Q4 2024 Titan International Inc Earnings Call
Yeah.
Speaker Change: Ladies and gentlemen, the Titan International Inc. Fourth quarter earnings call and webcast will begin shortly with your host understood. We appreciate your patience as we pay your assertion today during the call. We encourage participants to raise any questions. They may have you can raise a question by pressing star one telephone keypad and familiar yourself what line of questioning will be stopped for a bite.
We will begin shortly.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Good morning, ladies and gentlemen, and welcome to the types of International Inc. Fourth quarter 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.
Speaker Change: It can be assistance during the call. Please press star followed by zero on that sort of thing keep at.
Speaker Change: It is now my pleasure to turn the floor over to auto Schneider, Vice President financial planning and Investor Relations for Titan, It's not just the floor is yours.
Speaker Change: Thank you and good morning, I'd like to welcome everyone to Titans fourth quarter of 2024 earnings call on the call with me today are Paul Reitz Titans, President and CEO and David Martin Tightened Senior Vice President and CFO, who will 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.
Speaker Change: K, which was also filed with the Securities and Exchange Commission yesterday.
Speaker Change: As a reminder, during this call we will be discussing certain forward looking information, including the company's plans and projections for the future that involve risks uncertainties and assumptions that could cause our actual results to differ materially from the forward looking information additional information concerning factors that either individually or in the aggregate could cause actual results to differ materially.
Speaker Change: Lee from these forward looking statements can be found within the Safe Harbor statement included in the earnings release attached to the company's form 8-K filed earlier as well as our latest Form 10-K and forms 10-Q, all of which have been filed with the SEC.
Speaker Change: In addition, today's remarks may refer to non-GAAP financial measures, which are intended to supplement but not be a substitute for the most directly comparable GAAP measures. The earnings release, which accompanies today's call contains financial and other quantitative information to be discussed today as well as a reconciliation of the non-GAAP measures to the most comparable GAAP measures.
Speaker Change: The Q4 earnings release is available on the company's website.
Speaker Change: A replay of this presentation a copy of today's transcript in the company's latest quarterly investor presentation. We will all be available soon after the call on <unk> website.
Paul Reitz: I would now like to turn the call over to Paul.
Paul Reitz: Thanks, Alan and good morning, everyone.
Speaker Change: Since we last spoke with you all at the end of October there has been no shortage of change in the world. When it comes to our business. The change has us feeling better than we did on our last call.
Speaker Change: On that third quarter call, we expressed at the bottom of the AG cycle was drawing closer and that we were seeing the early signs of a cyclical recovery.
Speaker Change: As we sit here today, while we're not completely there yet we are seeing reason to be more optimistic.
Speaker Change: First there has been an improvement in farmer sentiment there seems to be optimism born out of the new administration as farmers expect the government to be supportive of U S. Agriculture.
Speaker Change: It goes without saying that positive sentiment amongst farmers regarding their future prospects could ultimately lead to their willingness to invest in farm assets.
Speaker Change: That segment is typically a function of a range of factors such as crop prices yield forecast and input cost levels, which all tie into the big driver farm income speaking of crop prices recent corn prices have been over 15% higher than they were a year ago at this time, reaching levels over $5 per bushel. This along with government support bodes well for <unk>.
Speaker Change: <unk> income.
Speaker Change: Outside the U S. We are encouraged by increasing activity in Brazil, an important market for Titan.
Speaker Change: This year is starting off well there and demand is expected to be up nicely in both our OE and aftermarket channels.
Speaker Change: Our team in Brazil is highly experienced have done an excellent job not just in driving market share, but how they manage the cost and operational side of their business. During this highly volatile times for their currency the real.
Speaker Change: Hi.
Speaker Change: History has been that Brazil is a good leading indicator for the broader global AG market.
Speaker Change: Moving over to Europe, I was just there recently and can confirm what the AG Oems have been saying in terms of business being slow in that region.
Speaker Change: That said and entered the Ukraine.
Speaker Change: Situation could be a positive and we're certainly hoping for that.
Speaker Change: Summing things up by geography, as we look around the world. We have all seen the production forecast from the major AG Oems that have generally indicated Brazil to be their strongest improving region, while Europe and North America Havent crossed that line yet to return to growth, but with expectations for improved second half of the year, especially as they move into 2006.
Speaker Change: <unk>.
Speaker Change: Recently, our conversation with customers have been taking more of a positive nature.
Speaker Change: I do not want to get ahead of myself, but I will say there has been an observable shift in tone with the number of customers asking about our ability to ramp up production in the second half of this year.
Speaker Change: Maintaining our productive capacity and expertise was an emphasis for Titan. Despite the reduction in demand we've worked through over the last 18 months. So we are certainly happy to tell our customers that yes, we will be ready to go when they are.
Speaker Change: As we see that demand come back we will also be focused on expanding customer relations relationships via our one stop shop strategy.
Speaker Change: We've talked a lot about that and it really took hold for us following last year's Carl <unk> acquisition of <unk>.
Speaker Change: Part of that is our aftermarket business, we have we see that would be a steady performer through this down cycle.
Speaker Change: And one of that one of our focal points of our management team in recent years has been to expand our aftermarket offering in all three of our segments and we expect it to continue to be a steadier source of business for us in the future as well.
