Titan International, Inc. (TWI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Titan International, Inc. 2020 Annual Meeting of Stockholders. It is now my pleasure to turn the floor over to Morry Taylor, Chairman of the Board of Titan International, Inc. Mr. Taylor, the floor is yours.

Thank you. I would like to call the meeting to order. I'd like to welcome you in our Annual Stockholders Meeting. I would like to introduce our directors that are participating: Richard Cashin, Gary Cowger, Max Guinn, Marc Rachesky, Paul Reitz and Anthony Soave. I would also like to introduce our executive officers that are participating: Paul Reitz, as a Director, President, and Chief Executive Officer; David Martin, Senior Vice President and Chief Financial Officer; Todd Shoot, Senior Vice President, Investor Relations and Treasurer; and Mike Troyanovich, Corporate Secretary and General Counsel. I would also like to introduce Jeff Pajauskas, a representative from Grant Thornton LLP, our independent registered public accounting firm. He will be available to answer questions you may have during the question-and-answer period. You are participating in a meeting virtually. We are holding our Annual Stockholder Meeting virtual because of the COVID-19 pandemic in an effort to increase access and participation. The rules of conduct for the meeting are available in the section provided on your virtual meeting screen. [Operator Instructions] I would like now to ask Mike Troyanovich, Secretary of the company, to report the call of the meeting.

Mr. Chairman, available at this meeting are the notice of the meeting, the list of stockholders at the close of business on the record date, April 14, 2020, and the affidavit of distribution of the notice, proxy statement and proxies to stockholders of record as of the close of business on the record date signed by Broadridge Financial Solutions, which did the mailing.

All of these documents will be available to stockholders throughout the meeting for inspection by any stockholder who wishes to see them. These documents can be found in the section provided on the virtual meeting screen. The next order of business is to determine whether a quorum exist at this meeting. Mr. Shoot, an officer of the company, has been appointed the inspector of election and has filed his oath of office. Mike, do you have the count of the shares present?

A preliminary count of those present at this meeting in person or by proxy shows that of the 60,602,294 shares of common stock outstanding as of the record date, at least 53,731,639 shares are represented here today.

A quorum is present for the transaction of all business scheduled to be conducted at this meeting. It is 10 a.m. Central Time on June 11, 2020, and the polls for voting on all these matters are open. All Titan International stockholders entitled to vote at this meeting have the ability to do so online. If you are a stockholder entitled to vote and have not yet voted or if you want to change your previous cast vote, please do so via the website used to access this meeting. Please remember, if you are already voted by proxy, it is not necessary to vote again. After voting has been completed on all matters, we will close the polls and the inspector of elections will provide his preliminary report. We will now proceed to the formal business of the meeting. The first item of business is to propose the election of 7 directors to each serve for a 1-year term until 2021 Annual Meeting of Stockholders and until their successors are elected and qualified. I now open the floor for nominations to the Board of Directors. I call on Mr. Guinn.

Mr. Chairman, each of the following nominees has been nominated for election to the Board of Directors at this meeting to serve for the term of 1 year until the 2021 Annual Meeting of Stockholders and until a successor is elected and qualified: Richard M. Cashin, Gary L. Cowger, Max Guinn, Mark H. Rachesky, MD, Paul Reitz, Anthony Soave and Maurice M. Taylor Jr.

I second the nomination. Are there any other nominations? Hearing no further nominations, I declare the nominations closed. The second item of business is to vote to ratify the Board selection of Grant Thornton LLP as a company's independent registered public accounting firm for 2020. Is there any motion to approve the ratification of the Grant Thornton LLP to serve as the company's independent registered public accounting firm for 2020?

I move for ratification of Grant Thornton LLP to serve as the company's independent registered public accounting firm for 2020.

