TITAN INTERNATIONAL INC

Presentation

Operator: Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Investor Relations from Titan. Mr. Snyder, the floor is yours.

Alan Snyder: Thank you and good morning. I'd like to welcome everyone to Titan's Second Quarter 2025 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 this morning along with our Form 10-Q, which was also filed with the Securities and Exchange Commission this morning.

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-K filed earlier as well as our latest Form 10-K and Forms 10-Q, all of which have been filed with the SEC.

In addition, today's remarks may refer to non-GAAP financial measures, which are intended to supplement, but not 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. The Q2 earnings release is available on the company's website. A replay of this presentation, a

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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. Overall, our Titan team had a solid quarter and we're pleased with our Q2 results that were within our guidance ranges for both revenue and adjusted EBITDA while also driving positive free cash flow for the quarter. Our Titan team continues to execute well. We're taking operational, commercial and administrative actions as needed in response to the extended market softness we are continuing to experience. At a high level, conditions for the OEMs and our end markets remain similar to last quarter as buyers of equipment continue to take a wait-and-see approach. Based on our conversations with dealers, farmers and OEMs; it seems clear that this cautious mindset is primarily a function of waiting for interest rates to come down coupled with a desire for more clarity on tariffs and trade policy.

We have continued to experience some fairly large drop in orders similar to what I mentioned last quarter as OEMs need to adjust rapidly when they see lower inventory levels get out of sync with pull-through retail demand. Looking ahead, the macro environment appears to be similar to what we've seen and so for the coming period, our Q3 guidance indicates exactly that. Digging into the trade and tariff topics a bit more. We have seen the tariffs have an impact on our consumer segment this quarter as many aftermarket customers are choosing to wait for some resolution on tariffs to the extent possible before restocking the shelves.

The positive is that we have seen some consumer customers in July place good-sized orders to get inventory back in line with sales. Recall, our commentary has been that trade policy applied somewhat consistently around the globe would benefit Titan in the long term and we still believe that. The bottom line remains, it is important that tariffs and trade policy result in a more level playing field in the end. The cases we have won with the International Trade Commission over the past couple decades illustrate we have not been competing in a level playing field regarding off-road tires.

Again, I want to reiterate that our U.S.-based production amidst a strong global footprint has us well positioned to benefit as tariffs are levied on imports. A number of industries in the U.S. with steel and tires being a couple of prominent examples have had to compete with foreign producers that take advantage of cheap labor and significant government subsidies for many years. And on the whole, we are glad to see these efforts to end unfair competition. Our position is and our customers say it as well that Titan has an exceptional competitive position in the markets we serve and that is further solidified when irrational import pricing is removed from the equation.

Central to that is our one-stop shop strategy. Our culture of innovation and customer service driven by our large product portfolio and production capabilities puts us in a good position. We pride ourselves on our ability to deliver products to our customers quickly, whether it be North America, Latin America or Europe. The markets we serve demand maximum uptime from their equipment and our ability to deliver replacement tires and undercarriage parts quickly helps make us a key partner for these customers.

I also want to briefly touch on the recent legislation that was passed as we think it will be a long-term positive for farmers on the whole. With the increased depreciation rate as the most important element

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that's getting a lot of the attention, the ability to depreciate 100% of the investment in new equipment such as tractors in year 1 is obviously beneficial and should improve farmers' balance sheets over time. So bringing these general comments together, I want to stress that we are by no means sitting back waiting for our markets to turn. We continue to be proactive on a variety of fronts to drive growth wherever we can and continue to invest in product development and constructive partnerships.

Last quarter we highlighted our expanded licensing agreement with Goodyear. We are busy working to maximize this opportunity with the Goodyear brand, which we've been doing successfully for over 20 years, and we think it will absolutely help drive growth over time, the new segments of this partnership that we added with the new agreement. I'm also excited to announce that we signed an initial minority investment in a strategic partnership with Brazilian wheel manufacturer, Roderos. We have been actively looking for an opportunity to get into the Brazilian wheel market for a number of years and this is a great partnership to do so.

Over the years we have been talking with OEMs about this and they have expressed enthusiasm about bringing wheels and tires and assemblies into that market just like we have done successfully here in North America. Roderos is the second largest manufacturer of agriculture wheels in Brazil and we look forward to working with them on the development of integrated solutions tailored to the Brazilian and South American markets. Brazil has become an increasingly important market for Titan as our AG economy has grown and we think this investment is an excellent use of some of our local cash to further extend our leadership in that market. We expect this transaction to close in the third quarter, which is subject to some customary regulatory approval.

Turning more specifically to the AG segment. Farmers are guardedly optimistic about their businesses. I know I'm repeating myself in saying that the feedback we get from them centers around interest rates, seems to be a fairly universal opinion that they need to come down with farmers and dealers citing financing costs as one of the main impediments to a pickup in large equipment purchasing. That hesitancy is elongating OEMs' efforts to further destock their finished good inventories, but we are starting to see some pockets where distributors have let inventory get too low. As we did in Q1, we've seen some good large-size drop in orders this quarter and we think that sort of buy-as-you need ordering behavior will persist until rates come down.

