Q1 2025 Titan International Inc Earnings Call
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Speaker Change: Ladies and gentlemen, the types of International Inc. First coach expense 25 odd is cool again.
Adam Sun: Again, shortly with our host Mr. Adam Sun.
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Speaker Change: Good morning, and thank you for joining us the types of International Inc. First what's the 20th century Fox earnings call and webcast. At this time all participants have been placed on listen only mode and we will open the floor for questions and comments after the presentation at the assistance during the call. Please press star zero on your telephone.
Speaker Change: Keep that it's now my pleasure, it's kind of fluid with Allan Snider, Vice President financial planning and Investor Relations at Titan Mr. Snyder the floor is yours.
Speaker Change: Thank you and good morning, I'd like to welcome everyone to Titans first quarter 2025 earnings call on the call with me today are Paul Reitz Titans, President and CEO and David Martin Tightened Senior Vice President and CFO I will begin with a reminder, that the results. We are about to review were presented in the earnings release issued yesterday, along with our Form 10-Q, which.
Speaker Change: Also filed with the Securities and Exchange Commission yesterday 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.
Speaker Change: Or in the aggregate could cause actual results to differ materially from these forward looking statements can be found within the safe Harbor statement included in the earnings release attached to the Companys 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: Q1 earnings release is available on the company's website a replay of this presentation a copy of today's transcript in the company's latest quarterly investor presentation will all be available soon after the call on <unk> website, I would now like to turn the call over to Paul.
Thanks, Alan and good morning, we are pleased to report Q1 results that were at the higher end of our guidance ranges for revenue and adjusted EBITDA.
Speaker Change: Despite all the volatility floating around these days the financial results for the quarter played out much as we had expected.
Speaker Change: This was a good solid quarter that highlights the strengths of our broad portfolio of market, leading products, serving a diversified base of geographies and segments.
Speaker Change: As we noted in our earnings release, our leadership position in our markets coupled with our customer centric mindset are the core of who we are and by sticking to that focus we're able to navigate turbulent times such as these.
Speaker Change: We are actively assessing the evolving tariff situation and we will be utilizing data driven analysis in our decision making process.
Speaker Change: Our diversified global business model enables us to be flexible with production and then we'll also be patient in evaluating our strategic business plans in light of the evolving trade scenarios.
Speaker Change: I do want to stress that we believe the tariffs applied consistently across the globe should benefit us in the longer term. Despite the short term uncertainty and confusion that nearly all businesses are facing.
As currently as we watch things getting negotiated and sorted out.
Speaker Change: I think this is a good time to also remind everyone. The tightened has always been a proud U S manufactured with eat plants across the U S.
Speaker Change: Over time, we have acquired manufacturing assets in other countries allows that allows us to better serve our global customers.
Speaker Change: But we've always maintained a strong U S manufacturing presence.
Speaker Change: So moving over to our segments I'm going to start with AG.
We are leveraging our connection to end users by getting out to visit farmers in dealerships to really make sure we get an accurate picture of the current operating environment.
Speaker Change: On the whole farmers appear to be guardedly optimistic that once the dust is settled they will be okay with solid farmer income.
Speaker Change: Crop prices remain in healthy ranges and they firmly believe that government stands behind them as retaliatory tariffs impact their ability to sell their harvest is outside the U S.
Speaker Change: The uncertainty of the businesses are facing is no different for farmers is putting a damper on equipment demand in the short run.
Speaker Change: This will eventually pass and the cycle will turn and Thats, where tightens broad product portfolio and our expansive production capabilities shine through.
Speaker Change: Our teams need to continue to manage costs effectively while also staying prepared to ramp up to meet demand when needed.
Speaker Change: While overall agricultural orders remained muted we did see some positive OEM activity in the U S. As a key customer had extensive drop in orders in Q1.
Speaker Change: These orders came in prior to the tariff introduction. So we believe they were driven by demand not pull forward buys.
Speaker Change: The experience of our one Titan team continues to manage cycles like this which really makes an important asset for us and our customers when the cycle turns because it typically turns fast.
Speaker Change: Our team in breadth of production capabilities are best suited to meet our customers' needs in those moments and Thats, what I was highlighting with talking about that key customer dropping in those Q1 orders.