Speaker Change: We also continue to emphasize innovation and new products, while also working to introduce existing products such as <unk> two segments, where we have not marketed them as aggressively in the past such as mid and low horsepower tractor.
Speaker Change: My team.
Speaker Change: Is also focusing on the cross selling of tightened and Carl starts products into new segments and geographies.
Speaker Change: Looking around there are really good opportunities for us to continue to drive sales via these initiatives.
Speaker Change: Turning over to the consumer segment much like AGR aftermarket business has held up better than the Oems. Our team has done a good job integrating Carl star and working to capture a range of synergies as their product lineup complements our legacy tightened products.
Speaker Change: This enables us to bring our customers a much wider range of products to suit their needs.
Our off road consumer products going to ride range of equipment. The owners continue to use whether it be landscaping riding lawn mowers are recreational ATV user on road trailers used to transport equipment.
Speaker Change: All of which underpin a steadier demand for replacement tires in this segment.
Speaker Change: On the OEM side in consumer product manufacturers have noted their plans to continue under producing demand in the first half of this year.
Speaker Change: <unk> Oems are mindful of the health of their dealers and are working to make sure they're not saddled with excess inventory.
Speaker Change: Looking at ourselves I mean, we have the premier product portfolio Cross this off road spectrum with a strong footprint of our manufacturing and distribution locations. Therefore, we can serve our customers better in this environment and make sure those fill in orders are taken care of.
Speaker Change: For us a healthy OEM dealer ecosystem is also generally supportive of our aftermarket business. So we really view this continuing actions at the Oems to manage inventory as a long term positive for our business.
Speaker Change: Moving over to the EMC segment, we believe overall construction market conditions remain fairly stable the mining activity continues to be solid.
Speaker Change: Precious metal prices are strong and have risen in response to geopolitical developments as those prices for minerals rise owners and operators of the mining assets are incentivized to run their equipment as much as possible that's going to generate solid demand for aftermarket under carriage parts.
Speaker Change: We are in a good position in this segment with our innovation and product development and undercarriage, along with our strong replace our service capabilities, which make us poised for growth in this segment.
Speaker Change: Tariffs are on everyone's mind these days, both in business and in our personal lives.
Speaker Change: Can't avoid hearing about them in the endless media barrage on that topic.
Speaker Change: At this point the current tariffs are not as significant issue for us to navigate it seems the early reactions to tariffs created a renewed investment interest in U S manufacturing.
Speaker Change: We're all seeing that daily and the reports coming about investment into the U S.
Speaker Change: During complex and volatile times when you look at it from Titans perspective, we've historically seen that environment as a benefit to tighten because our customers can count on us to meet their evolving needs.
Speaker Change: Have the market leading product portfolio, we have a broad geographical footprint, we have the best technical team in the business and we are extremely committed to serving our customers. During these complex times and so we look at this environment as a long term catalyst for tightened being able to demonstrate through our.
Speaker Change: Customers are full capabilities are mitigating the risk of their supply chain.
Speaker Change: So wrapping things up here overall, I, just I want to talk about.
Speaker Change: Taking a quick look at 2024, we successfully navigated a deep cyclical downturn with strong cash flow and successfully integrated a large acquisition that is really due to the effective actions and timely decision, making of our one Titan team and I want to express my appreciation to them for their efforts throughout 2020.
Speaker Change: For.
Speaker Change: Overall, we are encouraged about what lies ahead for Titan with good reasons to feel that way or.
Speaker Change: Our investments are a one stop shop shared strategy have us well positioned to provide more comprehensive products and services for our customers and we are positioned to see accelerating results as demand improves in the future <unk>.
Speaker Change: New product innovation continues to be a cornerstone of our value proposition.
Speaker Change: Cements, our position as the market leader in our space.
Speaker Change: With that I will hand, it over to David.
David Martin: Thank you Paul and good morning, and thanks to everyone listening in and welcome to our first call of 2025.
David Martin: Let me first say that our results for the fourth quarter are generally in line with our expectations and as everyone knows this was our seasonal low quarter of the year revenues in the fourth quarter were $384 million with adjusted EBITDA of $9 million in free cash flow was just a little under breakeven.
David Martin: Gross margin in the quarter was almost 11%.
David Martin: Volume hitting cyclical lows, our ability to sustain that level of gross margin is something we're pleased with and it also bodes well for the business as we move into a recovery phase.
David Martin: To give some perspective during the most recent cyclical low end in 2019 full year gross margins were about 9% compared with adjusted gross margins for this year of 14, 6%.
David Martin: Production during the 2024 low was nearly 20% what we saw in 2019.
David Martin: Yet we were able to maintain gross margins roughly 500 basis points higher so that is something our entire one Titan team is proud of.
David Martin: Looking at margins by segment in the fourth quarter AG gross margins were 9% AMC margins were around 6% in consumer and gross margins were 18%.
David Martin: <unk> was our most profitable segment as higher margin aftermarket business accounted for more than 60% of sales in the segment.
David Martin: SG&A expense for the fourth quarter was $51 million or 13% of sales compared to $32 million in the prior year or 8%.
