Titan International, Inc. (NYSE:TWI) Q4 2024 Earnings Call Transcript

Titan International, Inc. (NYSE:TWI) Q4 2024 Earnings Call Transcript February 27, 2025

Operator: Ladies and gentlemen, the Titan International, Inc. Fourth Quarter 2024 Earnings Call and Webcast will begin shortly with your host, Alan Snyder. We appreciate your patience as we prepare your session today. During the call, we encourage participants to raise any questions they may have. You can raise a question by pressing star followed by one on your telephone keypad. And to remove yourself from the line of questioning, press star followed by two. We will begin shortly. Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. Fourth Quarter 2024 Earnings Conference Call. At this time, all participants have been placed on listen-only mode, and we will open the floor for your questions and comments after the presentation.

If you need assistance during the call, please press star followed by zero on your telephone keypad. It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Investor Relations for Titan. The floor is yours.

Alan Snyder: Thank you, and good morning. I would like to welcome everyone to Titan’s Fourth Quarter 2024 earnings call. On the call with me today are Paul Reitz, Titan’s President and CEO, and David Martin, Titan’s 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-K, which is 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 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 company’s Form 8-Ks filed earlier as well as our latest Form 10-K and Forms 10-Q, all of which have been filed with the SEC. In addition, today’s remarks may refer to non-GAAP financial measures which are intended to supplement but not be a substitute for the most directly comparable GAAP measures. The earnings release, which accompanies today’s call, contains financial and other information to be discussed today as well as a reconciliation of the non-GAAP measures to the most comparable GAAP measures.

The Q4 earnings release is available on the company’s website. A replay of this presentation, a copy of today’s transcript, and the company’s latest quarterly investor presentation will all be available soon after the call on Titan’s website. I would now like to turn the call over to Paul.

Paul Reitz: Thanks, Alan, and good morning, everyone. 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. On that third quarter call, we expressed that the bottom of the ag cycle was drawing closer and that we were seeing the early signs of a cyclical recovery. As we sit here today, while we are not completely there yet, we are seeing reasons to be more optimistic. 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 US agriculture. It goes without saying the positive sentiment among farmers regarding their future prospects could ultimately lead to their willingness to invest in farm assets.

That sentiment is typically a function of a range of factors such as crop prices, yield forecasts, and 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 farm income. Outside the US, we are encouraged by increasing activity in Brazil, an important market for Titan. This year is starting off well there, and demand is expected to be up nicely in both our OE and aftermarket channels. Our team in Brazil is highly experienced and has done an excellent job, not just in driving market share, but in how they manage the cost and operational side of their business during these highly volatile times for their currency.

History has been that Brazil is a good leading indicator for the broader global ag market. 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. That said, an end to the Ukraine situation could be a positive, and we are certainly hoping for that. Summing things up by geography, as we look around the world, we have all seen the production forecasts from the major ag OEMs that have generally indicated Brazil to be their strongest improving region, while Europe and North America have not crossed that line yet to return to growth. But with expectations for an improved second half of the year, especially as they move into 2026. Recently, our conversations with customers have been taking more of a positive nature.

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. Maintaining our productive capacity and expertise was an emphasis for Titan despite the reduction in demand we have 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. As we see that demand come back, we will also be focused on expanding customer relationships via our one-stop-shop strategy. We have talked a lot about that, and it really took hold for us following last year’s Carl Star acquisition. A big part of that is our aftermarket business. We have seen that be a steady performer through this down cycle.

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. We expect it to continue to be a steadier source of business for us in the future as well. We also continue to emphasize innovation in new products while also working to introduce existing products such as LSWs to segments where we have not marketed them as aggressively in the past, such as mid and low horsepower tractors. My team is also focusing on the cross-selling of Titan and Carlstar’s products into new segments and geographies. Looking around, there are really good opportunities for us to continue to drive sales via these initiatives. Turning over to the consumer segment, much like Ag, our aftermarket business has held up better than the OEMs. Our team has done a good job integrating CarlStar and working to capture a range of synergies as their product lineup complements our legacy Titan products.

