Q1 2022 Titan International Inc Earnings Call
Yeah.
And welcome everyone to our first quarter 2022 earnings call on the call. Today, We also have Titans, President and CEO, Paul Reitz, and tightened senior Vice President and CFO, David Martin I'll begin with a reminder, that the results. We are about to review were presented in the earnings release issued yesterday, along with our Form 10-K, which are I'm sorry 10.
<unk>, which was also filed with the Securities and Exchange Commission yesterday.
As a reminder, during the call we will be discussing certain forward looking information, including the company's plans and projections for the future that involve risks uncertainties and assumptions that could cause our actual results to differ materially from the forward looking information additional information concerning factors that either individually or in the aggregate could cause actual results to differ materially.
These forward looking statements can be found within the Safe Harbor statement included in the earnings release attached to the company's form 8-K filed earlier as well as our latest Form 10-K and forms 10-Q, all of which have been filed with the SEC.
In addition, today's remarks may refer to non-GAAP financial measures, which are intended to supplement but not substitute for the most directly comparable GAAP measures. The earnings release, which accompanies today's call contains financial and other quantitative information to be discussed today as well as a reconciliation of the non-GAAP measures to the most comparable.
GAAP measures.
Q1 earnings release is available on the company's website within the Investor Relations section under news and events. Please note. The replay of this presentation will be available soon after the call within the Investor Relations section on the company's website and a copy of today's call transcript will be made available on our website as well. In addition, our latest quarterly investor presentation is available.
On our website currently.
I would now like to turn the call over to Paul.
Thanks, Todd and good morning, everyone.
A couple of months ago in early March we released strong results and expectations for 2022 that really illustrated the progress we have made at the company in recent years I have to start off today's call by saying that our first quarter took that ball and ran with it hard as our results were excellent this quarter and really a good way to start 2022.
We posted Q1 revenue of 556 million, which was our highest for a quarter since early 2013.
Topline growth was well supported with strong flow through into operating gains as our gross margins improved to 15, 6%.
That led to our Q1 adjusted EBITDA coming in at $57 million up over $30 million from last year. Our adjusted EPS came in at 44 cents a share compared to seven last year.
Again, it was a very good first quarter for the Titan team, David will share more financial information and I'm now going to switch gears over to the market landscape.
With our year end results. We stated that we believe there were numerous positive aspect going for our business business in end markets that we're lining up well for 2022 and beyond that we continue to believe that is the case in our first quarter results and 2022 order book provides support on.
With a number of other market factors that I'd like to point out.
To start off by looking at commodity prices that remained at high levels and are well supported with global supply demand dynamics that bode well for future prices.
The strong commodity prices combined with supportive government programs had position balance sheets for the global farmer in a really good place.
These economic factors combined with an aged fleet, along with continually low historically, well equipment inventory levels, especially for used equipment, a large AG really create a robust demand environment for the foreseeable future.
To elaborate elaborating further on that these market forces combined with delays in order deliveries from the Oems as they work through some production changes challenges really provides support and momentum for a multiyear demand cycle.
Spoken previously about surveys related to the AG sector and I'm sure a lot of you follow them as well so I want to take just a quick minute minute commented some of those recent surveys that have shown a drop in farmer sentiment.
I want to state that I believe those survey should not be viewed as a reduction in overall demand levels at this time, but rather there should be seen as a result of Oems pushing our end users orders and also the spike in farmer input costs such as fertilizer.
If you look at the factors I've mentioned previously that provide strong longer term support that really those surveys are not necessarily designed to catch as they're really grabbing the short term noise in the responders the spiders earth mindset at that moment of there.
Given the responses so.
Looking at the OEM market, we do believe that we're really in a good position with our order book and really where things are trending for again 2022 and beyond.
So now switch over to the aftermarket we are still reflecting a strong demand.
Demand environment for replacement tires amidst the shortages that you're seeing in available equipment, along with really the strength of <unk> products. We have mentioned that many times big L. S. W can make existing equipment perform better.