David Martin: Just to reiterate our commentary from prior quarters in 2024, we talked about this the increase in SG&A entirely be attributed to the <unk> acquisition, particularly the distribution centers that are in the that are an integral part of the operating model, which allows us to fulfill customer orders in a very timely manner.
David Martin: R&D expenses were $4 4 million in the fourth quarter compared to $3 1 million a year ago as we know throughout our commentary innovation and product development is critically important for Titan and in an area that we will continue to invest.
David Martin: Our operating loss in the fourth quarter was $17 million, reflecting the combination of reduced sales and operational expenses I just noted.
David Martin: Operating cash flow was about $9 million and inclusive and inclusive of capex of $13 million free cash flow was negative $4 6 million. We anticipate Q1 will also show negative free cash flow, but that's expected with the second.
David Martin: The sequential improvement in sales, which will require a corresponding increase in accounts receivable.
David Martin: We expect fully expect that cash flow will turn positive as our year progresses.
David Martin: Net debt at quarter end was $369 million or two nine times trailing 12 month adjusted EBITDA entering 2024, our leverage was very modest at approximately one times and that allowed us to accomplish a great deal in the form of the <unk> acquisition and significant share repurchases, which we're confident will serve our shareholders well over the long.
David Martin: Term.
David Martin: From a capital allocation standpoint, our primary focus in 2025 will be the pay down of debt and continued smart investments in the business.
David Martin: But we will spend less on capex in 2025.
David Martin: In Q4 tightened recorded a credit to income tax expense of $26 million related to the pre tax loss in the fourth quarter that brought full year tax expense down to around $12 million, which equates to about a effective rate of 143% now this elevated tax rate is primarily due to the loss incurred domestically in 2020.
David Martin: Due to the very low volume and this was further exacerbated acerbate. It by the lack of ability to fully deduct interest expenses as dictated by U S tax law.
David Martin: And as well as the impact from foreign income tax it at heightened in higher tax jurisdictions.
David Martin: Paul talked about tariffs earlier in our firm belief is that it can be good for tightened due to the strength of our global footprint and the production flexibility that we have across the business one of our strategic assets is our ability to manufacture a lot of products that mitigate.
David Martin: That we sell to them and will mitigate supply chain risks for any products that are imported or exported for that matter, we will manage our costs enterprising accordingly, and we do not anticipate a major impact.
David Martin: Our acquisition of <unk> brought us an exceptional plant in China that currently supplies products in the U S. Mainly our consumer segment, while we are clearly in a fluid situation. We have analyzed the current tariffs in determining the impact interactions in response to be very fairly minimal.
David Martin: That being said the advantaged Titan has that tariffs as tariffs ratchet up we have plants in the U S that it can absorb some of the production currently running at that China plan. All of this to say that we are situated well as a company with options of how best to handle tariffs as they continue to evolve move.
Paul Reitz: Moving onto our financial guidance for Q1 as Paul noted we are pleased we're pleased with the sequential sales improvement that.
David Martin: That we saw and they've seen so far in Q1 as.
David Martin: As demand begins to recover we will be starting from a higher margin profile than in the past given the significant fixed costs in our manufacturing operations increases in our production and sales.
David Martin: Enable margin expansion. So we're certainly looking forward to our earnings and cash flow potential later in the year and into 2026.
David Martin: Bringing the focus back to the near term our guidance range for the first quarter is $450 to $500 million with adjusted EBITDA of 25% to $35 million.
David Martin: Again, thats, a sequential improvement versus Q4.
David Martin: Reiterating our prior kind of comments on cash flow, we are investing in working capital in the first quarter due to the sequential sales increase and as the year progresses, we expect to see cash flow turned positive, allowing us to reduce debt. The bottom line is our financial condition remains solid.
David Martin: And we're putting ourselves in a position to accelerate our future performance every day.
Speaker Change: Thank you for your time this morning, and we would like to now turn the call back up to <unk> for the Q&A session.
Speaker Change: Thank you very much with not speaking the question answer session. So I'll ask a question you May press star one.
Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys withdraw your question it would be stuff on it by two.
Speaker Change: Our first question comes from Mike Smolinski F D. A Davidson your line is now with the mic.
Mike Smolinski: Yes, Hello, good morning, Thanks for taking my questions.
Mike Smolinski: I guess I wanted to get a little bit better feel for David. So when you kind of you just made on.
Mike Smolinski: On cash flow.
Mike Smolinski: If some of the Oems are looking at about 2026 do you feel like you may have to.
Mike Smolinski: Take on some more working capital here in the fourth quarter of.
Mike Smolinski: 2025 to prepare for it.
Mike Smolinski: It will certainly take a look at that.
Mike Smolinski: We generally do that anyway.
Mike Smolinski: We always have a sequential increase from Q4 to Q1.
Mike Smolinski: As we get as we progress through the second half of the year I think we'll be able to get the visibility we need to manage it accordingly, and not over invest but I think we can calibrate our production to meet the expectations for the for the growth that we could potentially come.
Mike Smolinski: Got it thanks for that.
Mike Smolinski: Paul.
Speaker Change: You provided quite a bit of detail on the AG outlook.
Mike Smolinski: Maybe give us a little bit more.