Speaker Change: Have competitors that are offered buyouts to their entire labor force, while tightened is able to adjust to customers on the fly and meet their needs and that again it proves the expansive capabilities of Titan and our team.
Speaker Change: So moving over to Brazil.
Speaker Change: Which historically is a good leading indicator for the broader global AG market, we have seen our business strengthening since Q4 of last year.
Speaker Change: Harvest season has gone well and it seems that farmers there will benefit from the U S trade standoff by stepping up their exports to China.
Speaker Change: As the largest manufacturer of AG tires and undercarriage in Brazil tightened is well positioned to benefit in South America.
Speaker Change: So looking at Europe, the economic and military investment into that region has become a priority along with the establishment of trade accords without the U S.
Speaker Change: In the near term European activity has been somewhat.
Speaker Change: Slowed down and basically stuck as the region continues to feel the effects of the situation in Ukraine. We're also working on the best path forward given the changes in the global trade policy.
Speaker Change: Our European business has been impacted in the short run.
I mentioned that I was recently at our plant in Turkey, and really excited to see our investments there to improve our overall European wheel capacity and lower our cost structure.
Speaker Change: And things are coming together well nicely there.
Speaker Change: Our consumer segment continues to be our gross margin leader as a reminder, customers in that segment include both Oems and aftermarket with a higher proportion of aftermarket sales than our other segments.
Speaker Change: And customers range from outdoor power sports equipment owners of businesses, such as landscapers and golf courses.
Speaker Change: The latter group tends to use their equipment very regularly which makes it a good source of aftermarket demand at group also has a shorter replacement cycle for equipment since their businesses depend on operational uptime, which provides us a good diversification to our other segments.
Speaker Change: Lastly, taking a look at our <unk> segment, we are seeing the impact of the sluggish OEM demand, particularly in Europe and the U S. It's worth noting that the type of work our products are used in tend to be in large and long term type projects tied to mining and nonresidential infrastructure.
Speaker Change: Companies and governments base those decisions that type of work of long term inputs and as such the near term trade negotiations have had an impact.
Speaker Change: To that extent our regions such as Europe sees a renewed emphasis on internal investment changes in trade policy would be seen as a long term positive similarity volatility becomes a durable aspect of global trade precious metal prices would seem to have a long term positive bias supporting mining divestment. These.
Speaker Change: These demand drivers are a good counter balance to what I just mentioned in the consumer segment in the AG segment, which is our largest segment.
Speaker Change: The feedback we received recently from the <unk> trade show in Germany was similar to what I've been saying in my comments about our EMC capabilities in the last quarter and I have noted that we are in a good position with our innovation and product development along with our strong service capabilities. So we're very poised when the market returns to growth to be in a <unk>.
Speaker Change: Good position in this segment.
Speaker Change: Yeah.
Speaker Change: While we are firmly believing that we are well positioned in all three of our segments I want to make it clear that we're not sitting back waiting for the world to find its footing.
Speaker Change: We have a number of internal growth initiatives underway, including our continued investment in new product development across all of our businesses driving revenue synergies amongst our segments and our product families and then offer a new third party sourced products.
Speaker Change: I've been talking recently about the further penetration of our <unk> in market segments, where we really havent market them as aggressively in the past and with that I am referencing more the midsized type farms.
Speaker Change: I got to tell you man, we've got some really strong independent data from a group of farmers on MSW performance and the accompanying yield improvements that they bring.
Speaker Change: When compared to dual tires and rubber tracks that really amplifies, the ROI and MSW to a payback of well under a year for a midsized farm.
Speaker Change: Our teams are working on rolling out that promotional material around this information and we are really excited about the prospects that it brings with it as well as a couple of the dealers that we've mentioned this too.
Speaker Change: Wrapping up we are off to a solid start in 2005, there is a certainly a lot going on in the world today, and our business will continue to move forward.
Speaker Change: Farmers are working their fields precious metal prices are driving mining activity and lawns are gonna get mode.
Speaker Change: Tightened our investments in our domestic positioning one shot stopped strategy.
Speaker Change: And our organic growth initiatives have us poised to provide products as a solution to our customer needs and times of complexity and dislocation that we're seeing today, therefore, supporting a long term growth trajectory.
