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

Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. 2021 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'd like to call the meeting to order. I would like to welcome you to our Annual Stockholders Meeting. I would like to introduce our directors that are participating. Richard Cashin, Gary Cowger, Max Guinn, Mark Rachesky, Paul Reitz, Anthony Soave and Laura Thompson. I would also like to introduce our executive officers that are participating. Paul Reitz, Director, President and CEO, Executive Ops; David Martin, our Senior Vice President and Chief Financial Officer; Tony Eheli, Vice President and Chief Accounting Officer; Todd Shoot, Vice President, Investor Relations and Treasurer; Michael Troyanovich, Corporate Secretary, General Counsel; and Kara [ Esper ] Assistant Corporate Secretary and Director of Compliance. I would also like to introduce Jeff Pete, 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 Analyst Stockholder Meeting virtually because of the COVID-19 pandemic in an effort to increase access and participation. The rules of conduct for this meeting are available in the section provided on the 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 23 -- April 13, 2021, and the affidavit of distribution of the notice, proxy statement and proxy to stockholders of record as of the close of business on the record date signed by Broadridge Financial Solutions, Inc., 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 exists at this meeting, Mr. Shoot, an officer of the company, has been appointed the inspector of the elections 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 61,621,745 shares of common stock outstanding on the record date, at least 49,045,685 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 10, 2021, and the polls for the voting on all 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 previously cast vote, please do so via the website used to access this meeting. Please remember that if you already voted by proxy, it is not necessary to vote again. When voting has been completed on all matters, we will close the polls and the inspection (sic) [ inspector ] of elections will provide his preliminary report. We will now process through the formal business of the meeting. The first item of business is the purposed election of 8 directors to each serve for 1-year term until the 2022 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 2022 Annual Meeting of Stockholders and until their successor is elected and qualified: Richard M. Cashin; Gary L. Cowger; Max Guinn; Mark H. Rachesky, MD; Paul Reitz, Anthony Soave, Maurice M. Taylor Jr; and Laura K. Thompson.

I second the nominations. 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's selection of Grant Thorton LLP as the company's independent registered public accounting firm for 2021. Is there a motion to approve the ratification of Grant Thorton LLP to serve as a company's independent registered public accounting firm for 2021?

Mr. Chairman, I move for ratification of Grant Thorton LLP to serve as the company's independent registered public accounting firm for 2021.

I second the motion. The third item of business is to approve in a nonbinding advisory vote the 2020 compensation plan paid to our named executives as described in the proxy statement and to adopt the following resolution: Resolved that the 2020 compensation of the company's named executive officers as described in the company's definitive proxy statement for the company's 2021 Annual Meeting of Shareholders pursuant to Item 402 of Registered S-K, including the sections entitled, Compensation Discussions and Analysts and Compensation of Executive Officers is hereby approved.

Mr. Chairman, I move for approval in an nonbinding advisory vote of the 2020 compensation paid to our named executive officers as described in our proxy statement.

I second the motion. The fourth item of business is to approve the Titan International equity and incentive compensation plan. Is there a motion to approve the Titan International equity and incentive compensation plan?

Mr. Chairman, I move for approval of the Titan International equity and incentive compensation plan.

I second the motion. The proxies have been voted according to the instructions on the proxy card, and we now believe we have collected all of the ballots. I hereby declare that the polls are now closed with respect to all items of business being considered here today. No further ballots of evidence of votes will be considered or accepted by the inspection (sic) [ inspector ] of elections. The inspection (sic) [ inspector ] of elections will now tally the votes. As the inspector of the elections completed his initial vote tally. Mr. Troyanovich, would you please read the report of the inspection -- inspector of elections?

Mr. Chairman, Proposal #1, the election of directors, all directors received the majority of the shareholder vote. With respect to Proposal #2, ratify Grant Thornton LLP as independent registered public accountant, that also received the majority of the shareholder vote. Proposal #3, to approve in a nonbinding advisory vote executive compensation did not receive a majority vote. Proposal #4, approved the equity and incentive compensation plan. Proposal #4 received the majority of the shareholder votes.