If you look further down the road it still does not appear likely that 2022 OEM production levels are going to put much of a dent in the low dealer inventories, especially in large AG. So youre looking at 2023 before meaningful inventory replenishment could take place and unmet 22 retail demand will just keep carrying forward into future.
For years again, the point being with that they are a good number of positive forces in the AG sector and appears this positive AG wave is going to keep flowing.
And why we can be viewed as an AD driven company, let me switch gears over to earthmoving and construction.
It represents 35% of our sales and of course, it's where our undercarriage business is a major global player. We stated last quarter and still believe that our EMC segment continues to look promising as you have the expected infrastructure investments that will kick into gear. This year next year and further down the road that will continue.
To provide supports further support to the demand levels that remained strong at current times, we continue to see demand and orders are really good levels, but similar to the AG OEM. There is production pressure to meet those current orders so.
I think we sit in a very good position where that demand cycle will just have a longer tail to it.
When discussing the E&C segment, we often speak about our ITM undercarriage business and its strengths of the company I do want to take a second though and touch base on our Bryan Ohio plant.
The plant in the past this plant was nearly 100% EMC and we have previously stated that we have shifted away from producing super giant tires acceptance in low risk cases, where we know the customer and the application are appropriate.
Over the past few years, our team has really worked hard to transform Brian strong production capabilities into a mix of construction Earth moving and now add in fact in recent months Bryan's plant production has been right around the 50% AG level.
Driven by the continuing growth of our large MSW products and the launch of our new Azure edge line. This transformation when Brian has ushered in a solid improvement in their financial performance along with the continued investments we will make to increase our L. S. W capacity in North America. We are also investing to improve our efficiencies in construction and forestry to inch.
Sure that our Bryan, Ohio plant keeps moving forward in a positive direction.
Our 10-Q provides an update on Titans Russian operations I would like to state here that tightened understands the gravity of the crisis in Ukraine has contributed to organizations supporting those humanitarian needs. We also understand the struggle that millions around the world are facing from escalating food cost and food shortages.
And we are doing our part in the AG world to help with that troubling situation.
So wrapping things up here on a global basis, our Titan team will continue to be there to meet our customers' drilling expectations. We have an impressive and extensive global production footprint that is staffed with exceptional people that day in day out are producing quality innovative products.
Based on the strength of our Q1 performance and really the solid market landscape that we see we have now increased our 2022 expectations and are expecting full year net sales to be above $2 1 billion with adjusted EBITDA to be around $200 million.
I also want to add that the improved expectations have driven an expected increase in our free cash flow to the range of $55 million to $65 million.
This updated outlook is a nice increase over our previous expectations.
But I do want to say that we do we do put a lot of effort in our forecasting process the positive updates or not because our finance team is just guessing or sandbagging with the forecast, but it really reflects the tremendous job. Our Titan team is doing battling through whatever challenges are put in front of us and our ability to keep moving forward.
To improve our business and really be there to take care of our customers and end users needs.
I do want to add that these are things, there's a lot of things that we've done through the years that have put us in this position, where we can raise expectations. In recent years, we've made structural changes to our company by improving or eliminating underperforming businesses, we have restructured our product portfolio to remove inefficient and negative margin products while continuing.
To introduce market, leading innovative products that connected to the end user.
I've said, many times makes equipment perform better with our L. S. W.
We have implemented an intelligence into our pricing model that better able to handle a constantly changing landscape and overall our plants and our production teams have consistently implemented changes that improved our efficiencies and really our overall quality rates, but perhaps most importantly, our one Titan team has been exceptional time and timing.
Again in dealing with the challenges, while we continue to move our business forward.
I want to take a moment just to share. The fact that we recently published our first comprehensive sustainability report is now available on our website.
We have been on our own ESG journey for some time now and it is important to share our progress we have a strong commitment to continuous improvement in Titan and we fully understand our impact on the world. When it comes to not only the environment, but also our workplaces and the communities within where we operate.
With that I would now like to turn the call over to David.
Thanks, Paul and good morning, all.
Our performance this quarter truly demonstrate how far a Titan has come as a company and we believe that we have many exciting things ahead for us.