I second the motion. The third item of business is to approve a nonbinding advisory vote for the 2019 compensation paid to our named executive officers as described in our proxy statement and to adopt the following resolution: Resolved that the 2019 compensation of the company's named executive officers as described in the company's definitive proxy statement for the company's 2020 Annual Meeting of Stockholders pursuant to Item 402 of Regulation S-K include the sections entitled compensation discussed in the analyst and compensation of executive officers is hereby approved.

I move for approval in a nonbinding advisory vote of the 2019 compensation paid to our named executive officers as described in our proxy statement.

I second the motion. The proxies have been voted according to the instructions on the proxy cards to the extent instructions were provided, and now we believe we have collected all of the ballots. I hereby declare that the polls are now closed with respect to all of the items of business being considered here today. No further balance or evidence of votes will be considered or accepted by the inspection -- inspector of the elections. The inspector of the elections will now tally the votes. Has the inspector of elections completed his initial vote tally?

Mr. Taylor, the inspector of elections has completed the initial vote tally.

Okay. Based upon the primary report, I declare that the following nominees for election to the Board: Mr. Guinn, Mr. Rachesky, Mr. Reitz, Mr. Taylor, Mr. Soave have all been elected for 1-year term. The selection of Grant Thornton LLP as the company's independent registered public accounting firm for 2020 has been ratified. The proposal to approve by nonbinding advisory vote for the compensation paid for our named executive officers has been approved and related resolution been adopted. I was told I left Mr. Cashin and Cowger. Yes, they're with us.

We will file the final report of the inspector of election with the records of this meeting. We expect to report the results of the meeting on Form 8-K to be filed with the SEC within 4 business days of the date of this meeting.

I now turn the meeting over to Titan's CEO, Paul Reitz.

Thank you, Morry. I appreciate it. Just want to start off by really emphasizing Titan and our management team and really all our people at our plants around the world, our experience in dealing with the many cycles that Titan has seen really in our industry, in our end markets over the past 35 years. 2019 was definitely one of the more challenging years in Titan's long history. It was the uncertainty and the volatility that resulted from a number of factors, the China-U.S. trade war, the North American farming concerns that was really driven by some severe weather right in the middle of the planting season. You look at the concerns over Brexit, the ongoing Trump tariff battles that, for us, created a crazy U.S. steel market and then really all that spilled over into this uncertainty that impacted in the fourth quarter, our OEMs producing well below the retail sales level. So these compounding matters unfortunately heavily impacted our 2019 results. So if you were to look back at the beginning of 2019, we viewed last year really to be a year of continuing growth, coming off a strong 2018, where we increased sales 9% to $1.6 billion. We grew our adjusted EBITDA, a gain of 64% to $119 million. So instead of those further gains that we expected and, quite frankly, had really prepared for, Titan and other participants in our industry experienced challenges that came at us from many, many different angles. Again, I do want to point out the resolve and the commitment of our team. We worked through those challenges in 2019, and we really believe that we are positioned well entering 2020 to see a good earnings rebound. That was really driven primarily by our own internal actions. Sales were forecasted to be relatively flat entering this year. And so it was the actions of our team and that really was going to get us in a much better position for 2020. And needless to say, our -- Titan and many others now find ourselves in the midst of a pandemic of historic proportions. We've been heavily focused on that for really the past few months, taking the needed actions to deal with the crisis that is obviously still ongoing. We've really done a good job successfully managing our business, and I think that's evident that we've been able to continue business operations around the world during this period. We've remained largely operational. We've adapted swiftly to this changing environment. And we will continue to do that. The challenge in this marketplace is, though, that visibility really remains quite limited. OEMs continue to adjust their production schedules as they don't know necessarily what's coming. Dealers are trying to limit inventory risk in this type of environment. But as OEM demand remained low, on a global basis at this time, sitting here in the middle of June, farmers have had a successful planning cycle this spring. We know that food chains must continue to operate, the industries that we serve, our end markets are tied to megatrends that are extremely important to society in general. So we have good reason to believe that the second half of this year, the demand in the ag sector will strengthen to beat most -- to really help meet both existing pent-up demand and to build back some of the inventory levels as we enter 2021 because if you look at large ag, it's really the bread and butter of most participants in the ag sector. If you look at the 30-year trend lines, our industry, large ag, has been operating well below the normalized trend lines for the past 6, 7 years. And so if this industry -- when this industry, I should say, gets back to normal levels, just doing so will provide a tremendous catapult to our earnings potential and to overall sales. And so look, we know there's no question right now that in the near term, trends in our business will be shaped by the COVID-19 pandemic. But again, when you look at the megatrends and some of the normalized levels that exist in our prime bread-and-butter areas, we do believe that that pent-up demand is there. Ultimately, the impact of the pandemic on our 2020 results remains uncertain. It will be based on a number of factors that -- regarding the duration and potential of the second wave of the virus, the ultimate impact on our customers' operations and where they see demand. But I just want to kind of conclude, though, moving away from the financial side, the impact of this crisis goes well beyond just the finances. It hits everyone from both a personal and a societal challenge. It really is, quite frankly, unprecedented in nearly everybody's lifetime. As we all know, you learn a lot about people when challenges are all around you. And I want to personally just say that I've been very impressed with our team, how they've risen to these incredible challenges. In a short time frame, we've essentially changed how we work, how we operate, adapted our company to these changing times. And most importantly, we've protected the safety of our people. Keeping operational during these times comes with tremendous responsibility both for Titan and every employee that's working hard in these conditions. And as I stated earlier, we've done that quite successfully. So with that, I just want to conclude and say that I'm proud of our workforce, our leadership team in handling of these massive changes thrown at us, not just this year with the pandemic, but last year, from a number of different angles, as I stated earlier. And I really am confident that better days lie ahead for our markets and ultimately for Titan as well. Well, with that, looking at the screen, we do not have any active questions. So at this point, I can turn the call back over to Chairman, Taylor.

