Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Maurice Taylor – Chairman and CEO

Paul Reitz – CFO

Analysts

Steven Volkman – Jefferies

Ian Zaffino – Oppenheimer

Schon Williams – BB&T

Larry DeMaria – William Blair

Jim Young – West Family Investments

Philip Volpicelli – Deutsche Bank Securities

Titan International, Inc. (TWI) Q1 2013 Earnings Call April 25, 2013 9:00 AM ET

Operator

Ladies and gentlemen, welcome to the Titan International, Incorporated First Quarter 2013 Earnings Conference Call. During this session, all lines will be muted until the question-and-answer portion of the call. (Operator Instructions)

Any statements made in the course of the conference call that state the company’s or management’s intentions, hopes, beliefs, expectations or predictions for the future are considered forward-looking statements. Please note that the Safe Harbor statement contained in the company’s latest Form 10-K and Form at 10-Q filed with the Securities and Exchange Commission extend to this conference call and any forward-looking statements involve risks and uncertainties as detailed therein.

At this time, I would like to introduce Titan Chairman and CEO, Mr. Maurice Taylor. Please go ahead.

Maurice Taylor

Thank you dear. Good morning everyone wherever you’re at. Everyone is probably seeing the press release, the 10-K everything. So, I’m going to touch on the first quarter, even though we had conservation in February. The unique thing on the quarter of course as we put in the statement is that we will get a UNICON’s answer and that was done and verified in March.

The contract is as I said in my statement, we believe that through some product improvements and what’s going on that we should be able to observe the increase, increase over wages, over the next four years will amount to approximately 6% increase.

The March show the uptick of what was happening. We came in, it was March, a little on the hesitant side and it got real strong as we’re going through. So – and it’s continued into this month of April. So, we’re happy with that.

The other situation is what I mentioned before is that you get in our business, you get beat up when in commodity crisis, stock crisis, rubber crisis, steal and everything and over the last six months everything has been trending down. I think it’s pretty much got to the point at this stage where it’s been bottomed out but when that happens and if you – we’re looking at some of the volumes and what we’re pushing out.

If I could have gone back to the first quarter sales numbers and reference the individual parts, we probably would have been close to the tire side, real close to the real blowout in the first quarter but that doesn’t happen. So, you have to live with it. It affects your margins, everything. So, right at this moment, we’re really – we’re pleased. We see things starting to gel.

I’ve been over to Germany for the Farmer Show, which was a week ago. And our European acquisition is gelling together, there’s still a lot of work but they’re enthusiastic about what they’re doing, then how we’re going to forward. The same is true with what’s going on in Australia, what’s going in South America?

So we believe that the year is going to continue to get stronger. As we go, the situation, I’m at Quincy today. The Wheel business like anything else is affected with the price of steel. Price of steel has come down. All of those get passed on to our customers and the same thing happens- kind of the old lease side, when you’re dealing with rubber. So we’ve done that. I don’t see much else going on. The markets are still very strong as they say. I don’t see slacking it the North American farm.

We expect that the -as time goes, our new products will move in to the after-market. We’re looking at very strong farming to keep on going.

I appreciate those. I think it’s going to be a little later this year mainly but then also it’s going to be later because there’s no way that’s planted on the corn because it’s too damn wet. But that happens in a good way for us, maybe not so well in reference to the farmers but right now if you got a set a tires on a tractor and it keeps a little bit on the cool on the dam side but you’re going to try to get your seeds in, you’re not going to getting in with a lot of narrow tires as you will sink.

So, there will be a mad dash for lighter tires, which generally are a little bit more on the margin friendly and of course we’re one of the biggest suppliers of that. So, there’s always a good side to something. What we’re doing, we believe our Track side, one of our competitors for you who do not know and the Track business worldwide, the situation is that Cat is the world’s largest producers of track and track components.