Let's start with our biggest highlights for the quarter Q1 represents the seventh quarter of sequential sales growth.
Net sales grew 14% sequentially from Q4, and 38% from last year in the first quarter.
Our gross profit grew 63% from last year and a margin reached 15, 6%, which is the highest we have seen in almost a decade.
Adjusted EBITDA for the quarter was $57 million, increasing 20 million $21 million from last quarter and $31 million from Q1 last year.
Our cash balances were stable again this quarter at $98 million, even with growth in working capital that came on continued sales growth.
Last but not least our net debt leverage fell to two six times adjusted EBITDA on a trailing 12 month basis, which is down from two nine times at year end.
You know Paul already updated you on where we see the year going now which is tremendous performance with growing momentum in the business I will update you on.
A few other key metrics for the year and a little bit.
But here if you are important points relative to the segment performance in the quarter, starting with egg agricultural segments net sales accounted for 56% of total sales this quarter and were $310 million, an increase of $101 million from Q1 last year and it was up sequentially from Q4 by almost 45.
Representing 17% sequential growth.
We had strong growth from both aftermarket and OE this quarter with a healthy production balance.
So a good balance between growth and volume and the impact of higher pricing, reflecting cost of raw materials.
All the other inflationary costs impacting the business.
Each of our major global original businesses experienced growth in the segment year over year.
Currency devaluation impacted sales in the quarter by almost 6% relative to Q1 last year.
The agricultural segment gross profit for the first quarter was $48 million up from $30 million last year, representing 61% improvement. The gross margins were 15, 5% for AG.
14, 3% last year in the first quarter and 14, 2% in Q4 last year.
Our growth in gross profit margin was impressive in the quarter driven largely by improved profitability across all of our production facilities and the efficiencies we were able to drive with a more seasoned workforce after adding labor capacity last year.
Our earthmoving and construction segment experienced strong quarter as well overall net sales for EMC grew by 36, and a half million dollars or 22% from last year in Q1.
This also compares favorably to the fourth quarter 2021 levels with sequential growth of $18 million or 10% again all of the major geographies experienced year over year growth during the quarter with the largest growth coming from Itm's undercarriage business, which grew 25% from first quarter of last year.
Growth for the segment was driven by increased pricing relative to higher raw material costs and the other cost inflation during the quarter as well as healthy volume increases across all of our all of our operations and partially offset by currency devaluation of 3%.
Gross profit within the EMC segment for the first quarter was $31 4 million, which represents an improvement of almost $12 million or 59% from gross profit last year and the first quarter.
Our gross profit margin and EMC segment was significantly better at 15, 6% versus 12% last year.
The largest driver.
The increased profitability came on the increase in sales and ITM.
Growth occurred across all of our businesses and geographies across the globe are year over year.
Lastly, the consumer segment's Q4, Q1, net sales were up 51% or $15 million compared to last year.
Many pieces came together for the quarter with certain specialty products that are sold in various parts of the world, including our custom mix.
Mixing of rubber stocks in the U S. We also had a small increase in sales of utility truck tires in Latin America, which had seen a few quarters of lighter activity.
The segment's gross profit for the first quarter was $7 4 million a $3 $7 million increase from Q1 last year and the gross margins were strong at 16, 5% improved from Q1, 'twenty, one 'twenty 2021 margins, reflecting the positive mix of products and solid pricing.
Our SG&A and R&D expenses for Q1 were $39 million representing.
Seven 7% of net sales for the quarter.
Again like recent quarters, our expenses include variable spending and compensation, reflecting significant increase in sales and profitability during the period along with some provisions we made in the quarter relative to managing risks within our operations in Europe , and in Russia, which accounted for approximately $1 3 million of the increase year over year as.
As a percent of sales our operating costs dropped 210 basis points year over year.
Our reported taxes on income in the first quarter were $8 7 million, which is reflective of our increased taxable income in the quarter as a percent of pre tax profits. The effective tax rate was 26, 1%.
My expectation is that our income tax expense for the full year will still approximate.
$20 million, which principally represents our cash taxes for the year as well.