This enables us to bring our customers a much wider range of products to suit their needs. Our off-road consumer products go on a wide range of equipment that owners continue to use, whether it be landscaping, riding lawn mowers, a recreational ATV user, or on-road trailers used to transport equipment, all of which underpin a steadier demand for replacement tires in this segment. On the OEM side, leading consumer product manufacturers have noted their plans continue under producing demand in the first half of this year. OEMs are mindful of the health of their dealers and are working to make sure they are not saddled with excess inventory. Looking at ourselves, we have the premier product portfolio across 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. For us, a healthy OEM dealer ecosystem is also generally supportive of our aftermarket business. So we really view this continuing action at the OEMs to manage inventory as a long-term positive for our business. Market conditions remain fairly stable, and mining activity continues to be solid. Precious metal prices are strong and have risen in response to geopolitical developments. As those prices for minerals rise, owners and operators of mining assets are incentivized to run their equipment as much as possible, generating solid demand for aftermarket undercarriage parts. We are in a good position in this segment with our innovations and product development in undercarriage along with our strong replacement service capabilities, which make us poised for growth in this segment.

Tariffs are on everyone’s mind these days, both in business and in our personal lives. You cannot avoid hearing about them in the endless media barrage on that topic. At this point, the current tariffs are not a significant issue for us to navigate. It seems the early reactions to tariffs have created a renewed investment interest in US manufacturing. I think we are all seeing that daily in the reports coming about investment into the US. During complex and volatile times, when you look at it from Titan’s perspective, we have historically seen that environment as a benefit to Titan because our customers can count on us to meet their evolving needs. We 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 Titan being able to demonstrate to our customers our full capabilities of mitigating the risk of their supply chain. So wrapping things up here, overall, I just want to talk about 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 OneTitan team, and I want to express my appreciation to them for their efforts throughout 2024. Overall, we are encouraged about what lies ahead for Titan with good reasons to feel that way. Our investments in our one-stop-shop 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.

New product innovation continues to be a cornerstone of our value proposition and cements our position as the market leader in our space. With that, I will hand it over to David.

David Martin: Thank you, Paul, and good morning, and thanks to everyone listening in. Welcome to our first call of 2025. 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 and free cash flow was just a little under breakeven. Gross margin in the quarter was almost 11%. With volumes hitting cyclical lows, our ability to sustain that level of gross margin is something we are pleased with. And it also bodes well for the business as we move into a recovery phase. To give some perspective, during the most recent cyclical low in 2019, full-year gross margins were about 9% compared with adjusted gross margins for this year of 14.6%.

Production during the 2024 low was nearly 20% of what we saw in 2019. 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. Looking at margins by segment in the fourth quarter, ag gross margins were 9%, EMC margins were around 6%, and consumer gross margins were 18%. Consumer was our most profitable segment as higher margin aftermarket business accounted for more than 60% of sales in the segment. SG&A expense for the fourth quarter was $51 million or 13% of sales compared to $32 million in the prior year or 8%. Just to reiterate our commentary from prior quarters in 2024, we talked about this, the increase in SG&A can entirely be attributed to the CarlStar acquisition, particularly the distribution centers that are an integral part of the operating model, which allows us to fulfill customer orders in a very timely manner.

R&D expenses were $4.4 million in the fourth quarter compared to $3.1 million a year ago. As we note throughout our commentary, innovation and product development is critically important for Titan and an area that we will continue to invest in. Our operating loss in the fourth quarter was $17 million, reflecting the combination of reduced sales and operational expenses I just noted. Operating cash flow was about $9 million 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 is expected. With the sequential improvement in sales, which will require a corresponding increase in accounts receivable, we fully expect that cash flow will turn positive as our year progresses.