I now -- turn around. I'm going to covers a couple of remarks because this -- before I turn it over to our CEO, Paul Reitz, who will give the update on what's taking place in the market. But the first thing, everything changes and a little over a week ago, 2 weeks ago, we got a letter from ISS on how they would recommend our shareholders who have voted how they should vote. And it struck me a little bit odd that no one from ISS called any of us, to my knowledge, no one of the executive team, and they surely didn't call me as Chairman of the Board, and asked some questions. Well, they sent out to all you shareholders their recommendation. And when we contacted them, we were told that we didn't do what they asked last year at the Shareholders' Board meeting. And I'll like to just -- for have a moment here to explain 2 of the things they wanted was, number one, having a pay plan. When we went out and hired a consultant, highly recommended, and they came up with that pay plan in December of '19, 2019. And our Board, while they were working on all through '19, our Board approved it in December of '19. Now also, they thought that we'd add a woman as a director. And I wanted to talk about one thing is that [ Calipers ] a lady, a Ms. Lee, had sent a letter to us under the same situation. And she wanted to make that part, it was a -- she had -- they had over 2,000 shares. That's what you had to have at that time. And I talked to her and actually sent a letter to her. And we had a lady that we were looking for, but she couldn't join at that time because she was under a certain consulting contract. And as a small company that goes up and down and right now, we're in an up market that no one can figure out how far and how fast and where it's going to go. But it's going good. You can see it in the numbers. But to ever think that we're just not paying attention, we are paying attention. And a couple of things that we looked at. We take what anybody says, as a shareholder, we take it under advisement. And just to slap somebody on a job that has no economical value that's going to come to this company, I don't care what gender they are or what color. So that everyone knows, when we took over a plant in Russia, the whole executive staff was all men. Today, there's only 1 person. That's the Treasurer. That's a male. The Head of Engineering is a women. The ops manager who runs our whole operation, does a hell of a job, is a lady. The finance is a lady. I can go on and on and on. And eventually, that facility, since we bought them, everything has been in the down market and they've done a hell of a job. Also, the company that makes our tracks. CEO of any operational person, she's the highest ranking person. You can see that when you look under the pay structure. There's a lady, very, very capable. And if you look around the manufacturing base and you look at what's been happening in the slaughtering of the manufacturing in America, we are a collection of failed companies put together and run by people. And we're not a high tech. We don't have big time margins, and you've got to watch it. And that also goes for the Board. It'd be great to have 12 guys and 12 women. You can have a merry go time, but you're going to go [indiscernible]. That's the first thing is keep the company running, then it comes shareholders and employees. And that's what we try to do. And I'm a little bit surprised that ISS never even picked the phone up. And if they look, I'm very proud of every person that sits on this Board. You can't pick out one that hasn't contributed a great thing, except for probably myself. And -- but I've been around so long. It's just like a statute, eventually I'll get spray painted and knocked off. So when you look also the targets, they say, your peer group. We don't have a peer group in our business. And what they've done through the pandemic, we try with them back and we found out the printer couldn't get the stuff up. So if they would have called us, they would have had all that information, and it's there. And since that time, 2 things. If you sit and look, I am very pleased, Laura Thompson, 99% of every vote she got. A woman is not only the youngest, well, I take it back, Paul is younger. But from outside, she's the youngest and we're so grateful to She can step up and join