Now, let's check in on our cash flow our.
Our cash balances remained stable at $98 million this quarter, our operating cash flow was negative in the quarter, which was driven by the increase in working capital from the sharp increase in sales again in the quarter.
We controlled our capital spending in the first quarter as well and at $7 6 million, which is slightly lower than what we spent in Q1 last year.
I continue to expect that the full year capital expenditure target would be 40% to $40 $45 million to $50 million. While we will continue to monitor cash flow relative to ensuring we are investing in our growth initiatives and then also ensuring the maintenance of our production facilities and making sure that we have robust operations, especially as our volumes are very high.
Hi.
Yeah.
As we reported a few weeks ago, we sold our real operation in Australia at the end of the first quarter, we were able to generate approximately $17 million between gross proceeds from the sale and the cash to be repatriated.
Approximately $5 million of the total cash flow from the transaction remained outstanding from the buyer at the end of the quarter, which was subject to post closing review of the accounts.
The majority of this amount has been paid was paid by the buyer in the last few days prior to this call.
As we have discussed on previous calls we remain very focused on managing working capital across the business, especially in this high growth area.
At the end of the first quarter, our liquid working capital as a percent of annualized sales based on the most recent quarter was 19%, which was stable with year end, but better than a year ago at this time at 21%.
We also measure this in terms of days outstanding on the cash conversion cycle, which was 75 days at the end of Q1 compared to 81 days.
A year ago.
The discipline that we have created is intact and in fact, there are initiatives underway to further improve our practices.
As expected to be realized over the course of 2022.
I mentioned that at the outset that our debt leverage at the end of March improved to two six times.
Our trailing 12 months adjusted EBITDA down from two nine times at year end I remain confident that we can improve our leverage position over the course of the year based on our expected financial performance and we are in a strong and stable position for the future at this level of leverage.
Our financial performance in the first quarter show the power of the business and the collective decisions that we've made to position the company for a strong market backdrop, Paul discussed it earlier, but our full year outlook has improved based on our first quarter performance and our improved visibility over the next several quarters with our customer order decks are forecasts and.
And improving production capabilities.
With sales expectations of $2 1 billion in the EBITDA target of $200 million, we expect that our cash flow for the full year. We will also improve from the guidance, we stated last quarter.
We believe we can generate between 55 and $65 million of free cash flow. In 2022. This is based on the latest profitability working capital and Capex forecast.
We expect that we will gain momentum in free cash flow generation as we progressed through the year and as follows our traditional seasonality and lower working capital working capital requirements. During the second half of the year.
It is a paramount target for our management team to generate the free the forecasted free cash flow as it gives us further flexibility to balance growth initiatives and to create further stapled stability for Titans future.
So in conclusion in Titans story is continues to build its a great story and it is exciting to share what's going on now I'd like to turn over the call back to Sam for any questions that you have today.
Thank you very much we will now begin the Q&A session.
If you'd like to ask a question. Please press star one on your telephone keypad and if you'd like to remove that question press star two.
As a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking your question.
We will now take our first question from Larry Demaria of William Blair Blair. Your line is open.
Hi, Thanks.
Morning, everybody.
And thank you for today.
A couple of questions first I think we're looking for 18% top line growth now can you delineate lets say between price and volume now in the outlook.
At this point I think what we're going to see going forward is similar to what we've seen in the past, it's a good mix of price and volume.
We're making productive progress in increasing our production levels with.
The labor and the hiring that we brought on were getting that labor more experienced and trained for their productive rates have gone up.
We've implemented a new incentive programs in our North American Union agreements that we've mentioned and we've seen a nice uptick from that and so we will continue to see in our forecast in our updated guidance that we gave you know increases in volume that are very similar to what we've seen in the past along with.
Price mix being relatively similar to the past as well.
Okay.
And then obviously one of your customers having it.
Mike can you talk to us about how that.
He's out in your guidance how are you thinking about that.
What are your expectations around around that are.
Yeah, Let me I'll answer that from both perspectives first from the <unk> side, having spent time with their CEO Ethan.
