a spike in commodity prices. There was some timing issues on your side in terms of boy and you could pass them through and how much inventory you were working off of it.

Et cetera is there any scenario, where we have a quarter that has like a down margin quarter, because we're sort of absorbing some of this stuff before we get the price increases through or is that kind of what your.

Flagging for us are or would we expect margin improvement each quarter.

I think there could be certainly on certain quarterly variations to these things, but just marginally off of that and I don't expect to see any significant swings in margin because I do believe we have carefully calibrated you.

And how we how we go to our customers and and get more swift reaction to pricing versus where in the past it and the mechanisms and the amount and allowed for that because we are in very unprecedented times with a rapid recovery and the market. So we're going to move much quicker and quicker with respect to decisions and actions that we have to take and.

If you look at our look at our Q4 result, let's just look at that for a second 11, 8% is a good barometer for where we're going to calibrate around and in terms of whether we should get incremental margins as more as volume increases and there may be some variations from that related to pricing and a given quarter, but overall the trend will be positive.

Okay. Thank you guys I'll pass it on.

And our next question today comes from Steve Byrne for Arizona, you with Sidoti. Please go ahead.

Hi, good morning, everyone.

And just wanted to get his obviously surprised about the strength and earthmoving and construction and slutsky, if you could provide a little bit more detail and color in terms of.

Where the strength was for end markets, and geography, and just sort of wait and see that going.

Yeah, No we're seeing it come out of certain segments, and Europe, where they're getting ahead of putting more spending into the marketplace than we see here in North America.

Seeing strength coming out of China.

And and and again I think both David and I said that we expected that strength more on the back half of the year.

And certainly as infrastructure bills kicked into gear and and even here in North America, We still plan on on second half of the year to be be moving in a much better direction, but I think what surprised us and see if this early already both coming out of the gate and in January and February already.

And again, we've put together what we thought was a really good forecast in December and and were double digits above that forecast. So it's it's moving at a very positive direction.

I think we're seeing it and and couple of key areas, but as we move into the back half of the year it'll become more broad based and we certainly feel that that momentum with and the first half of the year is just really a good sign for the second half of the year. So.

And so to answer your question kind of primarily Europe and Asia right now out of the gate is where we're seeing that.

Exceeded budget.

And that's really out of our ITM business just to be clear when we talked about right moving and construction. It's it's really our undercarriage business that I'm referencing.

Yes, so in terms of ITM and you would obviously seriously explored or close on auctions for that before the market downturn.

Is it too early to reconsider those options.

Yeah, I think Thats, a fair statement I mean, we're.

We're sitting here and in early March and it's definitely positive for that business is going and we've always believed and the core strength that ITM has and the marketplace. They build great high quality products with a strong brand we've been expanding their their their aftermarket presence through through a number of efforts over the last few years.

And so Steve to really answer that question I think that the cards and moving in a pause and direction for what you know.

ICM and is capable of doing and a good market and we're in a good position to sit back now and and really reap those benefits. So really no thoughts at all right now how we would position and the marketplace like we have and the past of scene.

And if there's any potential interest it's just it's a good quality business as a core business for us.

And again, it and its moments like this where you really see the value of ITM were how quickly when the market is starting to turn and how quickly. They can go grab that the that that share of the market and really turn it into the sales quite rapidly. So now looking forward to a really good year out of undercarriage.

And then and I know you both mentioned potential for that refinancing early.

At this point, given your improving cash flow profile and improving industry fundamentals are you engaging with your credit rating agencies at all I would think and improvement there could take the refinancing that much more positive.

And we have regular discussions with our with the credit agencies every quarter and those will continue for sure.

And that's certainly part and parcel to the entire process and are going out there.

Okay.

And then last one would just be on on low sidewall given that if we're going into a replacement cycle.

Is this the.

Time for seeing more market share in terms of new equipment, using low cycle and what's your success rate are you seeing there.

Right.

Placement cycle.

Absolutely and it's always a good time for those side and velocity and the benefits it brings to the marketplace have proven themselves.

Our aftermarket business and north and North and South America has done very well over the last four or five years I illustrated I think the opportunity to continue to get more low sidewall placements will only grow as farmer income goes up the you know the ability to look at these these premium products just only enhance.

As you know and and then the next frontier for Us as well it is getting more and low sidewall into South America and those farms out there are massive and and our low sidewall penetration and South America and.

Got a lot of opportunity and the future. So I think we got to take on.

A lot of what we learned and in North America and it does take some time.