Net debt at quarter-end was $369 million or 2.9 times trailing twelve-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 CarlStar acquisition and significant share repurchases, which we are confident will serve our shareholders well over the long term. From a capital allocation standpoint, our primary focus in 2025 will be the pay down of debt and continued smart investments in the business. But we will spend less on CapEx in 2025. In Q4, Titan 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 an effective rate of 143%.

Now this elevated tax rate is primarily due to the loss incurred domestically in 2024 due to the very low volume. This was further exacerbated by the lack of ability to fully deduct interest expense as dictated by US tax law, as well as the impact from foreign income taxed at higher tax jurisdictions. Paul talked about tariffs earlier, and our firm belief is that it can be good for Titan 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 that we settle them and will mitigate their supply chain risk. Any products that are imported or exported for that matter, we will manage our cost and our pricing accordingly, and we do not anticipate a major impact.

Our acquisition of CarlStar brought us an exceptional plant in China that currently supplies products in the US, mainly our consumer segment. While we are clearly in a fluid situation, we have analyzed the current tariffs and determined the impact interactions in response to be very fairly minimal. That being said, the advantage Titan has is that as tariffs ratchet up, we have plants in the US that can absorb some of the production currently running at that China plant. 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. Moving on to our financial guidance for Q1. As Paul noted, we are pleased with the sequential sales improvement that we saw and have seen so far in Q1.

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 enable margin expansion. So we are certainly looking forward to our earnings and cash flow potential later in the year and into 2026. Bringing focus back to the near term, our guidance range for the first quarter is $450 million to $500 million with adjusted EBITDA of $25 million. Again, that is a sequential improvement versus Q4. Reiterating our prior comments on cash flow, we are investing in working capital in the first quarter due to the sequential sales increase. As the year progresses, we expect to see cash flow turn positive allowing us to reduce debt.

The bottom line is our financial condition remains solid, and we are putting ourselves in a position to accelerate our future performance every day. Thank you for your time this morning, and we would like to now turn the call back over to Carly for the Q&A session.

Q&A Session

Operator: Thank you very much. We would like to begin the question and answer session. To ask a question, you may press star followed by one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, press star followed by two. Our first question comes from Mike Schlinsky of DA Davidson. Your line is now open, Mike.

Mike Schlinsky: Yes. Hello. Good morning. Thank you for taking my questions. I guess I wanted to get a little bit better feel for, David, so your company just made on cash flow. If some of the OEMs are looking at a better 2026, do you feel like you may have to take on some more working capital here in the fourth quarter of 2025 to prepare for us?

David Martin: Yeah. We will certainly take a look at that. You know, we generally do that anyway, as we always have a sequential increase from Q4 to Q1. As we progress through the second half of the year, I think we will 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 growth that we could potentially come.

Mike Schlinsky: Got it. Thanks for that. Paul, you have provided quite a bit of detail on the Ag Outlook. Give us a little bit more final detail on your feeling about earthmoving construction as well as consumer? Perhaps in the very near term, you know, in the first quarter, might one segment be a bigger driver than the others? And then kind of broader from a cycle perspective where those two stand.

Paul Reitz: Yeah. You know, I did talk a lot about Ag, and now that we are very diversified across all the segments, earthmoving construction is an area where I would say we see the market as being stable but driven by factors that I think are underlying a level of demand or a floor, I would say. The need for investment, clearly, there are residential needs. So it would be difficult for governments to turn their back on the needs of society, and so I think you look at that as the floor. But clearly in this environment, you are having some inventory corrections that are taking place at the OEMs. And so you are balancing a positive floor with the negatives of the inventory correction. I think where we see good demand for us in our earthmoving construction segment is some of our capabilities that are more unique and specific to Titan.

In our undercarriage division, we have capabilities that I want to say nobody else has, but at least nobody has it to our extent, and that is the ability to produce custom aftermarket mining parts through, again, some unique capabilities to Titan. And so we look at not just the OEMs to drive business, but also just overall activity, and that is why some of my comments reference the mining activity that is taking place as prices there have remained elevated and activity remains fairly strong with all the demand needed for rare earth minerals, all the things that go into daily society in life. And so, again, I think we have some capabilities at Titan that are unique. So a little bit different than maybe some of the commentary you will hear just from the OEMs in that segment.