Strong experienced leader.
I know his his focus when he came into the role was to really work hard on their supply chain their production.
With his background and his experience I know <unk> is moving in a good direction in relation to that.
So from CNA to side day, two it's difficult to predict at this point, what what happened by certainly hope them. The best to work out that situation as quickly as possible, but again I I.
I can say personally I have a lot of confidence in <unk> leadership.
But from tightened side.
You look at where we sit where we have a strong order book.
The demand we have for tires.
We can we can adjust our deliveries are.
Really at this point I would see us adjusting our production schedules that really adjusting our allocations in our delivery schedules as <unk> works through their situation if needed at this point I'm not going to draw conclusions again, it's day, two but if needed. We can we can adjust I don't see that having a significant impact from from how we continue to operate day to day.
On the wheel side of the business, it's the same.
A lot of the wheels are similar just different colors, and so we just need time to kind of run it through our production schedules and adjust but.
At this point I'm not going to make any predictions on where that situation goes I know they are they are working very hard on both sides of the fence to get things in a good productive solution, but from our side of tightened I believe we will continue to operate as we have been and again I do have a lot of confidence in <unk> leadership that they really.
As a company will continue to move in a good direction.
So essentially your guidance doesn't contemplate any changes there based on the idea that you can probably move production around if need be is that fair to say.
Yes, that's fair to say.
Okay, Thanks, Paul and good luck.
Right.
Thank you Larry.
Next question is from Steve <unk> of Sidoti Steve Your line is open.
Good morning, everyone.
Well I want to start by asking about the very substantial sequential growth in revenue.
Off of for Q, I'm trying to get a sense of how much of that was beginning of the year price hikes or was that what drove or alternatively, what drove so much volume improvement sequentially.
Well I think you've got a couple of things we want all of our pricing is evolving and it's a constant process and we've talked about that not just in response to the inflationary cycle. We're in now but as a company.
Went back to 2017, where we really put a lot of emphasis improving our intelligence around our pricing models and how we approach the value proposition of our products and so pricing is a 12 month a year projected is constantly evolving so theres not a January one change that necessarily drives everything so I think.
That along with as you as you.
Look forward into the quarter you got to remember Q4, Q1, I should say and I look forward into Q2, I don't think that the wrong way, but if you compare Q4 to Q1 Q4, we do have holidays, we have plant shutdowns, we have maintenance. So there's a lot of production challenges that you don't have in Q1, I mean Q1, you get the opportunity to really just run.
All out similar with Q2, and so we've talked about that in the past, where Q3 Q4, it's not the seasonality necessarily within our order flow, but it's the maintenance of the plant the production schedules as you get more vacation and holidays. So.
Q1 is a clean period for us the workdays in the off time is minimal compared to Q4, and we're really able to to run quite effectively and again I have to take any scheduled off days. So.
Very very productive period for our team and again just as you look forward to Q3 and Q4 do keep in mind that you do have some plant maintenance that is required that we do take.
Yes.
Q1, typically turns into a slightly stronger Q2, and then decline in Q3 Q4 that you are looking for more typical seasonality in that fashion.
Yeah, I think so at this point.
That's waiting historical pattern than we feel right about our labor levels. So last year, we did a good job hiring we're continuing to work hard on the retention piece and we're up.
Want to say, we're up like two 5% globally right now so we feel like we're in a pretty good position with our head count we do balance the fluctuation in production schedules with how we how we manage it through with overtime.
So really what you would normally look at that as in Q3 Q4. You. Just have you have weeks that you have to take out of the scheduled for maintenance and especially in an era, where right now we're running as hard as we are so I know in prior years <unk> seen kind of Q3, and Q4 trend to be a little bit different but the way I see things right now, we're very comfortable with our labor where we sit.
Kind of let that labor continue to flow, we are hiring where we need in certain specific cases, but again I think we will just keep things running.
Assuming a steady state with the labor Youll have a Q3 Q4 seasonality driven by.
Some holidays and plant shutdowns.
Okay, that's fair.