Mike Smolinski: More granular detail on on your feelings on earthmoving and construction as well as consumer.
Mike Smolinski: Perhaps in the very near term in the first quarter <unk>.
One segment would be a bigger driver than the others and then kind of a broader.
Mike Smolinski: From a cycle perspective, where those two step.
Mike Smolinski: Yeah.
Mike Smolinski: Did talk a lot about AG.
Mike Smolinski: Now that we're very diversified across all the segments.
Mike Smolinski: Earthmoving construction.
Mike Smolinski: Is an area, where I would say we see the market has been stable.
Mike Smolinski: Driven by.
Mike Smolinski: Factors that I think our underlying level of demand or a floor I would say the need for infrastructure government investment.
Mike Smolinski: Clearly there is residential needs.
Mike Smolinski: So it would be difficult.
Mike Smolinski: Governments to turn their back on the needs of society and so I think you look at that as a floor, but clearly in this environment youre, having some inventory corrections that are taking place at the Oems and so you are balancing I think a positive floor with the negatives of the inventory correction I think where we see good demand for us.
Mike Smolinski: Our earthmoving construction segment as some of our capabilities that are more unique and specific to tighten in our undercarriage division we have capabilities that.
Mike Smolinski: I want to say nobody else has but at least nobody has it or extend and thats the ability to produce custom aftermarket mining parts through again, some unique capabilities to tighten and so we look at not just the Oems to drive business, but also just overall activity and Thats why its.
Mike Smolinski: Some of my comments reference the mining activity, that's taking places as prices. There have remained elevated and activity remains fairly strong with all the demand needed for.
Rare Earth minerals saw all the things that go into daily Society in life, and so again I think we have some capabilities that tightened that are unique so little bit different than maybe some of the commentary you'll hear just from the Oems in that segment again, our ability to service the aftermarket with some customized parts there.
Mike Smolinski: When you look at consumer.
Mike Smolinski: Again Everything's bifurcated. These days you look at aftermarket versus OEM from two different lenses, we had a really good year in 'twenty four with aftermarket.
Mike Smolinski: Really impressed with how Carl Star and that team has gotten integrated at Titan and just really kept that momentum going in so the aftermarket part of our business and consumer has performed well we see opportunities around the corner with expanding our presence both with existing customers.
Mike Smolinski: And then that new products in geographies that we can get into and so.
Mike Smolinski: You look at the aftermarket in consumer from that lens of really performing well and being a more consistent part of our business as we've talked about in our comments and then Oems it's dealing with inventory just like we've talked about with AG and E&C.
Mike Smolinski: We're seeing the Oems in the consumer segment trying to balance the.
Mike Smolinski: The sell out with their inventory.
The Oems are going to adjust accordingly, and I think that's a positive in the long run but in the short run you're going to have to deal with some cyclical factors impacting OEM demand in consumer.
Mike Smolinski: Very similar to what we talked about EMC in AG.
Mike Smolinski: I'll stop there I think I've said enough about you got your follow up questions. Let me know.
Mike Smolinski: No absolutely.
Speaker Change: We entered answered my question.
Mike Smolinski: And then maybe just turning to AG real quick.
Mike Smolinski: I appreciate it the fact that you sound like you're a lot more positive in the back half of the year at least for orders.
Mike Smolinski: I kind of wanted to get a few things square it up.
Mike Smolinski: Yeah.
Speaker Change: I guess, Paul in your comments that I'd make it better later on this year a commentary on your business and what you might be shipping or just simply the orders you might be receiving and hopefully hoping to ship that in 2026.
Speaker Change: I'm trying to figure out whether the first quarter could be a low point of the year.
Speaker Change: Yeah.
Speaker Change: And we should be thinking about making things higher in the back half but.
Speaker Change: I feel for the cadence of the actual turnaround at both your business as well as the broader act.
Speaker Change: Yesterday, the farmer buying the equipment.
Speaker Change: A little Leach, but Mike did you.
Speaker Change: Were you on teams whether it be sports band any type of competitive team as a kid.
Speaker Change: Absolutely all of the above.
Speaker Change: Alright, perfect alright so.
Speaker Change: Hope is something that every team must have whether its in competitive team environment with sports or music and also in business and you can never lose hope and hope is something that whether you are the captain of the team or the leader of the business you got to make sure. It's present in you can force hope into the <unk>.
Speaker Change: Room, because you've got to have it.
Speaker Change: Mandatory.
Speaker Change: You lose hope you lose everything optimism is something that comes from the team to the captain and the leader you can't necessarily created it's either there or it's not.
Speaker Change: When I, what I have seen over the last few months is optimism and it's coming from the team.
Speaker Change: It's coming from the customers they are talking to its coming from what they're dealing with and their daily situation. This stuff they're reading.
Speaker Change: There's been a definite turned in the last 90 days. So I can tell you the things I've seen with my own eyes.
Speaker Change: But I think what's more important is what I've seen from the team and maybe it's because we've gone through a deep cyclical downturn. It over the last 18 months and it's tough and we're starting to see the.
Speaker Change: The bright lights out in front of us, but there is optimism in the room and it's coming deep within the team and I think thats where.
Speaker Change: I feel that positive change is taking place.