our Board. And all the men that you see there, they have contributed, and I put that in a letter, and I send it up to the shareholders. So if you didn't get it, you're on the phone, you better ask who your broker or something. But I sent -- we sent the stuff up, I answered it. We are -- another question that came up from Glass Lewis. They wanted to know why we didn't -- and they voted against it because we did not forecast in our proxy what the numbers for the year were going to be. I don't think we've ever done that. And I appreciate, they would like a lot of that. But in our business, if you don't understand the damn business, we make tires and we make wheels. The wheel market is basically an OE market, any place in the world. And the first part of November, we were told, look for 5% over 2,000. 5% folks. Now one thing is, we are the dominant ones worldwide, the biggest facility and actually one of our most profitable until she left because a woman was running it. And she's a farmer's wife, my name is Mary Ann Wray, and we had a few problems and that was management problems. So Paul got a hold of her and asked her if she could come back, she retired, she's 75. She came back last year. She's retired now, but we have someone, but they're hogging. And the wheel business, it's not 5%. It's not 10%, it's not 20%. It's pushing like 30%-plus. And so they're doing the job and someone says, "Well, yes, their steel prices are going up." Everything is going up. So it's a simple thing in America. You got to just work hard. And there might be somebody in a supply management at a big company that turns around and says, "Hey, I'm not going to pay the extra money," Well, that's how I always look at it, that that's how that guy is going to make a big career move. Because you see, without a wheel, most of that equipment won't move. So if you're -- you want to get it, you have to pay extra for the steel, you're only stupid if you just, okay, but I'll still supply you the wheel. You either pay for it or he becomes a hero and the thing doesn't get shipped because he was trying to save $20 or something. In a real world, it doesn't come that way. I should say certain things happen because I just look at this ISS report. So the budget for '21 was blown apart. The budget that the Board approved for December, they blew it apart in what you've already seen. So how do you know for the next 3, if you've already blown the first month -- first quarter blew it out. But everybody is so worried that what they're going to say, well, I'm going to say it, I know what's going to happen. But you don't know the number, it's just -- make sure that you're getting paid for what you're doing and everybody is going to work. Most people don't realize the law in Iowa, you can't hire people. You get some people over in Freeport, because that's Rockford. [indiscernible] isn't at a point where we haven't get help. But this is not going away. If you look at the -- in our business, just look at price of corn, look at the price of soybeans. There's no inventory. So call up there and ask them. We'll just go ask. You don't have to call mother dear itself up, just go as the dealer, when can I get a tractor? When can I get it turbine? When can I get an irrigation? Folks, there is no stockpile of corn or soybeans in this country right now. It's been always said Chinese snuck in and bought it all. And you're going to have to fill it back up. So it don't matter what happens in Washington or anything else, even politicians want to eat. So we're going to end up with probably -- not only this year, next year. Now you can start looking at 2023, trying to figure out. But there, politicians will have an effect. So I'm sorry that if they did not, at ISS or at Glass Lewis, get what they wanted. If they pick up the phone, they would. And -- but you can't go out and do a budget and turn around and forecast out, they're doing what they should do that Titan executives is concentrated on getting the stuff and enjoy. And as shareholders, you've seen your prices stock and the profits are coming. And we're in the roaring 20s right now in the farm business. And anybody that disagrees then God bless them, they don't know what the hell's going on. So with that, I'm going to turn it over to the -- our CEO and President, Paul Reitz. So go.