Wanted to ask a question about consumer because probably it's the smaller segments, probably the one we talk about the least are the one I ask you about the lease but significant growth there again year over year and sequential and a really strong gross margin. This quarter can you give a little bit of color on what's going on in the consumer business it might be different than the other two.
Yes, Steve This is David I know there are a variety of factors that played into that you know we had a little bit of growth coming out of our utility truck tire busy.
Business in Latin America, but one.
An important component of it was.
Do third party custom mixing rubber.
And in one of our U S plants and we've we've made some strategic moves to grow that third party.
Piece.
And we saw some pretty healthy growth in the first quarter in <unk>.
And we have.
Call it healthy margins relative.
Relative to that part of our business and that.
That was a that was a nice component of it plus we have all of that.
A little bit of a mix if you will between some of our smaller tires.
That go to a variety of different.
Areas of the world that gets classified as consumer so all those three pieces put together it led to a pretty pretty strong quarter.
And then I don't know where to start.
By the way Steve No reason to believe that that that goes back from here. So.
So you expect that third party business to be sustainable at least over the next few quarters.
Yes.
Okay fantastic.
And then just Paul I think you did a nice job of it.
At the beginning talking about the sustainability of the multi year replacement cycle, but clearly it's a focus of a lot of investors right. Now. So just just want to follow up with my last question just on.
Given higher food prices and the potential for any kind of demand destruction, given the inflationary pressures on farmers just just your.
Confidence that where we're looking at multiyear given the key issues and higher interest rates given the multitude of issues that are potentially out there youre confidence on a multi year cycle.
Yeah, no. It's a good question, Steve I'm going to start at the top of the pyramid, where.
All of us are going to continue to eat and eat as we as well as we can.
Yes.
You're going to see the retail and consumer inflation is going to have a much better.
<unk> going to have a much bigger impact on retail and consumer than it would on food.
I know all of US the last thing what I'd use go home to our kids and say guess, what we're having or having oatmeal tonight instead of chicken or beef. So I think we're.
We're in a good position, where we sit when you just look at the top of the pyramid that inflation has less of an impact on our industry than others and then you look at the impact on inflation with farmers input costs.
The way I look at it as the supply demand dynamics are so strong for agriculture that there is no way that the inflation will destroy those supply demand dynamics. So again, where you see inflation have been impacted when commodity prices are low but demand is high.
We know the struggle that's going on with large greens around the world with crop output and just look at the planting cycle right now in the U S.
Because of the mother nature has been quite wet for the last month.
We are at like a third right now where we were last year at this time, so I look at the supply demand.
Environments, Steve is overriding anything to do with inflation, especially because it's tied to food and so.
I think you start at the top of the peer many kind of work your way down.
What I feel good about is when you look at.
Some of the metrics that are out there I mean, they are talking about production impacting Oems, but really the impact has been.
From what I've seen it's been about 2%.
So you are still at a very healthy growth environment now people may look at that and go my God that trend is going down, but it's going down by such a small level of that.
From my perspective, as a supplier into the agricultural construction markets I think thats a very good thing it allows us the ability to manage our labor as I mentioned earlier, we feel good about our labor. The last thing you want to do is have these cycles that runs so high and wild and then lo and destructive and so I think we're in a really good position for our <unk>.
History compared to history, because youre seeing that growth be somewhat moderated by by production issues, but there is still going up they are still positive.
So I like where we sit as a company, where we could manage our labor and our efficiencies better I like the fact that demand is still strong in our sectors, but then kind of go into another layer of the pyramid, Steve the customers I met with just just recently last week.
Inventory levels are low.
Inventory levels are very low.
So the way you can moderate any fluctuations you have with inflation with.
With production issues at the end of the day, we got to keep producing just because our the dealers gotta get more inventory.
Under their lives.
And what I'm hearing from our upper management, our customers don't worry about where we are exactly production or demand goes because we have to absolutely continue to fill inventory and the way you look at it they're not going to get much of the inventory build in this year and that's where you start to see that carry forward into next year. So.
We talked about a multiyear cycle, you've got strong supply demand high commodity prices strong balance sheets low inventory.