I can't sit here and tell you. These turn a switch on and and you go to sell low sidewall couple months later, but I do look forward to what we can do and South America with low sidewall as well, it's a very small presence right now and.

And I think as farmer income goes up and the market's really moving and good direction. It's a good time to go and try to chase more and more share of the South American market, but North America, a great time for low sidewall absolutely.

Okay. Thanks, everyone. Appreciate your responses.

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

Thanks, Good morning, everybody.

First I just wanted to clarify.

And I T. M. It is now considered core and we're not considering any alternatives, including a listing is that a day.

And on decision then listings off the table et cetera, and we should just assume I can state part of Titan.

For a long time now.

Yeah, that's that's been off the table for us.

Over a year and a half.

Well, it's been off the table, but it's been on again off again and know the markets better. So it's been a better valuation standpoint.

What we were waiting for it and we're waiting for that now is the time to think about it like you're saying obviously it's.

It's on it.

Okay.

Can you talk about it.

It's a really good business, we took we pulled the listing as we said over a year and a half ago.

And.

And where we decide to go with the board and the future of the value of that business goes up it is not at all on the table right now here today. It's what's here today is it's a really good business is performing well.

And really what we've been.

We've been emphasizing for a period of time I don't think we've talked publicly about another listing with ITM for for quite a while.

No I agree I just thought we were waiting for.

Market environment reconsider that.

And we're in now but.

Can you guys talk about the possible debt refi timing parcel rates that are available to you guys and just how you're thinking about that that debt refinance.

And I'd say, it's premature to even talk about that given we're kind of just coming off a year and now we're obviously have some good momentum in front of us and expectations for the year.

We'll have these discussions at the appropriate times with with our advisors and look at the look at the market and and we'll know honestly, even though on the coming days, what that would look like on it.

It's a little early to say.

Okay. Thanks, and then last question and <unk>.

What is the dealer channel short and obviously, you're going out and we.

And we feel that but it was the Oems are still strong and so the question is can you fill the OEM demand and your major customers, where you have to divert some of that aftermarket.

And maybe you could talk about what mix was between OE and aftermarket and 2020, and what that looks like and 2021.

Yeah, I mean, our our goal as a company and to keep that split very consistent and from 19 to 2020 to 'twenty, one clearly demand is accelerating and in all areas, especially the OEM aftermarket is moving strongly as well so.

Our our work and our job and what we've been doing aggressively every day is how we allocate our production and and how we allocate our labor constraints across that production portfolio now what we are doing is hiring and training.

Rapidly very aggressively.

My comments were only to illustrate that and our business.

If you need 60 people you don't go higher safety people and bring them in on Monday, and actually our production levels would go down for about the next three months.

So really what I'm trying to illustrate is you need 60 people you have to bring them and systematically train them.

Get them up to speed and that bringing some more and it's the nature of our business that we we build complicated products and so it's true within our industry across the board.

You know us being a public company, we talked about it more obviously openly in the marketplace, but it's it's it's a good thing and it's not a bad thing.

And if you could just go hire hunter people and moved to switch all over the place that I'd kind of devalues our products and so from from my perspective and add value of our products. There. There is a way you have to bring people and and train them and and that's what we've been doing so you know it's a lot of work, we're getting there, but during that time period, where you're hiring and training.

And you are going to have to make some allocation decisions and so how we're trying to make those allocation decisions to answer. Your question is to remain very consistent with how we've done them in prior years and and then from there and as I said in my comments as well, we're pursuing opportunities to make it a win win relationship with and OEM.

Where if they want to pursue more allocation.

Those opportunities are available through a win win scenario for both the customer and for Titan.

Clearly and the last four or five years when the market's down you you're not in that position, where you have available capacity, whether it be labor and production available you know available at all times, that's not the market. We're in right now and north or South America, and so I do think those again those are all positives and and I welcome those discussions and we're having those discussions with the Oems of how we can.

And how we can allocate our product potentially differently, but you know and.

And the broad sense are the aftermarket is a great business for US we have strong brands good distribution channels, and we got to honor those dealers and make sure they have product as well.

Okay, I get it you and a much better position and you're ramping I guess the question really is are you in position to satisfy the OE demand.

As the companies that are publicly given their guidance.

I have given can you satisfy that demand and this year or is that do you have to really built to that.

In other words, if you can have a problem already and <unk> satisfying that demand, which you'll have strong sales, but obviously you won't flow through all the way and there'll be supply chains and the industry issues.

Well I think everybody and the industry is facing supply chain constraints of some sort again and our industry specifically when you look at where we were in December so what both David and I said about what we are forecasting to where we are today, it's moving better than we expected.