Again, our ability to service the aftermarket with some customized parts there. When you look at consumer, again, everything is by these days. You look at aftermarket versus OEM from two different lenses. We had a really good year in 2024 with aftermarket. Really impressed with how Carl Star and that team has gotten integrated into Titan and just really kept that momentum going in so the aftermarket part of our business in consumer has performed well. We see opportunities around the corner with expanding our presence both with existing customers and then new products and geographies that we can get into. And so you look at the aftermarket and consumer from that lens of really performing well and being a more consistent part of our business as we have talked about in our comments.

And then OEMs, it is dealing with them. Inventory just like we have talked about with Ag and EMC. We are seeing the OEMs in the consumer segment trying to balance the sellout with their inventory and, you know, the OEMs are going to adjust accordingly, and I think that is a positive in the long run. But in the short run, you are going to have to deal with some cyclical factors impacting OEM demand in consumer very similar to what we talked about with EMC and Ag. Awesome. I am there. I think I said enough. If you have any follow-up questions, let me know.

Mike Schlinsky: Yeah. Absolutely. That definitely answered my question. Maybe just trying to add real quick. I appreciate the fact that you sound like you are a lot more positive on the back half of the year. At least for orders. And I kind of wanted to get a few things squared up I guess, Paul, are your comments that Ag might get 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 ship out in 2026. I am kind of trying to figure out whether the first quarter could be a low point of the year for your business. And we should be thinking about making things higher in the back half, but want to get a feel for the cadence of the actual turnaround in both your business as well as the broader ag. You know, the actual farmer buying the equipment.

Paul Reitz: A little bit, but Mike. Did you were you on teams, whether it be sports, you know, band, any type of competitive team as a kid?

Mike Schlinsky: Absolutely. All the above.

Paul Reitz: Alright. Perfect. Alright. So you know, hope is something that every team must have, whether it is in a 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 you are a leader of the business, you have to make sure it is present. And you can force hope into the room because you have to have it. It is mandatory. You lose hope, you lose everything. Optimism is something that comes from the team to the captain and the leader. You cannot necessarily create it. It is either there or it is not. What I have seen over the last few months is optimism. It is coming from the customers they are talking to. It is coming from what they are dealing with in their daily situation.

The stuff they are reading, there has been a definite turn in the last ninety days. So I could tell you the things I have seen with my own eyes, but I think what is more important is what I have seen from the team. And maybe it is because we have gone through a deep cyclical downturn over the last eighteen months, and it is tough and we are starting to see the bright lights out in front of us, but there is optimism in the room and it is coming deep within the team. And I think that is where I feel that positive change is taking place. Some of that is, you know, going back to your question, some of that is going to be in the short term with orders that we are picking up now. But 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 what they will 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 you know, I think it is that optimism that we are seeing with opportunities for later this year into next year that, you know, again, it is a real sense of optimism that is present in the room and it is not being created by leadership. It is coming from them up towards the entire team.

Mike Schlinsky: Okay. I appreciate that discussion. I will pass it along. Thank you.

Paul Reitz: Alright. Thanks, Mike.

Operator: Thank you very much. Our next question comes from Steve Ferazani of Sidoti. Your line is now open, Steve.

Steve Ferazani: Morning, Paul. Dave. Appreciate all the color on the call this morning. I do want to follow-up on that last commentary, Paul, because it is, you know, I mean, you are hearing directly from customers. It is more challenging on our side. Right? Because we listened to the Q4 calls from a lot of your large ag customers. A lot of it was still focused on managing inventories, managing prices. The question is how fast that can pivot, and you ran through all the data points that support a recovery, and you could see it in the stock prices. But it is hard to connect those two. But are you so you are actually hearing now. Your team is hearing from customers that maybe there is a pickup in the second half. Because that did not really translate on the conference calls I am sure you listen to as well.