Thank you, Paul. All right. Before I just wrap this meeting up, I need to talk about a couple of things. Number one is, this past year, Titan's Board engaged a consulting firm of pay governance and they went through, and all of the shareholders doing this study, referenced the size of our company versus our peers in the industry. And in December of 2019, the Board approved a 5-year plan that would -- it not only goes yearly by yearly, it has a 5-year situation for long-term compensation. This has been something for years, some shareholders wanted to see a little farther out what was happening and how it was being done, except for just the Board, in our knowledge, doing it. So that was approved in December. Then once you approve that, you have to take this booklet, so to speak, and you have to adapt it to the company itself. And that was in the process in the beginning of this year. So -- but what happened during that process, the -- we ended up with this coronavirus, and there was a little bit of confusion. What had happened, the only changes in this plan is that originally, the consultants had a 70%, strictly by the numbers, and the 30% was what is, more or less, as you would call, discretionary reference the Board. The Board, when they approved the plan, it was 65%, right by the numbers, and it was 35% that had a little more discretionary into it because of the business we are in. Then what happened is this plan then has to have how many of the executives are at the top and then the second layer. And all the various numbers and had to go, but because the -- working with this pay governance, the consultants, it didn't get ready by the time we had to go to print to have this shareholders meeting. So this will be probably up on our website in the next couple of weeks, but I wanted every one of the shareholders to understand that this was listened to by this Board, and it was acted on by December of this last year. So it will be out there for those who wish to take a look at it. I agree with what Paul just told you. One thing, anybody that knew this was coming and what was going to happen, God bless them, but they have a better link to God than what I have. So they've done a good job. They're sitting in a good shape. I think you can actually say if you see -- I don't really believe the media, but there's been a lot brought up about the supply chain and what happened, large businesses and what took place. We rebuilt China, we've rebuilt most of the world, and I think that attitude now is being changed. And I look at -- there's no question who has the most capacity in this North America. And I think the future looks very, very great. So with that, we will conclude. There's no further business in this meeting. The annual 2020 meeting is hereby adjourned. Thank you.