Speaker Change: Some of that is going back to your question. Some of that is going to be in the short term with orders that we're picking up now but.
Speaker Change: Quite a bit of it is in the back half of the year with expectations for what they will need from us our customers will need from us both in.
Speaker Change: What they'll take this year, but also in preparation for next year as you alluded to but we are definitely seeing some orders come in that impact us today, but I think it's that optimism that we're seeing with opportunities for.
Speaker Change: Later this year into next year that again.
Speaker Change: Again, it's a real sense of optimism that is present in the room and it has not been without being created by leadership, it's coming from them up towards us and the entire team.
Speaker Change: Okay I appreciate that.
Speaker Change: I'll pass it along thank you.
Mike Smolinski: Alright, Thanks, Mike.
Mike Smolinski: Thank you very much.
Mike Smolinski: Next question comes from Steve <unk> of Sidoti.
Speaker Change: Your line is now open Steve.
Steve Sidoti: Good morning, Paul Dave I appreciate all the color on that.
Steve Sidoti: Call. This morning, I do want to follow up on that last commentary Paul because it's.
Speaker Change: Youre hearing directly from customers, it's more challenging on our site because we listened.
Speaker Change: So the <unk> cost from a lot of your large AG customers a lot of it was still focused on managing inventory managing prices. The question is how fast that can pivot and you ran through all the data points that support a recovery and you can see it in the stock prices, but its hard to connect those two but our U C.
Speaker Change: We're actually hearing that your team is hearing from customers that maybe there's a pick up in the second half because that didn't really translate on the conference calls I'm sure you've listened to as well.
Speaker Change: Right right and part of the disconnect Steve is theyre looking at inventory in the channels and we're looking at inventory from the wheel and tire perspective, and we've had disconnect throughout the pandemic and post pandemic between what we view as inventory and what they discuss is inventory and we.
Speaker Change: We've seen wheels and tires get accelerated into their inventories ahead of their production levels and ahead of their sellout.
Speaker Change: And what we see typically in our business is that our trends are off cycle with there. So I'm not going to say, it's just a pandemic trend, but it definitely got accelerated during the pandemic, but we lead we lead before they do because we have to get geared up for production. If you think about some of the products we produce Steve.
Speaker Change: They are customized to them their piece of equipment.
Speaker Change: <unk> is a highly engineered product that has to fit on their hub and Axel based upon not just each manufacturer, but also within each line that they have of attractor of sprayers combine it's not just a different paint colors. So.
Speaker Change: We need to be prepared.
Speaker Change: Differently than maybe a chip a belt the hose that can be transferred from one product to the next and so we do follow different trends in our inventory has been volatile. During this period I think we got hammered from the inventory perspective harder earlier during the down cycle, because they had excess wheels and tires. So some.
Speaker Change: The commentary you would have heard from the Oems would have been different than what we were seeing in our business I think we went down much faster than them.
Speaker Change: And I think we go back up before they do so fully understand your question and following their commentary very closely but there is.
Speaker Change: Some different trends between our inventory their inventory if.
Speaker Change: If I could just add one thing because that's actually the only point on it.
Speaker Change: If you see if you look at last year 2024 first half to second half.
In the AG sector.
Speaker Change: Around 40%.
Speaker Change: In the first half to second half, that's a pretty significant downturn, obviously, we had to absorb that and that is the.
Speaker Change: Everything to do with Destocking right. So that's that's our perspective.
Speaker Change: You have to take into 2025.
Speaker Change: Expectations are that.
Speaker Change: Not going to be we're going to start to see recovery before maybe the sell out into the industry will be and tightened sees it fast faster.
Speaker Change: And speaking to that Paul and David if the pivot is.
Speaker Change: Fast.
Speaker Change: And again you ran through a lot of the data that says it can be potentially.
Speaker Change: How well positioned are you to pick up I know the last recovery, we are still in Covid labor was.
Speaker Change: <unk> for some less for you in terms of Capex that you need in the plants in terms of capacity labor. How quickly are you able to position if the pivot is faster than expected.
Speaker Change: Well, we will find a way to be prepared and that's the that's the message to the team David and I were in Freeport last week and again, the optimism coming from them towards David and I.
Speaker Change: What I already talked about earlier.
Speaker Change: And they also know they got to be prepared we are in Quincy the week before that same discussion.
Speaker Change: They've had some drop in orders already come they've had to adjust and they need to be prepared and so.
Speaker Change: It's a message we are delivering now but it's also a message that we delivered throughout last year to the team as we reached a point, where our head count is down significantly.
Speaker Change: It's always difficult to do.
Speaker Change: But we reached a point, where we said, let's hold off on the head count reductions because we're going to be cutting into experienced labor.
Speaker Change: What we do does require skill requires experience and we reached a point, where we said we do not want to lose these people.
Speaker Change: There are two important to us in the present and also definitely for the future and we're seeing that future here now if not towards the back half of the year as we've been talking about and our team has to be prepared and but it's not something again that we're talking about today, we've been talking about it throughout the pandemic, but now they're telling us they.
Speaker Change: Need to be prepared because they are seeing that sense of optimism that I have been talking about as well. So it's good like I said, we're in a report last week, we didn't have to come in there then tell them to be prepared there telling us how they're going to get prepared.