Speaker Change: Further illustrating our long term growth prospects is our recently announced expansion of the Goodyear licensing rights into new product segments.
Speaker Change: As most of you know and our customers know we've had a nearly a 20 year strong relationship with the Goodyear farm brand that we remain deeply committed to and that couples really well with our excitement about the prospects of adding the Goodyear name into light construction industrial ATV lawn and garden and golf tires.
David Martin: So with that I will turn it over to David now.
David Martin: Thank you Paul and good morning, and thanks to everyone listening in today.
Speaker Change: Paul will talk about the tariffs earlier, it's worth repeating that we are well positioned.
Speaker Change: We remain the only domestic manufacturers in our segments and by virtue of that.
Speaker Change: We expect trade policy applied consistently around the globe to be a net positive for our business on a competitive basis like everyone. We hope that policy will be settled sooner than later is that will benefit our OEM customers along with everyone that buys their products farmers to landscapers.
Speaker Change: At the same time, we will continuously evaluate our production strategy is to fix the situation and we believe that we have strong plans to win the day.
Speaker Change: As Paul noted our results for the first quarter were in line with our expectations and at the higher end of our guidance range and it marked a nice sequential improvement from the fourth quarter revenues in the first quarter were $491 million with adjusted EBITDA of $31 million.
Speaker Change: Our gross margin in the first quarter was 14%, which was up from the 10, 7% in the fourth quarter.
Speaker Change: That demonstrates the positive positive leverage that comes with increasing sales.
Speaker Change: Looking at our margins by segment in the quarter, all three showed expansion versus the fourth quarter.
Speaker Change: Gross margins were 12, 4% AMC was 10, 4% and.
Speaker Change: Our consumer gross margins were.
Speaker Change: 19, 6% consumer continues to be our most profitable segment is the higher margin aftermarket business accounted for more than 65% of the sales in this segment.
Speaker Change: Our SG&A expense for the first quarter was $49 9 million or 10% of sales compared to $39 million in the prior year or 8% of sales.
Speaker Change: I want to remind everybody that we closed the acquisition of Costar in February 2024, So the first quarter of last year only included one month of SG&A expense for Costar.
Speaker Change: Going forward beginning with our second quarter results are the comparisons will be on a like for like basis, not including the inclusion across our SG&A expense for legacy Titan was 2% lower than the first quarter of 2024.
Speaker Change: Our R&D expenses were $4 5 million in the first quarter compared to $3 7 million a year ago and relatively the same level.
Speaker Change: With the $4 4 million, we spent in the fourth quarter of last year.
Speaker Change: Our operating income in the first quarter was almost $12 million and reflected the combination of sales margins and operational expenses I just noted.
Speaker Change: Also as expected we began to increase our working capital balances, particularly accounts receivable and also inventories to a lesser extent concurrently with the $107 million sequential step up in sales, which resulted in a negative free cash flow for the quarter and that includes our capex of $15 million.
Speaker Change: Reentering reiterating our commentary from last quarter that usage of cash was expected and we fully expect to see improvements as the year goes on.
Speaker Change: Our net debt at the end of the quarter was $411 million or three eight times trailing 12 month adjusted EBITDA.
Speaker Change: From a capital allocation standpoint, our primary focus in 2025 will continue to be paying down debt.
Speaker Change: And in our key investments in the business as we noted last quarter, we will curtail.
Speaker Change: Capital investments in 2025, reflecting our cash flow expectations and the more challenging market climate.
Speaker Change: We are still focused on the investments that drive our growth strategy.
Speaker Change: The first quarter income tax expense was $4 2 million within an effective rate of almost 100% are elevated tax rate continues to be a function of where our profits and losses are.
Speaker Change: Distributed geographically and the associated tax jurisdictions that in each of those areas.
Speaker Change: Now moving onto our financial guidance for Q2 that we communicated yesterday, our guidance range for the quarter.
Speaker Change: Our revenues of $450 million to $500 million adjusted EBITDA excuse me of 25% to $35 million, which all reflects stability in our business in the second quarter.
Speaker Change: So reiterating our prior comments on cash flow, we will continue to manage working capital tightly in the second quarter and as we enter the second half of the year, we expect to see cash flow turned positive, allowing us to reduce our debt and continue our strategies.