Next is an Italian company BERCO, which is owned by ThyssenKrupp. The third is ITM, which is owned by Titan International. The Titan people turned around and had done their hard part of the listing, which was streamlining the workforce, streamlining the factories and they’re in pretty decent shape and they’re being led by a lady Julia Ramon, who is excellent and what’s happened is a decent progress in the process of trying to take out 750 to 1,000, I think this was the amount.

So, this strikes all the other problems and commotion that’s going on in Europe. It opens up an awful lot of opportunities for us and we expect as this year progress that they’ll get stronger and stronger. And that’s the real positive turf for consider a lot of this chunk of our acquisition type here.

On the other side, our Wheel business is strong. Our farm tire business is strong. The mining business of ours is very strong and part of the reason is the Titan mining service is starting to move. It takes a little longer to sell up in a lot of these areas but we’re putting the full core trust to it and we expect it to continue to get stronger and stronger as we go through this year, which is a little different than our whole past history.

One of the items that I stuck on my comment was, which is the situation, what’s going on in the farm? You know that’s a part that, that be interesting if we will take a look at it, the – what happens in this farming sector and if you look at a 1000 farmers and you look at how many tractors are in each country, surprises people to see Canada’s number one with approximately 18,000 tractors per 1000 farmers. But mainly that’s because Canadian farms are not small farms especially in Ontario, Manitoba, Saskatchewan and Alberta and US is right next with almost 1,600 then France then Germany.

The reason we, Titan are making our push in South America and over into the Russian and what I call the CIS countries is because if you look Russia has 96 per thousand farmers, Brazil 61. You’re going to have to – those countries are going to have mechanize more, more and more in order to not only generate export income and for their own markets but to be able to do it efficiently and those are two markets that Titan is spending an awful lot of time and awful lot of effort toward.

I appreciate there’s a hell of lot more people in India and China but we believe that’s a long term hold and we’re not going to run into that market for quite a while at least until we get the other ones taken care of.

And the price, you can’t just bring in the US equipment brand new, I know both the air case all of our major are over their building factories to produce items but we believe that there’s going to be a bigger market reference, the market as I say in the release whether it’s Canada, US France or Germany. We believe they use these technique, will start going there and as the production comes up over there, the guys about to use will end up going to the new.

So, we think there’s some real growth for that for quite a while now and that’s where we’re headed. We believe our second quarter is starting off nicely and it’s going to keep on attracting. We don’t see anything out there. We understand all our friends, whoever have gathered here. We’re pretty confident of that what we said in the beginning and then, we believe that North America is going to stay within 1% of last year which was a total record.

We don’t believe from the OE side. They can push out two months more iron. We believe that the aftermarket will start getting a little bit stronger than what it was and it also with our efficiencies for our capacities for what we have, we believe that we will be able to get our alignment where we start building higher in the aftermarket and what we did the last two to three years because we were so big with the whole E and if they stay constant, with the added capacity, we’re bringing on, we should be in pretty good shape.

So that’s what we’re seeing. Reference is last. There’s no question, we should have done a hell of a lot better but there is someone since this were just pushing a button, it’s not going to do it.

When you look forward, we have been all over the world in the last 90 days. I believe at this point we have six acquisitions that we have entered into serious negotiations. One of them, we thought would be done in a fourth quarter last year but when you get into all of the legalese and everything else to weather the due diligence, we’ve got no new surprise for the due diligence but when you start trying to cross countries lines and who’s what it gets pretty complicated. Slow but surely, we’re knocking down the obstructions.

So there’s going to be a lot of activity. Everything that we’re looking at is related to what we do today. There’s nothing that is outside of that and until we have signed agreements in a closing, we’re going to have to remain silent on who, what and where, but we have full pipeline of the acquisitions and everyone on our Titan team is kind of really excited about whether they will bring to us besides a hell lot of hard work but that’s we’re at.

So, with that before I turn it over to Paul, I should point out that the – as we go forward, we believe we will do better probably for the first time ever where we’ll be able to look at the second quarter, look at the third quarter, and the fourth quarter and we’re going to be going up and up and away.