Speaker Change: And we got to stay on it it's going to be.
Speaker Change: It's never easy, but it's a good problem to have.
Speaker Change: Absolutely.
David Martin: A couple of very quick modeling questions David.
David Martin: With DNA will look like next year, it's obviously moved around a bit with the acquisition this year and also.
David Martin: What we saw from consumer this was the first year with Comstock is this what seasonality looks like.
David Martin: Yes, so as to your DNA question I don't have the top my head.
David Martin: It's around $60 million a quarter I think for the year I'm, sorry $60 million.
David Martin: And in Q4, we had a little bit of an adjustment that we made our final purchase price adjustments.
David Martin: We're required after the acquisition. So that's all been finalized and that's that's about where we're going to be.
David Martin: To your question.
Speaker Change: That seasonality and Carl <unk>, the consumer Division.
David Martin: Yes.
David Martin: Similar to the.
David Martin: Situation with all of the rest of the segments. If you will.
David Martin: Q4, being a seasonal low it was a little bit more exacerbated in terms of again.
David Martin: Again, destocking that took place with Oems.
David Martin: But.
David Martin: I would think that as we head towards 2025, I think that's about right.
David Martin: In terms of that I think the seasonality.
David Martin:
David Martin: It's not as dramatic normally a front end loaded first half typically in a normal year would be front end loaded.
David Martin: But Q4 is definitely a seasonal low because.
David Martin: Ken mowing season, and things like that so.
David Martin: I think I think it's pretty similar and not enough to make a meaningful change in your modeling.
David Martin: Okay.
David Martin: Thanks, Paul Thanks, David.
Speaker Change: Thank you very much as a reminder, if you would like to raise a question. Please press star followed by one telephone keypad and certainly yourself that line of questioning will be stopped by to our next question comes from Tom <unk> of Zacks small capital Research. Your line is not like them.
Speaker Change: Good morning, guys a quick.
Speaker Change: Quick follow up on the tariff issue I think happier manufacturing is overseas roughly can that change relatively quickly based on the circumstances of a tariff and then related to that does the does it follow what the Oems do but they're doing a lot of onshore and do you have to follow that.
Speaker Change: So I hope that makes sense.
Speaker Change: Yeah, Doug does yes, we are we are prepared and capable of moving production to different locations.
Speaker Change: Like you just stated we do have half of our manufacturing position around the world.
Speaker Change: And good locations for our geographical footprint to serve our customers.
Speaker Change: As our customers move production I would say the preference would then lean towards being closer to where they are producing the equipment.
Speaker Change: <unk> mitigate risk and has longer tail, obviously on the logistical side clearly that could be their decision on what they prefer but.
Speaker Change: I would imagine as production shifts our production would would change locations as well, but I do believe that one of our biggest strengths is our geographical footprint. We have plants that are positioned very well for our customer base and can meet their needs as their needs to change.
Speaker Change: Alright, Thanks, a couple more quick ones on the Brazil strength.
Speaker Change: Can you provide more color on what the strength is there is it general economics as the government policy and then related to that.
Speaker Change: Are they the bellwether for the rest of it.
Speaker Change: No.
Well I mean, Brazil is.
Speaker Change: It's a big part of their economy.
Speaker Change: They clearly are a less diversified economy than some of the than what we're used to here in the U S. But.
Speaker Change: AG is a big part of the economy heavily supported when needed by by government incentives I mean, what we're seeing there is just a general tone of optimism towards both aftermarket and OEM that theyre turning the corner they've had some administration changes there are that are that are supportive of AG.
Speaker Change: Also it's been a long downturn when you look at it in Brazil.
It's kind of run its cycle and I think part of is you're seeing the cyclical upturn.
Speaker Change: Compared to what we've seen in Europe, as I mentioned, but I think Brazil. They are feeling the they are turning the corner goods.
Speaker Change: Good support from the government good demand coming in and they're drains have been in strong demand as well I mean, they've been exporting a lot of beans around the world and so there's a tremendous amount of demand for their crops. Obviously it starts there but their demand has been strong throughout.
Speaker Change: Kind of the 'twenty three 'twenty four cycle.
Speaker Change: Their exports have increased and we've seen some of the exports from the U S decrease and so.
Speaker Change: The tone, we're getting over the last.
Speaker Change: Call. It 60 to 90 days from Brazil, as an uptick in.
Speaker Change: The sentiment as we go into 'twenty five.
Speaker Change: Great. Thanks for that last one.
Speaker Change: Are you able to talk about military opportunity in more details in light of sort of the budget federal budget cuts, we're seeing defense defense industry, maybe downsize and so on is that do you guys have orders for the military opportunity or contracts or.
Speaker Change: Could that be affected by budget cuts I guess.
Speaker Change: Well.
Speaker Change: Hey.
Speaker Change: I've been characterizing our military opportunities is when you have very little.
Speaker Change: The opportunities are bigger in contrast to having not much in the way our military is making been making decisions in recent years.
Speaker Change: Hasnt really been supportive of U S manufacturing and so what we've been doing with the administration change and we started this back in the middle of last year.