Speaker Change: Our.
Speaker Change: Condition is solid and let's just remember that we have a really good balance sheet and I'm fully confident that we're continuing to put ourselves in a really good position to accelerate our future performance.
Speaker Change: So thank you for your time this morning, and we would like to turn the call back over to Charlie for the Q&A session.
Charlie: Thank you very much.
Speaker Change: Your line secured hey.
Speaker Change: If you ask a question. Please press star followed by one telephone keypads and submit yourself Atlanta questioning will be stuff.
Speaker Change: As a reminder, raise your question, we'll be stuff slipped by one.
Mike: Our first question comes from Mike <unk> of D. A Davidson your line is now at least the mic.
Mike: Good morning, Thanks for taking my question.
Speaker Change: I guess I wanted to start by maybe asking about how you source things like rubber.
Speaker Change: There are pretty high intended tariffs for some of the major rubber exporting countries like Vietnam or Thailand.
Speaker Change: You can also source rubber other big countries that have my bra and like West Africa, where tariffs are being kept to a pretty low minimum.
Speaker Change: 10% or so.
Speaker Change: Or at least possible tariffs.
Speaker Change: I'm kind of wondering if you could clarify which one of those two is it will tighten which one do you use more or do you use most of that you can comment also on your ability to I think contractually pass through along any.
Speaker Change: Any higher a rubber costs or steel cost through your OEM contracts with your customers.
Speaker Change: Yeah, Great question Mike.
Speaker Change: We have.
Speaker Change: Good sourcing of all of our rubber products in and Theyre, primarily West Africa.
Speaker Change: And we have good solid contracts in place for those and so.
Speaker Change: We feel very confident about our ability to get the materials and at a very cost competitive positioning.
Speaker Change: And we expect the year not to be impacted dramatically at all based on tariffs in that regard, but I think I want to add to that in that.
Speaker Change: In our steel sourcing is primarily domestic.
Speaker Change: The other things such as fabric chemicals, and so forth.
Speaker Change: Either get domestic sources or sources from areas that have fairly low tariff impacts at this point in time. So we're in a really strong position relative to.
Speaker Change: On all parts of our sourcing.
Speaker Change: Globally.
Speaker Change: In reference to your question about pricing.
Speaker Change: We do have contracts and mechanisms in place for OEM customers regarding.
Speaker Change: Raw material and other inflationary cost impacts and they are adjusted typically are either on a three or six month basis, So again, where we can.
Speaker Change: We're not going to be impacted dramatically by that and we will continue to really work.
Speaker Change: Closely with our sources to be strategic and mitigate cost impacts in any event. So I feel like we're in a good position there.
Speaker Change: Got it thanks for that.
Speaker Change: And then I just wanted to get maybe maybe take a step back and ask about the broader global AG market.
Speaker Change: You had mentioned there was potentially some challenges with the U S pharma because of tariffs or other things that are happening.
Speaker Change: But do you feel like globally, everyone has to eat do you feel like globally regions may pick up the slack.
Speaker Change: We just heard from one of the major truck Oems. This morning that South America was actually up in the quarter.
Speaker Change: Curious if you've seen.
Speaker Change: <unk> seen something similar I'm, just kind of wanted to get a sense as to the net global read on <unk>.
Speaker Change: So most of those markets.
Speaker Change: Are things getting dramatically better or worse.
Speaker Change: On a net basis.
Speaker Change: Yeah, I think Mike that that feeds in perfectly to it makes titan the strongest in our space. It's our ability to serve all segments large all the way down to the small like we've been highlighting but specifically your question to AG.
Speaker Change: By having our manufacturing presence in the key agricultural locations of Brazil, and the U S. In times like this where you see the strength in Brazil is starting to come through which we have been highlighting and started to really see going back to Q4 of last year.
Speaker Change: They are buying they have been buying more greens overseas from Brazil, and the U S and that trend is really propelling demand in growth down there so for Titan.
Speaker Change: We're doing extremely well in Brazil.
Speaker Change: It's again highlights our diversification so as the farming economy may may switch to meet the needs of the global population like you highlighted people are going to eat they're going to eat protein based diets and we're able to position ourselves to meet the needs of the customers wherever they may reside in whatever trends may be going on in the market.
