Titan International, Inc.(Delaware) 2026 Q3 Earnings Call

Thanks, and good morning. Our third quarter results were solid. Revenue was $454 million, and adjusted EBITDA was $28 million, both consistent with our guidance. Delivering with that range despite the prolonged cyclical downturn in our end markets reflects our focus on the factors we can control and the value our one-stop-shop strategy provides to our customers. As we reported in mid-September, we signed a definitive agreement to divest our ITM Undercarriage business. This transaction is an important step in our capital allocation and overall strategy as a focused tire and wheel company because it will allow us to reduce debt, invest in core growth initiatives, including M&A. We expect the sale to close in January, subject to customary regulatory and closing conditions.

Until then, we are managing ITM to contribute as much as possible to our overall results, even though accounting rules require us to report it as discontinued operations. In particular, we expect ITM to generate positive cash flow during the fourth quarter. Tonia will cover the financial details later. ITM has been an important business for Titan, but its products and operating model do not offer the same natural synergies as our wheel and tire businesses, including those we have realized through the recent Carlstar acquisition. After evaluating the strategic fit and the offer presented by USCO, our board concluded that divesting ITM would better position Titan to grow its wheel and tire businesses organically, pursue potential synergistic acquisitions, and of course, reduce debt. We believe we can create greater long-term value by directing capital toward our strong position in off-road wheels and tires.

In the press release announcing the transaction, we said we intend to use the ITM proceeds to reduce debt while pursuing accretive acquisitions and strategic partnerships that expand Titan's capabilities over time. Let me dig into that just a little bit further. We do not have an imminent transaction on the scale of Carlstar pending. We already hold strong positions in wheels and tires in North America, tires in South America, and wheels in Europe, supported by deep experience in those markets. Our focus is therefore on disciplined opportunities that expand our product footprint, strengthen our customer offering, and are accretive through organic investment or selective M&A. I'll give you a recent example, which is the Rodaros transaction that we mentioned last year, and that illustrates that approach.

Through that deal, we partnered with the second-largest manufacturer of agriculture wheels in Brazil, investing only $4 million for an initial 20% ownership stake, and then committing to acquire the remaining 80% in 2029, with the final enterprise valuation based on the financial performance criteria. I use that Rodaros example and our Titan Yuxiang joint venture to demonstrate the kind of opportunities we see ahead. Targeted investments and partnerships that close product gaps, strengthen our market position, and expand our capabilities with disciplined capital commitments. With that being said, I'm going to shift gears and spend some time discussing how we view our businesses strategically going forward. We intend and will continue to report EMC as a reportable segment. During Q3, the segment revenues from continuing operations in EMC accounted for 17% of sales, so that is still a meaningful segment within the broader context of our business.

From a product perspective, our remaining EMC business consists of wheels and tires that are used primarily on construction and industrial equipment. Although steel undercarriage is the majority of revenue in that segment, there is still a good range of equipment in that area that we believe has growth potential within our wheels and tires businesses and therefore is still a good accretive business for Titan. Shifting over to the consumer segment, we delivered a solid quarter despite the difficult comparison with last year. End market demand remains pressured by high interest rates and inflation. Common stories. Our sizable aftermarket business has been a bright spot because consumers continue to use and maintain existing equipment, even as demand for new equipment remains weak.

On the OEM side, though, we have been winning new business with our product innovation, and that new business has been coming on both existing and new equipment platforms. That was on full display at the Equip Expo in Louisville last week. Those wins are supporting sales in 2026 despite the weaker OEM markets, and they will contribute even further to sales gains in 2027. Moving over to the ag sector, we faced the strongest headwinds in this quarter of all our segments, driven by many of the same pressures affecting consumer. Although ag has a sizable aftermarket business, our OEM sales represent a larger share of that segment's revenue, therefore resulting in a year-over-year decline for this quarter. Buyers remained on the sidelines this quarter, even as many industry participants view 2026 as a potential floor.

I think we agree with that comment, and we look to 2027 with cautious optimism. We believe the conditions for a recovery are developing and that Titan would see demand rebound quickly when customers begin investing again. Grain prices have improved from a year ago. That's a definite positive. There are reports that farmers may use less fertilizer because of the remaining high costs of fertilizer. All else being equal, with that being said, lower fertilizer would reduce crop yields and again, help further support crop prices. Along with that, the government has announced continuing support into the sector. So again, we do hold that position that this is a floor period in 2026 and look to 2027 with cautious optimism. With all that being said as well, that's positive for farmer incomes. That enables them to replace aged equipment. Interest rates are always tough to predict.

They're changing daily. You do see an environment where interest rate cuts and a more improved environment for interest rates would be available and appropriate for 2027, and that would also spur demand. In addition to the macro winds shifting to drive demand, we also note that low inventory levels throughout our channels mean that any uptick in demand should flow through to the orders for wheels and tires pretty quickly. As machinery is built, wheels and tires are normally fitted fairly early in the process. They allow units to be moved through a plant station to station. So again, Titan would be well-positioned to be early beneficiary of demand resumption. Again, I comment, I want to remind everybody, we don't need the market to return to peak for us to benefit from a market.

We need the market to improve and the volumes and the flow-through will help us at the production absorption cost level quite meaningfully. So with that, to sum things up, the remainder of this year will remain challenging, but we expect to enter 2027 with optimism for two reasons. First, we expect the ITM sale to close in January, strengthening our balance sheet and positioning us to invest in core growth initiatives. Secondly, as I was just talking about, the conditions for a recovery are taking shape, and our market position of low channel inventories would allow Titan to respond quickly when demand returns. So with that, I will turn it over to Tony.

Thank you, Paul. Good morning, everyone, and thank you for joining us today. Against the macro backdrop and inclusive of ITM, we delivered solid results with revenue above the midpoint of our guidance range and adjusted EBITDA within our guidance range. The adjusted EBITDA was just below the midpoint of the guidance range due to the delayed receipt of some tariffs. Key figures from the third quarter included sales of $454 million, gross margin of 15%, adjusted EBITDA of $28 million, and free cash flow of $10 million. As Paul noted, following the announced sale of ITM, we are reporting that business as discontinued operations in accordance with applicable accounting requirements. My remarks on the third quarter business performance will therefore focus on continuing operations, that is excluding ITM. Turning to segment performance. Our agricultural segment continued to face pressure from elevated financing, fuel, and fertilizer costs.

Segment sales declined 12% from the prior year period as activity in the U.S. remained subdued and Brazil slowed notably. This impacted fixed cost leverage and together with higher input costs, resulted in segment gross margins of 7.6%, compared with 13.2% in the prior year period. On a positive note, grain prices, particularly corn and soybeans, remain above prior year levels, which could support farmer income in 2027. Looking specifically to Brazil, we noted last quarter that activity levels were sluggish for several reasons, including uncertainty surrounding the presidential election, expected to significantly affect agricultural policy. Along with the higher interest rates there and broader inflationary pressures tied to the Iran war, inventories also remain elevated following the cautious approach many market participants adopted ahead of the Brazil presidential election, and we expect those inventories will need to clear before demand resumes.