Speaker Change: Really pulling in some expertise from the outside who can help guide us on how to get back into the military and that's what we've been working on so we're not impacted like a true military supplier by budget cuts we're.
Speaker Change: We're looking at is with the administration change and really their budget cuts are favorable from our standpoint.
Speaker Change: Maybe some of the bad decisions <unk> been making in the past can put us on the radar is a good decision to make in the future. So.
Speaker Change: We just look at as an opportunity to go from close to nothing to something positive and we're working hard to do that and I think both budget cuts and administrative changes of the reason why we're being more aggressive in pursuing these opportunities.
Speaker Change: Okay.
Speaker Change: Great. That's all I have for today. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you very much.
Speaker Change: Our next question comes from cut loose of Imperial capital.
Speaker Change: Your line is not like them.
Speaker Change: Hey, Paul David Allen. Thank you. Thank you for the call.
Speaker Change: Good morning.
Speaker Change: A follow up on the on the new business.
Speaker Change: It looks like maybe you're you're looking to move into some lower.
Speaker Change: Price points I think.
Speaker Change: Mentioned in the press release sourcing product from third parties, you talked a little bit about that initiative.
Speaker Change: The initiative is really taking care of our customers and post the <unk> acquisition.
Speaker Change: Our capabilities to service our customers have only increased and we talk about the one stop shop approach and there is a lot of things that go into that.
Speaker Change: That includes third party sourcing so what what our team has really been focused on over the last year is not something that's just starting now is how do we get the right products to take care of our customers needs and that does include some manufacturing that's outside.
Speaker Change: Tightens manufacturing facilities.
Speaker Change: What we bring to the equation when we do that is having the world class distribution channels that we have the brands that are under the Titan umbrella.
Speaker Change: Nickel expertise and service that we can bring to the equation.
Speaker Change: That's where we stand out in our industry and so we look for third party partners that can produce products that our customers need and then we can we can layer in what I, just mentioned and it becomes a win win for all parties involved and we see that as a bigger part of our business.
Speaker Change: And it was part of tightened legacy business, but post Carl Star.
Speaker Change: With some of the expertise that we brought on in the resources from that acquisition and we see this as a growing part of our business and it's really putting all of that together and taking care of our customers.
Speaker Change: Best possible way.
Speaker Change: Got it. Thank you that's helpful and.
A follow up on the tariff.
Speaker Change: You mentioned that you thought it would be a positive.
Speaker Change: You produce.
Speaker Change: I would I would guess most of what you sell in the U S and the U S is that a fair characterization.
Speaker Change: Yes.
Speaker Change: Most of this fair yeah.
Speaker Change: Okay.
Speaker Change: Yeah for the tariff step yes go ahead finish your question.
Speaker Change: No.
Speaker Change: I'm, just I'm trying to get a sense for if tariffs were imposed on.
Speaker Change: On steel products.
Speaker Change: <unk> higher incremental tariffs.
Speaker Change: On steel products and our tires.
Speaker Change: How much of the market.
Speaker Change: In the U S market comes from offshore.
Speaker Change: Generally are those are those tires and steel products steel wheel coming from China, or where are they coming from so we can just so we can react to any headlines we see we understand what that means for you.
Speaker Change: Yes.
Speaker Change: And it does vary by by product segment. So there is not a blanket answer but.
Speaker Change: I'll tell you kind of our perspective is in the short term.
Speaker Change: What we have done is we've analyzed the tariffs.
Speaker Change: Just as Youre doing we've analyzed them specifically to our business.
Speaker Change: And we do that.
Speaker Change: Heavy analytical way looking at the dollars and cents and the impact and so the comments we've made when we say there is minimal impact are based upon the analysis of where we are today.
Speaker Change: So again thats very analytical when we make that comment about minimal impact.
Speaker Change: When we talk about the longer term that's when we are referencing our ability to service our customers in both David and I mentioned mitigate the risk of their supply chains.
Speaker Change: With that strong geographical footprint.
Speaker Change: And our ability to manufacture source products from all around the world.
Speaker Change: We can take care of our customers needs better than our competition in our industry and so longer term when things are volatile and complex tightened as good at solving the needs of the customers and so that's where we look at it long term.
Speaker Change: Short term you mentioned steel.
Speaker Change: My opinion is if youre, just tariffs raw steel youre missing the bigger picture of.
Speaker Change: Other forms of steel that come into the marketplace.
Speaker Change: Finished goods is what I'm referencing or even with for that matter.
Speaker Change: We see less of that directly competing in some of our large wheels are made in the U S. They're not large AG yields are not imported from from overseas as much. So again, it kind of depends by the by the segment with answering that but I look at the tariffs as.
Speaker Change: I want a country that make stuff versus consume stuff.
Speaker Change: For maybe not my perspective, all the time, but looking at it from my Kids Vantage point and so I think what we're seeing with tariffs is putting driving more of an emphasis towards we need to be making stuff more here in the long run.
Speaker Change: Then just looking around and consuming everything we possibly can and relying on just a strong dollar to drive that consumption and so I think it's a positive for <unk>.
Speaker Change: For the long run for our kids that we can make stuff and it's good because our plants are located we have great manufacturing footprint in the U S. So I think that is good for us in the long run but in the short term. There is we view it as we got to be nimble, we got to be flexible as David and I. Both mentioned in the short run we don't see there being a.