Paul Reitz: Right. Right. And part of the disconnect, Steve, is they are looking at inventory in the channels, and we are looking at inventory from the wheel and tire perspective. We have had disconnect throughout the pandemic and post-pandemic between what we view as inventory and what they discuss as inventory. And we have seen wheels and tires get accelerated into their inventories ahead of their production levels and ahead of their sellout. And what we see typically in our business is that our trends are off cycle with theirs. So I am not going to say it is just a pandemic trend, but it definitely got accelerated during the pandemic. But 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, they are customized to them, their piece of equipment.

A wheel is a highly engineered product that has to fit on their hub and axle. Based upon not just each manufacturer, but also within each line that they have of a tractor, a sprayer, a combine, it is not just a different paint color. So we need to be differently than maybe a chip, a belt, a hose that can be transferred for one product to the next. And so we do follow different trends, and 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 of 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.

And I think we go back up before they do. So fully understand your question and, you know, following their commentary very closely, but there are some different trends between our inventory and their inventory.

David Martin: If I could just add one thing. That is actually the point on it. You know, if you, Steve, if you look at last year, just 2024, first half to second half, particularly in the ag sector. We are down 40%. In the first half to second half. That is a pretty significant downturn. Obviously, we had to absorb that, and that is everything to do with destocking. Right? So that is a perspective that, you know, you have to take into 2025. Right? Is that the expectations are that, you know, it is not going to be we are going to start to see recovery before maybe the sellout into the industry will be. And Titan sees it faster.

Steve Ferazani: And speaking to that, Paul and David, if the pivot is fast. And, again, you ran through all the data that says it can be potentially how well positioned are you to pick up? I know the last recovery, we were still in COVID labor was problematic 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?

Paul Reitz: Well, we will find a way to be prepared. And that is the message to the team. You know, David and I were in Freeport last week and, again, the optimism coming from them towards David and I was what I already talked about earlier. And they also know they have to be prepared. We were in Quincy the week before that, same discussion. They have had some drop in orders already come. They have had to adjust and they need to be prepared. And so it is a message we are delivering now, but it is also a message that we delivered throughout last year to the team as we reached a point where our headcount is down significantly. That is always difficult to do. But we reached a point where we said, let’s hold off on the headcount reductions, because we are going to be cutting into experienced labor.

What we do does require skill. It requires experience. And we reached a point where we said we do not want to lose these people. They are too important to us in the present and also definitely for the future. And we are seeing that future here now. If not towards the back half of the year as we have been talking about, and our team has to be prepared and but it is not something again that we are just talking about today. We have been talking about throughout the pandemic. But now they are telling us they need to be prepared because they are seeing that sense of optimism that I have been talking about as well. So it is good. Like I said, we were in Freeport last week. We did not have to come in there and tell them to be prepared. They are telling us how they are going to get prepared.

And we have to stay on it. It is never easy, but it is a good problem to have.

Steve Ferazani: Absolutely. Couple of very quick modeling questions. David, sense of what DNA will look like next year, it has obviously moved around a bit with the acquisition this year. And also, what we saw from consumer, this was your first year with Carl Star. Is this what seasonality looks like?

David Martin: Yeah. So to your DNA question, I do not have that at the top of my head. It is around $60 million a quarter, I think, or for the year. I am sorry. Yeah. $60 million is roughly. In Q4, we had a little bit of adjustment to we made our final purchase price adjustments, you know, that were required after the acquisition. And so that is all been finalized, and that is about where we are going to be. To your question about seasonality in Carl Star or the consumer division, but, you know, the same similar to the situation with all the rest of the segments, if you will, you know, Q4 being a seasonal low. It was a little bit more exacerbated that in terms of, you know, that again, destocking that took place with OEMs. But I would think that, you know, as we head towards 2025, I think that is about right. In terms of I think the seasonality is not as dramatic normally as front-end loaded. CNA. First off, typically, in a normal year, it will be front-end loaded.