At Titan, our priority is to manage costs effectively while staying close to our customers and being prepared to ramp up to meet demand when needed. Reiterating a point I made last quarter: when the cycle turns, it typically turns fast and our team and the breadth of our production capabilities are best suited to meet our customer needs in those moments.

Shifting away into our non-U.S. markets, there are cross currents which are ultimately resulting in flattish demand in Europe while Brazil has generally fared the best of our operating regions. As a reminder, we have largely localized manufacturing in Brazil and Europe so our sales in those regions will continue to be a function of local economic activity. Our consumer segment was most directly impacted by tariffs as we mentioned earlier. Thus far, U.S. consumer-related economic data has not really shown any significant deterioration, but it's also clear that people are being cautious when it comes to discretionary equipment purchases.

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As with AG, we expect interest rate cuts will help spur demand in our consumer segment due to the obvious reduced cost of financing, whether it be at the dealer or end customer level. To the extent that settled trade policy will make various market sectors more stable in their staffing and hire plans, that would also be a positive for our consumer segment as outdoor enthusiasts might feel more secure in being able to afford a discretionary purchase.

Moving over to our EMC segment. There has been little change from Q1. We continue to view European infrastructure investment as the primary driver for activity. That investment is a function of many inputs, including trade policy and continued military conflict in the region. While those items remain unsettled, there really was no material change in our EMC segment activity. That being said, equipment continues to be used and wear out so the demand for aftermarket parts and the time will come when owners have no choice but to replace that equipment.

So let me wrap things up here. We are really doing quite well and holding our own despite some significant macro challenges thus far in 2025. We are focused on our customers and our execution as success on both of those fronts is the best approach to delivering success not only this year, but beyond. We are well positioned to do so when the end markets start moving upwards, which they most certainly will.

With that, I'll hand it over to David.

David Martin: Thanks, Paul. Good morning to everyone and thanks for listening in today. As Paul noted, our results in the second quarter were in line with our expectations as revenues were $461 million with adjusted EBITDA of $30 million. We were also able to drive positive cash flow in the quarter of $4 million. It's important to restate the fact that we continue to navigate this cyclical trough with agility and we remain in a strong position as a company. On a sequential basis, our gross margins improved 100 basis points from 14% in the first quarter with product mix being the main reason for the sequential improvement.

Looking at margins by segment in the quarter, all 3 showed expansion versus the first quarter. Ag gross margin was 14.6% compared to 12.4% in the first quarter, EMC gross margin was 11.5% versus 10.4% and then consumer's gross margin was 20.4% compared to 19.6%. Year-over-year in Q2, our margins of 15% were down from 16.5% when adjusting out the impact of the Carlstar inventory step-up last year. This gross margin decline was driven by the leverage on overhead, which is expected with our organic revenue decline that we saw year-over-year.

Our teams have done an exceptional job at managing production and our costs and our performance shows significant improvements in margins as compared to the last time we saw a market like this. Our SG&A expense for the second quarter was $52 million or around 11% of sales, which was up about 1.5% from last year and that's really generally due to inflation in the business around labor costs. R&D expenses were $4.3 million in the second quarter compared to $4.2 million last year. So not a big change year-over-year for the business, again inflation being the factor. We generated positive operating income for the second quarter of $10 million.

Now turning to cash flow. We were able to drive the $4 million of positive cash flow in the second quarter by moderating our CapEx spend to $10 million in the quarter as we were judicious with our

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spending. Working capital was also a positive driver for free cash flow in the quarter when adjusting out the FX impact of the weakening U.S. dollar within the quarter. Our net debt at quarter-end declined $10 million from the first quarter to $401 million. As noted before, we expect free cash flow generation in the second half and we are confident we'll exit the year with a debt ratio closer to our target of less than 3x adjusted EBITDA.

As a reminder, our debt structure provides us flexibility with our domestic credit line and our long-term bonds. Again, we are in a much stronger position as a company compared to the last historical cyclical low. Our second quarter income tax expense was $4.7 million with an effective rate well over 100%.

This elevated tax rate continues to be a function of where our profits and losses are distributed geographically and the associated tax regimes within those areas. I expect it will remain at this elevated level for the short term as we continue to navigate this lower market. As we see a rebound in market conditions and our improved profitability across the globe, we can get back to normalized tax rate levels.

Now moving on to our financial guidance for Q3. Our guidance ranges for the quarter are revenues of $450 million to $475 million, adjusted EBITDA of $25 million to $30 million and I also expect to see tax expense of around $4 million to $5 million, which is similar to our Q2 level. The midpoints of our revenue and adjusted EBITDA guidance imply growth in both metrics when compared to Q3 of last year as well as relatively flat performance versus Q2. That sequential comparison is notably positive as it runs counter to our normal seasonality in which sales traditionally drop from Q2 to Q3 due to normal plant shutdowns and holiday schedules in the summer.

The main factor underpinning this positive dynamic is our expectation that the consumer segment will rebound a bit as channel inventories have gotten too low as Paul talked about earlier. Reiterating our prior comments on cash flow. We will continue to manage working capital tightly allowing us to reduce our debt. Our financial condition does remain solid and I'm fully confident we're putting ourselves in a position to accelerate future performance.

So thanks for your time this morning and I'd like to turn over the call back to the operator for our Q&A session.