Speaker Change: Place and so.
Speaker Change: With <unk>, Brazil is coming along very well.
Speaker Change: <unk> that strong trend we saw in Q4, as we get into Q1 and seeing that continue into the second quarter as well.
Speaker Change: The U S as the U S.
Speaker Change: There's a number of moving parts to it but really what we're highlighting is in times like this where farmer income is at a level where.
Speaker Change: Theyre looking to mitigate costs in every angle. They can products like we have with <unk> like I mentioned with when we we keep finding more data that supports the ROI and <unk>.
Speaker Change: It's a product that provides a solution where if you need to drive yields improve your performance of your farm income.
Speaker Change: We have products that can do that in the U S. So we're not sitting still in the U S. While the market seems to be stuck to a little bit right now kind of waiting for these different scenarios to play out with the global trade, but tie.
Speaker Change: <unk> tightened as well positioned in any angle in and around the world.
Speaker Change: I haven't mentioned, but I will mention in our European presence is really strong as well with our wheel business and so.
Again, I think that the AG market, you said, it and I'll repeat it I mean, the people are going to eat and they are going to continue to eat well and we're positioned to serve those needs.
Speaker Change: Great.
Speaker Change: I also wanted to ask about Oh, sorry, I was already.
Speaker Change: But one other comment ill make.
Speaker Change: Mike one other comment I want to add though that I put in my comments I think it is worth noting.
Speaker Change: As the U S.
Speaker Change: It comes out of this cycle, which they will I mean, depending on how you measure it we're going on close to two years of a downturn in the U S.
Speaker Change: We positioned our plants in the U S for both wheels and tires to meet that demand.
Speaker Change: That's easier said than done one you've got to have the tooling and the production capabilities to meet that demand as it changes.
Speaker Change: But two you've got to be prepared and we've seen our competition.
Speaker Change: Do mass layoff notices and buyouts to their people, whereas tightened has really maintained the capabilities and as I mentioned when a customer a large customer comes to you and drops in orders, which were seeing more of in today's world being able to meet that again, it's easier said than done and tightened as well positioned in the U S.
Speaker Change: Not just having the plants and the tooling, but also having a team that is ready to meet that change in demand because we all know it's coming trying to predict exactly when is the guessing game, but it is going to happen and just want to highlight again thats why I made that comment in my.
Speaker Change: My prepared remarks is that we did have some pretty serious drop in orders in Q1 that happens thats been happening, but we're able to meet that demand.
Speaker Change: Great.
Speaker Change: I also wanted to ask about visibility.
Speaker Change: You had mentioned in prior conversations it got very tough during 2024.
Speaker Change: With Oems, who typically gives you a quarter or a little over a quarter of visibility as to what they're looking for.
Speaker Change: Coming ahead, it was tough to predict because you really had a really rough third and fourth quarter of last year changed pretty rapidly.
Speaker Change: Sounds like things seem more stable now first quarter versus second quarter from an EBITDA perspective.
Speaker Change: Curious, whether you feel like the visibility.
Speaker Change: Has improved greatly from the second half of 'twenty. Four you can plan ahead, a lot better than you could just six months ago.
Speaker Change: It's still not where it used to be.
Speaker Change: You got to adjust to the world. The world is not going to adjust to you and so that's really what we've been doing our team has to be prepared to handle whatever.
Speaker Change: The market conditions are and however, our customers needs need to be met and we do envision a world where.
Speaker Change: After you get through this inventory cycle, which is most comments or it's getting really close to the inventory been.
Speaker Change: At a level they feel more comfortable that then you start getting that visibility back because the market demand is going to tie more into their production needs I think really what distorted us last year was the dislocation with inventory levels and the production cycles and so.
Speaker Change: That part will really get the visibility back.
Speaker Change: And that's.
Speaker Change: That's going to happen.
Speaker Change: Is it happening right now not quite but that doesn't mean, we can't be prepared to handle the world that we're in and I think that's what we're saying is it's a good solid Q1, clearly we've adapted to these market conditions as David.
Speaker Change: Highlighted our guidance for Q2 is illustrating the same thing good financial performance.
Speaker Change: And then we'll.