Steve Ferazani: Yeah.

David Martin: But Q4 is definitely a seasonal low because, you know, in mowing season and things like that. So I think it is pretty similar. Not enough to make a meaningful change in your modeling.

Steve Ferazani: Okay.

David Martin: Thanks, Paul. Thanks, David.

Paul Reitz: Thank you very much.

Operator: Our next question comes from Tom Kerr of Zacks Small Capital Research. Tom, your line is now open.

Tom Kerr: Good morning, guys. Quick follow-up on the tariff issue. I think half your manufacturing is overseas roughly. Can that change relatively quickly based on the circumstances of a tariff? And then related to that, does it follow what the OEMs do? If they are doing a lot of onshoring, do you have to follow that? I hope that made sense.

Paul Reitz: Yeah. No. It does. Yes. We are prepared and capable of moving production to different locations. You know, like you just stated, we do have half our manufacturing position around the world. And good locations for our geographical footprint to serve our customers. As our customers’ new production, I would say the preference would then lean towards being closer to where they are producing the equipment. That helps mitigate risk and has a longer tail, obviously, on the logistical side. Clearly, that could be their decision on what they prefer, but I would imagine as production shifts, our production would change locations as well. But, you know, 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 do change.

Tom Kerr: Alright. Thanks. A couple more quick ones. On the Brazil strength, you know, can you provide more color on what the strength is there? Is it general economic, is it government policy? And then related to that, why are they the bellwether for the rest of the ag world?

Paul Reitz: Well, I mean, Brazil is ag’s a big part of their economy. And they clearly are a less diversified economy than what we are used to here in the US. But ag is a big part of the economy, heavily supported when needed by government incentives. I mean, what we are seeing there is just a general tone of optimism towards both aftermarket and OEs that they are turning the corner. They have had some administrative that are supportive of Ag. Also, it has been a long downturn when you look at it in Brazil. It has kind of run its cycle, and I think part of it is you are seeing the cyclical upturn. Compared to, you know, what we have seen in Europe as I mentioned. But no. But I think Brazil they are feeling they are turning the corner.

Good support from the government, good demand coming in. And their grains have been in strong demand as well. I mean, they have been exporting a lot of beans around the world, and so there is a tremendous amount of demand for their crops. Obviously, it starts there. But, you know, their demand has been strong throughout the kind of the 2023, 2024 cycle. As their exports have increased and we have seen some of the exports from the US decrease. And so the tone we are getting over the last call it kind of sixty, ninety days from Brazil is an uptick in the sentiment as we go into 2025.

Tom Kerr: Great. Thanks for that. Last one, are you able to talk about military opportunities in more detail in light of sort of the budget federal budget cuts we are seeing, you know, defense gone, defense industry may be downsizing and so on. Is that do you guys have orders for that military opportunity or contracts or you know, could that be affected by budget cuts, I guess?

Paul Reitz: Well, the way I have been characterizing our military opportunities is when you have very little, the opportunities are bigger in contrast to having not much. And you know, the way our military has been making decisions in recent years, has not really been supportive of US manufacturing. And so what we have been doing with the administration change and we started this kind of back in the middle of last year, is really pulling in some expertise from the outside. Who could help guide us on how to get back into the military. And that is what we have been working on. So we are not impacted like a true military supplier by budget cuts. We are looking at it as with the administration change, and, really, their budget cuts are favorable from our standpoint.

Maybe some of the bad decisions they have been making in the past can put us on the radar as a good decision to make in the future. So we just look at it as an opportunity to go from close to nothing to something positive, and we are working hard to do that. And I think both budget cuts and administrative changes are the reason why we are being more aggressive in pursuing these opportunities.

Tom Kerr: Great. That is all I have for today. Thank you.

Paul Reitz: Thank you.