Thank you, Morry. As Morry was just discussing, this year is off to a great start. I mean we're -- sorry, we've got some noise in the background here. Give us 1 second. All right, I'll talk over it. I apologize for that. But as you just heard from Morry, I mean, 2021, off to a great start. What we reported in the first quarter of this year, sales were up 18%. EBITDA was up to a nice figure at $26 million. We saw our gross margins improved 450 basis points to over 13%. 2021, as Morry was saying, when you look at the ag sector, it is going to be in for a good roaring period. We're seeing strong demand in ag in our order books really across the globe. What has been a nice pleasant surprise to start the year is in our earthmoving/construction segment. We started the year with really good momentum in the first quarter, see that continuing into the second. Where that comes as a nice surprise is we thought this segment would be more of a back half of the year story. Instead, we're seeing it coming out strong, and we're continuing to hear good indicators that this momentum will continue throughout the year. And even into the beginning part of next year. So with that, I do want to circle back to ag in particular, that we do have a strong heritage as an ag company, that's really our core roots. And these growth drivers and expectations we're talking about for ag really are not looking to be short-term at all. You look at some of the primary indicators that would drive the ag market. The used inventory market is extremely tight. Pricing has been going up and inventory levels that dealers are -- have been doing nothing, but continue to go down throughout the course of the year to levels that, practically speaking, there's just nothing to be found on the lots at all. Farmer income, in 2020 is, again, a good driver for '21. We did see $25 billion of government payments in the U.S. that got that cycle through to farmers. Really driving their farmer income levels to something that we haven't seen in a number of years. But most importantly, we're seeing commodity prices have a strong rebound this year. You got corn up over 650, soybeans touching 15. The drivers behind this, really inventory levels, there's not much inventory to be found in the grain bins. The exports to China and the exports really around the world have increased. And so the commodity prices combined in '21, combined with good farmer income in '20, really puts farmers in a strong position to go out to the markets and start buying equipment. Now the challenge is finding it. Along with used inventory levels being down, the new inventory to be found at dealers is extremely low. And so with that, you kind of look at the cycle for us, you got to get inventory into the hands of the farmers that want it today, but you also got to rebuild those channels. And so we see the momentum, as we were talking about earlier, this isn't a 5% or 10% ag market. This is something much stronger than that because you have the current demand along with the rebuilding of the dealership inventory levels, both used and new. So we see really good legs with the market in '21 that will continue into next year, again, using those fundamentals that it's not just one thing driving the market, it's really a global market that's being driven by some really strong indicators across the map there. The part that we're starting to see go in the -- really, I'd call it, the second quarter into the back half of this year as large ag in the U.S. The U.S. market, especially for Titan has been strong with the smaller midsize ag equipment over the last few years. What we're seeing now is the large ag is starting to see some strong order flow. And for us, that is definitely a sweet spot. That's something that you look on a global basis, there really aren't any manufacturers in our space of wheels and tires that can handle large ag to the same capabilities that we have. And the comment I'll make on large ag as well is it's starting to go now, there's plenty of room to run. You look at where we're positioned, the historical metrics were well below the 30-year trend lines for where large ag sales should be in North and South America. So once a large ag gets going, we're not talking about hitting the strategy here. We're talking about, it can run just getting back up to some historical trend lines and really drive some good sales momentum for Titan. So that kind of covers off 2021. I do want to circle back for just a second here and talk about 2020. This is an annual review meeting. And I think a few key points I want to bring out. During 2020, what really set a good foundation for us this year, at the start of this year, was that we kept all our plants operational. During the pandemic with all the crisis going around on a global basis with the 20 plants that we operate around the world, we were hit in just about every location with the COVID pandemic. Our plans were deemed critical infrastructure in a lot of locations, and we kept all plants operational throughout the course of the year. Kept our employees safe. We didn't have any major outbreaks. And again, we continue to meet the needs of our customers. But that really sets the foundation for 2021. It's what our One Titan team did working hard throughout last year. This year with volumes and where things are going, I can tell you right now, we're working even harder, which is definitely a good thing. Some topics that are on the minds of just about every business person, investor out there these days, supply chains. From Titan's perspective, we made comments about it in the first quarter, and those comments are still true today. We are handling the volatility and the challenges associated with our supply chains. We are meeting the needs of our customers and working hard to manage this -- these daily challenges that you experience with supply chains. Pricing, there's inflation in just about every component that you can think of. We're handling inflation through our pricing changes and our pricing practices that we've put into place today. Production, we're handling the change in and the volatility in the production schedules. We're doing a good job calibrating our plants to handle that volatility. We are bringing on more labor to increase our output, that is something that we started the year doing as we saw volumes picking up and we will continue to do that. And we are going to meet the challenge of bringing in more people. In some markets, it's easier than others. It does vary from location to location. And I think as we see some of the unemployment benefits out there recede -- in fact, we're already starting to see it in some locations where they've taken those away that certainly hiring does pick up at a much more rapid pace when that takes place. But again, we know how to hire and train people, and that's something we're going to be doing across the landscape to meet the growing demand, especially in ag, as we've been talking about. The last comment I want to close off with is what we accomplished in April when we refinanced our $400 million bonds. This is something that as you look back at where our bonds have been trading at over the last couple of years. We had, as a management team, made this a significant goal of ours really going back to 2019, that there are measures we got to take to protect our balance sheet to get this company in position to refinance our bonds. We successfully did that in April of this year. They now have a 2028 maturity. So we -- from an investor perspective and really from a management team perspective, that was a significant goal that we accomplished and something that we're very proud of. So with that, that will close off the remarks from the Titan management team. And at this point, open up the call for any questions that you guys may have.

Okay. At this time, there are no questions in the portal.

As there being no other business to come before this meeting, the 21st Annual Meeting of stockholders is hereby adjourned. I want to thank you all for your time. I want to thank all of you for your support, and have a great, great summer, and we hope to have a super year. Thank you.

Thank you, everyone.

This now concludes the meeting. Thank you for joining, and have a pleasant day.