Speaker Change: We'll go from there, but we've adapted well to these market conditions, but I do think the visibility we get better and as David has talked a lot about his comments.
Speaker Change: Our pull through will improve I mean, we're at.
Speaker Change: You look at our financial results were in a trough market and still putting out good financial results and so that pull through.
Speaker Change: Efficiency through to our margins when that visibility comes into place in our plants are operating at a better utilization level in the U S is the day, we are looking forward to and we know what will come.
Speaker Change: Okay.
Speaker Change: Okay I appreciate the discussion I'll leave it there. Thank you.
Mike: Alright, Thanks, Mike.
Speaker Change: Thank you very much. Our next question comes from Steve <unk> of Sidoti Steve Your line is not like them.
Steve: Hey, Good morning, Paul morning, Dave I appreciate all the color on the call. So far this morning.
Speaker Change: Paul you want tightened Unfortunately have done through this trade war before not that long ago can you touch on maybe what you learned the last time around how you can apply at this time and how well your aftermarket maybe position, which may be more important over the next three or four quarters on the AG.
Steve: <unk>.
Steve: Yes, I mean, what what we are doing and what we're prepared to do.
Steve: Is meet the needs of our customers by being flexible with our production we have multiple locations, where we can produce products. We have a strong U S manufacturing base.
Steve: We have seen some customers in the U S start asking.
Steve: Can you source products in the produce products in the U S. Even at a higher price and so that risk mitigation.
Steve: When our customers start looking in that direction that plays into tightened strength and that's what we've seen in prior periods of dislocation, whether it's the tariff trade war or it's even COVID-19.
Steve: Dislocations going on in the World, that's where our production capabilities our tooling.
Steve: We have massive arsenals of tool available to meet that meet the needs of our customers.
Steve: That's when we do really well so dislocation can be our friend.
Steve: It's not the easiest thing to get through and that's where we rely on the experience of the tightened team. So moving our production being flexible with our production. We have built a good stable of third party suppliers. It's something we've been working on is tightened but also working on as we with our acquisition last year.
Steve: Those capabilities.
Steve: And what we bring to the table through third party suppliers with our distribution of our brands and our and really the our ability to meet the needs of the customers is attractive to third party suppliers. So again, we can move within our own production, we can move production within other channels.
Steve: So for US we've been through this before like you said and I think our team is one thing I keep hearing from our team.
Steve: As they're confident in times like this and they go out to our customers and they exude that confidence and so we do feel that these these times are good for us in the long run in the short run.
Steve: Does require some keeping your head down and just working your tail off to to get through it and again our experience does show as you highlighted in that question.
Speaker Change: Thanks, Paul and I also wanted to get a chance to touch on the.
Speaker Change: The expanded Goodyear licensing agreement that seems pretty substantial now that's going to cover some of the.
The former cost Carl Star products, I know those agreements don't happen overnight. So you've had some time on this can you talk about how important or useful it'll be to apply the Goodyear brand.
Speaker Change: Some of the former Carl Star products, and what that means towards.
Speaker Change: Realizing those synergies you had you had talked about a year ago. When you made that acquisition.
Speaker Change: Yes, Steve you're exactly right those things don't happen overnight. So it was pretty cool today to be able to talk about it.
Speaker Change: Been in the works for quite a while ever since we did the acquisition and so.
Speaker Change: Look we love and respect to cherish the Goodyear brand.
Speaker Change: It's been great for Us and I think we've been really good for them.
Speaker Change: And so you know.
Speaker Change: Almost immediately once we got the acquisitions on our sales team at Carl Star Wars was excited to potentially get their hands on the Goodyear name and what they could do with it and like you highlighted it took a while to get that negotiated and worked through with Goodyear and <unk>.
Speaker Change: Now that it's in place.
Speaker Change: Matt I think Theres a lot of good things we can do.
Speaker Change: Carl Star the brands they have with the Carl start named the <unk>.
Speaker Change: Brand is already very well respected in the marketplace, but what we can do now with Goodyear and our product development and our designs that we can bring and just having that brand behind it it just accelerates the path.
Speaker Change: When you have a brand name that stands out we're using it with <unk> you don't have to knock down the doors quite as hard to sort of open up for you. So if you combine that with the tightened strength and recognition that we have in the marketplace with our customers and you throw the Goodyear brand with it.