I think we're in a really good position not just for this year, but next year as well.
Great.
Thanks, Paul Thanks, David.
Yes, you bet.
Steve.
Thank you Steve.
Next question is from Komal Patel with Goldman Sachs, commonly your line is open.
Hi, good morning, Thanks for all the helpful color. So far it's been really great and maybe just one question following up on the <unk> conversation earlier.
The press release from late March that announced a long term agreement with the company of $400 million across the year I wanted to ask how does this compare to the business that you've already been doing with CAH and is there scope for <unk>.
More business there.
Now to grow from here.
Yes.
Is the way the way we approach those those long term agreements as we want to develop consistency with a long term agreement.
Give us then the ability to increase and in scope as you move forward within the contract so.
Our our customer base is really strong.
We view both.
AG and construction with a global customer base around the world and we feel very good about our customer base and so when you structure, an LTA you want to do it with the mindset that it's got to be a win win for both sides. So what we look forward consistency and commitment in men with them. What they look for is that we can flex and adjust upwards.
Their situation changes and they may require more from us, but we can't be sitting around waiting for that that demand just to come flowing in if we don't have a good consistent baseline we won't have the labor we won't we won't be trained we won't have the scheduling process in place to be able to support them. So the way I see it as it's a win win because again, we get that scheduled.
We get that consistency allows us to schedule have labor raw materials et cetera available to produce for them at a baseline, but its a lot easier to flex upwards from there.
We needed so again, that's how I structure, the LTA from our perspective I'm not sure how CAH looks at it but I think.
We're looking at a similar perspective.
Got it that's helpful. And then second question just given the strength of the business recently and the positive trends persisting in the near term.
Is there any major capex or sort of capex projects or other uses of cash that you can expect.
We were working under multi year.
Call it cycle of investments that we need to make within our facilities and our plans to.
For capacity for efficiency and productivity across the plants as well and so I feel pretty comfortable that we can maintain that kind of range that we're in.
With the programs that we have in place.
We can flex up or down based on some opportunities that we see for the market, but from a pure capex standpoint, we're in a good place.
Got it and last one maybe just following the divestiture of the Australian wheel business are there any other businesses that could be considered noncore or anything that you're sort of thinking through just again, especially since performance are so robust in our core business.
Sure.
Yeah, I mean, we.
We've talked in the past about our tire recycling business.
We've done a good job with that business as far as we can take it.
That's something that I do believe there could be some opportunities to either partner or divest of that business, especially as there is momentum growing and the recycled carbon black arena and there's more and more players that are looking to get into that that sector.
So I think thats, something we would be looking looking down the road to again it maybe not a full divestiture believes a partnership to help.
Get that that business on.
For us I guess help get that business more involved with the environmental friendly landscape that it can really provide to the right customer base. We just.
We just arent the right person to be able to utilize that full capacity. They have up there into our production. So I think a partnership would be really good where again, it's a very viral metal friendly process.
The right partner I think that can do a lot of good for the industry, but at this point.
Probably the.
The only thing that I would say, it's still on the table as a potential divestiture.
Got it and do the challenges in Russia, and sort of the higher carbon black cost change the sort of fundamentals and growth prospects of that business just given everything that's happening.
Well I think as there is inflation I would agree with your comment because one of the challenges we've had we get it into the proper position within the market as is the cost of Virgin carbon black compared to the cost of processing recycled carbon black. So I do think it's the way of the future.
And again, there's been a couple of announcements in the last few months that are positive in that direction and I think come out Thats. A good point you bring up is partly being driven by the fact that that the Virgin carbon black is going up in price, which gives you more room.
To bring that into the market at a reasonable price and I do think it will happen I do think it's it will move in that direction.
And certainly we want to be a part of it with what we got up in Trc.
<unk>.
Time will tell which direction that ultimately goes.
Perfect. That's really helpful. Thanks, so much.
You bet.
Thank you Komal.
Our final question goes to Kirk Ludtke of Imperial capital.
Please proceed.
Hello, guys.
Good morning.
Thanks for the presentation and congratulations on the quarter.