Operator: Thank you very much. Our next question comes from Kirk Ludtke of Imperial Capital. Kirk, your line is now open.

Kirk Ludtke: Paul. David. Alan, thank you. Thank you for the call. Good morning. A follow-up on the new business, looks like maybe you are looking to move into some lower price points. I think you mentioned in the press release sourcing product from third parties. Can you talk a little bit about that initiative?

Paul Reitz: The initiative is really taking care of our customers. And post the Carl Star acquisition, our capabilities to service our customers have only increased. And we talk about the one-stop-shop approach, and there are a lot of things that go into that. And that includes third-party sourcing. So what our team has really been focused on over the last year, it is not something that is 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 is outside manufacturing facilities. 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, the technical expertise and service that we can bring to the equation, that is where we stand out in our industry.

And so we look for third-party partners that can produce products that we can layer in what I just mentioned. It becomes a win-win for all parties involved, and we see that as a bigger part of our business. And you know, it was part of Titan’s legacy business, but post Carl Star, with some of the expertise that we brought on and the resources from that acquisition, we see this as a growing part of our business, and it is really putting all that together and taking care of our customers in the best possible way.

Kirk Ludtke: Got it. Thank you. That is helpful. And a follow-up on the tariff. You mentioned that you thought it would be a positive. And you produce, you know, I would guess most of what you sell in the US in the US. Is that a fair characterization?

Paul Reitz: Most is fair. Yeah.

Kirk Ludtke: Okay. I mean, what yeah. From the tailor stamp yeah. Go ahead.

Paul Reitz: Go ahead. Finish your question.

Kirk Ludtke: No. I am just I am trying to get a sense for if tariffs were imposed on steel products and or tires, incremental tariffs on steel products and or tires, how much of the market in the US market comes from offshore and, you know, generally, are those tires and steel products or steel wheels coming from China, or where are they coming from? So we can just we can react to any headlines we see. We understand what that means for you.

Paul Reitz: Yeah. I mean, it and it does vary by product segment. So there is not a blanket answer, but I will tell you kind of our perspective. In the short term, what we have done is we have analyzed the tariffs. You know, just as you are doing, we have analyzed them specifically to our business and we do that in a heavy analytical way, you know, looking at the dollars and cents and the impact. And so the comments we have made when we say there is minimal impact are based upon the analysis of where we are today. So again, that is very analytical when we make that comment about minimal impact. When we talk about the longer term, that is when we are referencing our ability to service our customers, and both David and I mentioned, mitigate the risk of their supply chains.

With that strong geographical footprint, and our ability to manufacture, source products from all around the world, 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, Titan is good at solving the needs of the customers. And so that is where we look at it long term. You know, short term, you mentioned steel. My opinion is if you are just tariffing raw steel, you are missing the bigger picture of other forms of steel that come into the marketplace, you know, obviously finished goods is what I am referencing, or even whip for that matter. We see less of that directly competing in some of our, you know, large wheels are made in the US. They are not in, you know, large ag wheels are not imported from overseas as much.

So, you know, again, it kind of depends by the segment with answering that. But, you know, I look at the tariffs as I want a country that makes stuff versus consumes stuff. For maybe not my perspective all the time, but looking at it from my kid’s vantage point. And so I think what we are seeing with tariffs is putting driving more of an emphasis, you know, more here in the long run, than just looking around and consuming everything we possibly can and relying on just the strong dollar to drive that consumption. And so I think it is a positive for the long run, for our kids that we can make stuff and it is good because our plants are located. We have a great manufacturing footprint in the US. I think that is good for us in the long run, but in the short term, we view it as we have to be nimble, we have to be flexible, as David and I both mentioned, and in the short run, we do not see there being an impact that we are seeing right now.

And I think, again, let us not overlook. One more comment. You know, people look at tariffs as they are either cut and dry. They are either right or wrong, and I do not think that is a correct way to look at it. It is somewhere it is going to depend. But this administration is committed to growth. You know, the administration is not doing tariffs to cause harm to growth. So you have to have trust and faith in the administration.