Speaker Change: It just makes it so much easier for our sales group when they're when they're going through that door. So yes, we're really excited and yes. It's been it's been a while working on it but great to get it released and look forward to what we can do with it.
Okay. Thanks, Paul Thanks, David.
Steve: Alright, Thanks, Steve.
Steve: Thank you very much as a reminder, if you would like to raise a question. Please press star followed by one on your telephone keypad now got familiar yourself on the questioning it'll be stuff for the Black Sea.
Steve: This raised the question will be stopped by one.
Speaker Change: Our next question comes from Derek Soderberg of Cantor Fitzgerald, Eric Your line is now open.
Speaker Change: Yeah, Hey, guys. Thanks for taking the questions. David wanted to start with you. So you guys mentioned minimal impact due to tariffs this quarter Bob.
Speaker Change: 10% of revenue having exposure.
Speaker Change: That's going to be the case in <unk>.
Speaker Change: We're going to have a full quarter of impact in <unk> on that 10% of revenue right. So first am I thinking about that right and then looking at EBITDA guidance to two Q flat quarter over quarter, roughly so I'm wondering if you could talk about some of the puts and takes going on an EBITDA for <unk>, specifically, what what might be making up for.
Speaker Change: Or if I'm correct greater dollar impact from that tariff.
Speaker Change: <unk> and QQ again, just looking for some of the puts and takes.
Speaker Change: Yes.
Eric: Thanks, Eric Great question.
Eric: The second quarter is considered to be a very fairly stable quarter relatively speaking to Q1.
Eric: That's a good thing because in terms of demand, sometimes you see a little bit of a trade off in Q2.
Eric: And the mix not just dimension to the production in AG, but so overall.
Eric: We have a fairly good stable order deck, and we're able to produce.
Eric: Very similar and we also have the strength of the Brazil is continuing to happen. So one thing is really important that we put at the minimal impact call. It 10% of sales and that's an important thing to talk about because that's probably less than what people thought right. So we believe that it's something that can be managed.
Eric: And.
Eric: It's just a portion of our overall business.
Eric: Within the even the.
Eric: Carl store business, which is where it's at so.
Eric: We believe it's a it's a very manageable thing, but the most important aspect of the stability of Q2 is the fact that we have been strategically sourcing our materials.
Eric: And have a very minimal impact on the cost position relative to our.
Raw materials and shipping and all those types of things so.
Eric: We don't have any major dislocation.
Eric: And takes if you will relative to the cost of the materials that we produce so.
Eric: We feel like we're in a really good position to create that stability.
In Q2.
Speaker Change: That's helpful. And then Paul you mentioned a couple of times your position versus your peers.
Speaker Change: And your peers are offering employee buyouts is there a scenario here in the short term say over the next two quarters or tighten actually benefits from this environment.
Speaker Change: So if it would be through better pricing or market share gains.
Speaker Change: Just simply because of that position just wondering if there's any potential upside here in the short term.
Speaker Change: Yeah, Derik I do think there's potential I mean, the inquiries are changing.
Speaker Change: And so customers again I'll use the U S. As an example.
Speaker Change: Customers in the U S on some smaller products, where theyre used to foreign source supply chains.
Speaker Change: But asking the question what are your capabilities in the U S. And we are the only company in the U S that has those capabilities.
Speaker Change: And some of these smaller sized higher ranges and wheel ranges and so.
Speaker Change: If they're looking to mitigate risk then theyre going to turn to tighten and that's we're not always the lowest priced we never have been.
Speaker Change: But that's OK and in times of dislocation and risk mitigation and the fact that we have premier products and great relationships with customers and end users. That's when this really shines through so yes, we are seeing a different type of inquiries Derek to answer your question.
Speaker Change: There are there is a period of time, where a lot of businesses not just specific to <unk>.
Speaker Change: Ours that people are sort of sitting still asking questions sitting still and getting prepared for the next round of actions that they will take in.
Speaker Change: I think that favors us in the long run those actions that they take because we are very well suited to mitigate their risk and meet their needs.
Speaker Change: Perfect. Thanks, guys.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you very much.
Speaker Change: Our next question comes from Tom <unk> of Zacks small cap research Tom Your line is now live.