Just a couple of follow ups, one one topic would be.
Steps that you're taking to.
While the well.
Environment strong steps youre taking to.
Improve the business through the cycle, that's one topic and then on the other.
There is capital allocation.
With respect to the.
Improving the business did it did the commercial arrangements that you're pursuing do they provide any kind of floor.
On volumes when when the.
The industry receipts.
Yes.
Okay. That's a good question, so improving our business I'll start with that last piece you just highlighted.
Going back to what I said earlier, that's where we approach. These these LTE as from a win win perspective, where we get that consistency, which is really a floor in volumes.
Again, as we bring in our workforce, they're highly skilled they we get them trained we need to have that consistency. So those LTA is a very important for us.
From that perspective.
But it also just strengthens our relationship with them with our customers our large customers from a risk mitigation perspective, so I think the landscape over the last two years has tightened as proven.
Out this the cycle that we're in that we can be there as a trusted partner and the value proposition of the products that we produce.
We work hard to do it efficiently, we put leading edge technology into the marketplace and we focus hard on producing quality products.
So with all the investments that we put into our business.
That risk mitigation that we bring to the marketplace.
I think is the value that is being reflected in these LTA is as well.
And obviously as globalization becomes regionalization I do think tightened is very well positioned with our plants our production capabilities to be there to serve our customers and again those LTA is a reflection of it. So so to answer your question. Yes, we do we do look to pursue that consistency through floors.
And volume commitments.
But then that also gives you the upside to overproduce or increase it not overproduce is the wrong word but increased production well above those floors that are in that agreement as well.
As far as the business improvements going back to the first part of your question then I'll turn it over to David for the second one.
I really look at what's going on at Titan is a reflection of what our team has accomplished and what we're capable of doing and we've seen that over the last couple of years.
But I also wanted to just make sure that it's clear it's deeper than that we didn't just wake up in January of 2022, and all these things that fell into place.
We've been working hard to make a lot of structural changes to the company and pretty much all facets of the business.
I give all of us credit for doing that.
It's been hard we've been in some down cycles and but during those down cycles.
Improving and we kept improving in very significant ways and it's great to see it all come together and I do think what we posted here in 2022, what we accomplished in 'twenty. One is really in the updated guidance. We provided for this year again as a reflection of a multi year effort.
And not something that is just.
Again, something that just happened quickly in a roughly so I don't want to give the entire team credit for for what we've accomplished over many years to put us in a position where we are today.
Helpful. Thank you.
Yes, the second part of your question was regarding capital allocation.
Let me, let me try to take a stab at what you are after there.
Nothing's really changed with respect to the comments that we made last quarter.
We believe the improved cash flow.
The the leverage point that we sit at today, we're in a much better position.
And all of this gives us the optionality the flexibility to look after.
Growth initiatives that we have in the company investments, we need to make in the business and ultimately providing the best returned to shareholders as we possibly can as well as all of our constituents and so net.
We're in a really good position and we'll continue to maintain that conservative posture that we have on leverage and we believe we have some good options in front of us and we will.
All of those opportunities in.
In lock step with our board and make the right decisions for everybody.
Great I appreciate it. Thank you could you remind us what the what your authorized to buyback.
Oh in terms of a share buyback.
Yes.
We had a we had an authorization from the board a couple of years ago that we put in place it was $25 million.
So you've exhausted that in the first quarter.
Well that was that was a special authorization for the for that specific purpose that was authorized by the board. So.
That $25 million remains outstanding.
As far as you can.
Buy back another 25, okay.
Yes.
I appreciate that.
Yeah Yeah.
Thank you Kirk.
That concludes our Q&A session. So it's my pleasure to turn the call back over to Mr. Wright for closing remarks.
Well I appreciate everybody's participation in our Q1 call today and look forward to touching base with you on our second quarter results take care have a good day.
That concludes the Titan International Inc. First quarter 2022 earnings call and webcast. Thank you all for your participation you may now disconnect your lines.
Okay.
Yes.
Yeah.
[music].
Okay.
[music].
Okay.
[music].