Kirk Ludtke: So

Paul Reitz: not destroy something. And so let us not get caught up in the micro every single day. I think we have to have some faith in the administration that they are going to they are committed to growth. That is what they stated. So, again, a long way in answer to your question, you know, something that we are thinking about just like everybody else is, but it is a combination of a number of different factors. But I will say in the short run, we have analyzed it very closely, and we see minimal impact. In the long run, we think we can service our customers in a very healthy way as tariffs come and go.

Kirk Ludtke: That is fantastic. I appreciate it. That is all for me. Thank you.

Paul Reitz: You bet. Thanks.

Operator: 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. And to remove yourself from the line of questioning, press star followed by two. Our next question comes from Brian Lantier of Baird. Brian, your line is now open.

Brian Lantier: Good morning, gentlemen. Just a couple of questions for me. Starting with you, Paul. Can you help us, excuse me, size up the aftermarket opportunity? Maybe help us give a sense of what aftermarket versus OE is today.

Paul Reitz: Yeah. I mean, when you look at over the long run, we have really significantly increased our aftermarket presence, something that we have done with the acquisition, but we have also done with a lot of internal initiatives through the years. And so, you know, probably ten years ago, we were around 25% aftermarket, and today, we are 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 are about 45% aftermarket.

Brian Lantier: What is the goal? To get that north of fifty over a cycle?

Paul Reitz: That is a good question. I do not know if we have set a target like that. Clearly, we look at it as an area for growth and continuing to pursue avenues to expand it, you know. And as I have mentioned with undercarriage, we have a good aftermarket opportunity in mining with undercarriage. That is unique to our company. We have done a lot in the tire space to grow our aftermarket. The one that does not have a lot of aftermarket is a wheel. You know, that business has been and likely will remain primarily OEM driven. But, you know, in the tire business, our innovations have helped drive aftermarket, our branding, our distribution, kind of all of the above. And so would I like to see us get above fifty? I think you just set a good target for our company. I may have to take what you said and make that our new target.

Brian Lantier: There you go. Switching gears, David, you know, the liquidity in the US looks a little tight right now. Just any thoughts on being able to move cash around and repatriate some to the US?

David Martin: Yeah. Certainly. Yeah. We have done some of that already in the first part of 2025. And the expectation is that we will always protect our liquidity in the US and move things as we need to. Not necessarily, you know, we always look at tax leakage. You know, do not 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, you know, we have already done some of that movement in Q1.

Brian Lantier: Got it. Okay. So that is not going to be a worry then, as if you need to build inventory out of a ramp.

David Martin: No.

Brian Lantier: Yeah. We can flex accordingly.

Brian Lantier: Got it. That helps. And I guess just final question as we think about the ramp and its impact on profitability, just at what has been the operating rates of your US facilities? And I guess where I am getting at, has there been sort of current period charges that were charged directly against the P&L versus capitalized inventory? That will go away or just be recapitalizing inventory as production volumes pick up?

David Martin: I would not say there was anything significant that would create volatility in the call it the P&L or anything like that in terms of capitalization, you know, and things like that. But, yeah, the utilization rates are obviously low. Particularly in Q4, they are at their lowest. And we watched that in terms of how, you know, the cost of products that we produce and then sell and then that on with the lag and everything. So it is but as I look at it analytically, I do not expect to see tremendous volatility.

Brian Lantier: Perfect. Appreciate all the color. Thank you so much.

Operator: Thank you very much. We currently have no further questions, so I would like to hand back to Paul Reitz for any closing remarks.

Paul Reitz: Yeah. Well, I want to thank everybody for their participation on our Q4 earnings call today. And obviously, we are going to roll in pretty quickly with Q1 results here soon. So look forward to talking to you then. Thank you.

Operator: As we conclude today’s call, we would like to thank everyone for joining. You may now disconnect your lines.