Speaker Change: Good morning, guys.
Speaker Change: Just a little more color on the farmers' sentiment from your perspective, you see the new stories out there farmers are in crisis. They used the word crisis.
Speaker Change: Where would you use or how would you describe it.
Speaker Change: Your outlook on farmer sentiment.
Speaker Change: Farmers are always in crisis, if you asked them.
Speaker Change: Yes, the farmers.
Speaker Change: As has.
Speaker Change: It has decreased and there's not always a direct correlation between farmer sentiment and equipment purchases. So what we really rely on in times. Like this is we just got to get out and talk to people and that's where being connected to our dealers to end users and our overall customer base gives us the knowledge that we really really.
Speaker Change: Hi on.
Speaker Change: Last week I had dinner with.
Speaker Change: Very large OEM equipment dealer.
Speaker Change: And I use that as a source of information we talk to.
Speaker Change: Large farmers and so I would not definitely would not use the state of crisis I think what what we're hearing as we all see in the commodity prices the commodity prices are fine they're not.
Speaker Change: They are not good they're not bad there is sort of fine, but what we're hearing is that.
Speaker Change: Look our government is going to have to stand behind our farmers and our food production.
Speaker Change: And so there seems like Theres a good floor to what farmer income is going to be and it's a again, it's at a respectable find level and so.
Speaker Change: I think the state of crisis is more.
Speaker Change: Hyperbola than it is reality.
Speaker Change: But that's okay, if they use that hyperbola to get to.
Speaker Change: To help improve farmer income and get the government's intention theres nothing wrong with that so I think in the end we're in a we're in a pretty good place with farmer income in.
Speaker Change: Just just watch it play out I think it'll be fine.
Speaker Change: Got it thanks.
Speaker Change: The increase in working capital.
Speaker Change: Increasingly accounts receivables is there anything else in there besides the large increase in sales.
Speaker Change: The change in terms of customers customers, not paying or anything like that.
Speaker Change: No no discernible change.
Speaker Change: Been a very fairly stable in that regard. So again it was a fairly quick ramp up in sales and so you'll start to see the natural progression.
Speaker Change: Q2, and beyond more stable so.
Speaker Change: Got it.
Speaker Change: Last question, just the industry a big picture question what other.
Speaker Change: Verticals or industries are out there for you guys to explore.
Speaker Change: You're talking about military I mean could you guys make aircrafts wheels and tires, you know what else is out there.
Speaker Change: Yes military as it goes for us because it's something that.
Speaker Change: It's not a big part of our overall revenue right now and so is Europe makes more investments into military.
Speaker Change: Our undercarriage business is well positioned to benefit from that we've talked about the U S. Exploring military options as they look to have a U S supply chain instead of.
Speaker Change: Foreign based supply chain for the military.
Speaker Change: Aircrafts we.
Speaker Change: We've done our we really have seen one of our plants produce that is an offtake when we acquired it from Goodyear and I don't think Thats an area, we would get into because it's highly regulated. So I think were tightened goes as more of the off road nonregulated tie.
Speaker Change: Types of businesses, so anything that requires doty regulation or those type of requirements.
Just quite isn't suited for us what we like what we're good at is high complexity. So smaller production runs lots of skus different tough applications that the products go into.
And so I would say we are verticals would be more filling in where we already are and that's why product development is such a big part of what we do.
Speaker Change: Because we can keep filling in those cracks in the verticals that we're already in.
Speaker Change: Along with again pursuing broader verticals like military but yes.
Speaker Change: Yes.
Speaker Change: I would think that our product available pipeline is pretty good as it sits just to the verticals. We're currently in.
Speaker Change: Because they are complicated that a lot of places where keep filling it.
Speaker Change: Got it. Thanks, that's all I have for today. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you very much. We currently have no further questions. So I'd like to hand back to Mr rights any either a months.
Speaker Change: Look I appreciate everybody's time.
Speaker Change: <unk> attention today with our Q1 results and look forward to talking to you again in a few months with the second quarter have good.
Speaker Change: Good day, thank you.
Speaker Change: As we conclude today's call we'd like to thank everyone for joining.
Speaker Change: Disconnect your lines.
Okay.
Speaker Change: [music].
Speaker Change: Yeah.