Speaker Change: And impact that we're seeing right now and.
Speaker Change: And I think again, let's not overlook one more comment.
Speaker Change: People look at tariffs as they're either cut and dry there either right or wrong and I don't think Thats, a correct way to look at it it's somewhere it's going to depend but this administration is committed to growth.
Speaker Change: Administrative not doing tariffs to cause harm to growth.
Speaker Change: So you got to have trust and faith in administration over their term theyre going to figure out how to grow with these tariffs not destroy something and so let's not get caught up in the micro every single day.
Speaker Change: I think we got to have some faith in the administration that theyre going to they are committed to growth. That's what they've stated so again a.
Speaker Change: Along with an answer to your question something that we were thinking about just like everybody else's, but it's a combination of a number of different factors, but I will say in the short run we.
Speaker Change: We've analyzed it very closely and we see minimal impact in long run. We think we can we can service our customers in a very healthy way as tariffs come and go.
Speaker Change: Fantastic I appreciate it that's all for me. Thank you.
Speaker Change: You bet. Thanks.
Speaker Change: Thank you very much as a reminder, if you would let's phrase a question. Please press star followed by one telephone keypad and so it makes US a line of questioning staff to our next question comes from Brian <unk> with that Brian Your line is now.
Brian: Good morning, gentlemen, just a couple of questions for me.
Speaker Change: Maybe start with you call excuse.
Speaker Change: Excuse me size up the aftermarket opportunity and maybe help us give a sense of what what the aftermarket versus OE.
Speaker Change: Yeah.
Speaker Change: Yes, I mean, we.
Speaker Change: When you look at it over the long run we are really significantly increase our aftermarket presence something that we've done with the acquisition, but we've also done with a lot of internal initiatives through the years and so.
Speaker Change: Probably 10 years ago, we were around 25% aftermarket and today, we're 45% and so with that 45% coming from aftermarket we do see a business that is steadier.
More consistent than what you see with some of the cycles with Oems and so as we sit here today, we're about 45% aftermarket.
Speaker Change: And what's the goal to get that north of 50 over a cycle.
That's a good question I don't know if we've set a target like that clearly we look at it as an area for growth and we're continuing to pursue avenues to expand it.
Speaker Change: Yes.
Speaker Change: I've mentioned it with undercarriage, we've a good aftermarket opportunity in mining with undercarriage.
Speaker Change: Unique to our company we've done a lot in the tire space to grow our aftermarket the one that doesn't have a lot of aftermarket as a wheel.
Speaker Change: That business is.
Speaker Change: Has been and likely will remain primarily OEM driven but in the tire business. Our innovations have helped drive out to market our brand and our distribution is kind of all of the above and so.
Speaker Change: What I'd like to see us get above 50, I think I think you just set a good target for our company I mean, you have to take what you said.
Speaker Change: Make that our new target.
Speaker Change: You go.
Speaker Change: Switching gears David.
Speaker Change: <unk> in the U S looks a little tight right now.
Speaker Change: Any thoughts on being able to move cash around repatriate some for the U S.
Speaker Change: Certainly we've done some of that already in the first part of the.
Speaker Change: 2025.
Speaker Change: And the expectation is that we will we will always.
Speaker Change: Protect our liquidity in the U S.
Speaker Change: Things as we need to not necessarily.
Speaker Change: We always look at tax leakage, you don't want to just bring it back and lose all of it because of taxes, but there are some opportunities and we will continue to do that as we progress through 2025, but again I just want to state that we have already done some of that movement in Q1.
Speaker Change: Got it okay. So that's not going to be a worry then.
Speaker Change: If you need to build inventory ahead of a ramp.
Speaker Change: No.
Speaker Change: We can we can flex accordingly.
Speaker Change: Got it.
And I guess just final question as we think about that.
Speaker Change: The ramp and its impact on profitability.
Speaker Change: What has been the operating rates of your U S facilities, and I guess, where I'm getting at is there been sort of.
Speaker Change: Current period charges that were charged directly against the P&L versus capitalized in inventory.
Speaker Change: We'll go away or just be recapitalized inhibitory as production volumes pick up.
Speaker Change: Okay.
Speaker Change: I wouldn't say there was anything significant that would create volatility in the call. It the P&L or anything like that in terms of capitalization cap variances and things like that but yes. The utilization rates are obviously low particularly in Q4.
Speaker Change: At their lowest and we watch that in terms of how.
Speaker Change: The cost of products that we produce and then sell them.
Speaker Change: With the lag and everything so but.
Speaker Change: As I look at it analytically I don't expect to see tremendous volatility.
Speaker Change: Perfect I appreciate all the color. Thank you so much.
Speaker Change: Yeah.
Speaker Change: Thank you very much. We currently have no further questions. So I would like to.
Speaker Change: How about the ports for any closing remarks.
Speaker Change: Yeah, well I want to thank everybody for their participation on our Q4 earnings call today, and obviously were going to rollout pretty quickly with Q1 results here. Soon so look forward to talking to you then thank you.
Speaker Change: As we conclude today's call we'd like to thank everyone for joining you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Okay.