Let's take Brazil for example, David said fourth quarter was up 40 over 40% is moving even stronger now and the first part of this that this quarter.

The reality is Larry you can't go from that from the tails of the pandemic, where you have reduced head count to that type of growth and three months.

That's the part that's getting overlooked is that you know this.

Search and demand is about three months old so we and that's part of the reason why we curtailed our forecast is because we see the demand is growing we will by the end of the year be able to meet that demand or you're going to have hiccups as you move along through that stages, absolutely. We don't our plants don't go from you know from.

Zero to 120 miles an hour of that fast and we will get to a 120 miles an hour and we will be capable of running that fast forwarded youre not going to be there that quickly coming off the end of a pandemic and I think that's the key that and Brazil still has a pandemic and sitting here in North America, where we're starting to feel the it fade away again.

And I Wanna.

And I don't want to make that comment it's a broad comment not specific Brazil still has the paradigm. If you look at their hospitalization looks and what's going on there. So yeah. There's a lot of things you got to manage it. It's it's all positive but you know are you going out and some hiccups and the first quarter as you are ramping up hiring and you're not going to be able to meet all the demand absolutely there'll be a carryover demand.

And from the first quarter into the sector.

Okay fair enough, thank you and I understand the issues and.

Okay.

Yes, Thanks, Larry.

And our next question comes from Kirk Ludtke with Imperial capital. Please go ahead.

Hi, Good morning, guys can you hear me and good morning, Yeah great.

Great.

Well, thank you for the call and for squeezing my.

My question and.

It sounds like we're headed and the right direction, but as you said a lot of moving pieces.

And maybe stepping back for a second.

Titan generated over $100 million of EBITDA as recently as 2018.

And just putting steel and staffing.

Costs aside for a second how would you compare how would you compare the overall demand of our environment now.

Versus then.

And how much structural cost do you think you've taken out between 2018 and and now.

Well I think as we sit here now the surge and demand is much better than what we saw in 2018 now looking at it from a broader perspective, we are still at what I would say below kind of mid mid cycle. So there's plenty of room to run.

And I think that's what we're all looking forward to as the year progresses is that you you kind of bust through those mid cycle levels and keep expanding and made it as much as Brazil has surged and in the last three four months.

It's still.

45% below where it was running.

Six seven years ago, and I mean, Brazil agricultural market not not Titan. So I think the opportunities character are definitely there and so I think what what is going on now is a surge very quickly again very positive and I think if you take the the that and extrapolate it through the rest of the year, then you start bus and through some mid cycle.

Levels and you get you get some pretty long tailed on it were with with the government incentives the strength and commodity prices the low levels of dealer inventory that now youre looking into and opportunity for the markets and run favorable for not just the first half of this year, but you're looking at a couple of multiple two or three year run on this if you just take.

All those factors combined so I think it's and dealing with the surge now.

And then extrapolating that into the future that's that's really positive.

Great.

That's helpful.

And on the cost side is there a can you ballpark how much you've taken out in terms of structural cost.

Over the last couple of years.

No.

And Theres a lot of moving parts to that situation and obviously, replacing on unfavorable with favorable things that we do with within our plants and everything but I would I would tell you, it's pretty close to $20 million.

And SG&A costs that we've taken out as well as some of the causes.

Some of our operations, both domestically and internationally, it's at least that.

Got it thank you and on the steel side, how far out can you lock in or are you locking in.

Steel.

Yes, so you know.

And if youre looking at just yes, just steel and it varies by location and and operation on.

On domestic places, where we're locking in.

And where we are with our leaders.

Lead lags on the contracts if you will in terms of how pricing versus unlocking and volume.

And it goes as a quarter.

Okay, and and in terms of and then last one in terms of your orders on your.

How far out are you booked.

What what month are you taking orders for at this point I suspect it varies by business, but can you can you give us some sense for that.

Oh, yeah. It does vary so much by by business and and all of our businesses have different lead times.

Yeah. We we are booked very solid I'll, just kind of leave it there I know, it's a very generic answer to the specific question, but were booked very solid we're looking at aggressively again, how we're going to ramp up to take on.

More per higher production levels, but we are allocating product right now I can't sit here today and tell you we're not.

Got it well I appreciate it thank you very much.

Thanks Kurt.

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

And I just wanted to thank everybody for their attention and time today and look forward to talking to get into future. Thank you.

And thank you Sir please notes and a webcast replay of this presentation will be available soon within the Investor Relations section on our website under news and events. Thank.

Thank you for attending today's presentation because it still has concluded you may now.

And that's your lines.