So with that, I’ll turn it over to Paul.

Paul Reitz

Thanks Maurice, good morning all. Well, Q1 was a good solid start to our year, continuing against that backdrop of the lingering impact from raw materials and the usual disruption between overall it was a much quieter period from a financial perspective than some of the noise we had in the fourth quarter.

So let’s start by breaking down our revenue to understand the drivers behind our results. It was a record quarter at $578 million of sales, which is up 25% from Q1 of last year and up 17% from the fourth quarter. The 25% year-over-year increase was driven by $165 million that came from acquisitions, which of course is primarily Titan Europe and then we got a little bump in overall volumes that agents, sales increases well.

When we got hit with the offset from the FX spread, they continue to reduce revenue by $9 million in this quarter and then of course the price mix decrease, hit us for about $41 million. Now that is primarily the raw material cost reductions that we mentioned as we continue to see a large decline in natural rubber prices and steel prices, they’re also down a little bit from last year.

The 70% quarter-over-quarter increase came from a good $47 million volume gain and then we picked up one additional month of Titan Europe to add but approximately $50 million to this corner. You keep looking at a short duration of comparing Q1 versus Q4, we still got hit a raw material impact that brought our price mix down by about $12 million, looking at quarter-over-quarter. So, as I said that thank you you’ll see that last year’s Q1 revenue for Titan Europe was a little bit over $200 million. Clearly this year it’s at those levels.

Now, we did forecast and understood that we would be a difficult market conditions over there as we started 2013 and that is accounted for our own internal 2013 plans and guidance. So really we will be looking at Titan Europe internally. We’re on target with the budgets through the first quarter and of course we’re seeing some really and encouraging signs coming out of there.

But looking at the long term, let’s not forget, we acquired a good management team, a good product portfolio that is complimentary to what Titan Inc has been doing for a long time and we got a good geographical footprint that is well positioned for our growth.

One of our annuals had a chance to go over there meet with Titan Europe’s management team into one of our facilities and I know he’s certainly walked away impressed with what he saw and what he learned that day.

So, I’m looking at our margins. We reported growth profit at 16.7% for the quarter that compared to 10.4% last quarter. So, very good improvement from the prior quarter. We’re still down from last year’s first quarter but I like to take a minute and try to explain that to understand but really we’re looking at tale of two story in that when you look at the company this year compared to last.

If you look at our legacy business that existed as a Q1 last year those line of businesses has generated gross profit this quarter of 18% versus 14% those generated from the recently acquired companies. So, again it illustrates that you really need to understand the differences between the legacy and the acquired businesses but it also illustrates that it may be a challenging time over there in Europe but the wheels certainly have not fallen-off, it’s some of many that expected to believe from the last quarter. They’re still generating healthy margins with plenty of room for improvement obviously.

So when you look apples-to-apples, Q1 year-over-year comparison, you’re looking at the 18% that was generated from the legacy businesses versus the 20.2% that we reported in Q1 of last year. So, basically you’re looking at a 2% difference and again you can really attribute that to the raw material issues that we highlighted and also the union situation that was out there for both the fourth quarter and first quarter this year.

Now taking a closure look at our segments, our x-revenue was up 5% to $311 million. It’s driven by good volume growth at 6% as we experienced really healthy demandable North and South America and keep in mind that those North American comps coming against in a very strong results from last year as well.

Acquisitions added $46 million to our AG segment and then these gain of course were offset by $45 million hit from raw material as do have some heavy price decreases that we passed on to our AG, OEM and aftermarket customers.

Our AG margins when you look at them year-over-year were down 5% to 17.4%. They’re well ahead of Q4 13% and again not the key being a drill pundit, but it’s really just the impact of the raw material, the union situation and then the addition of the lower margin Titan Europe AG sales that created a headwind when you look at the year-over-year comparisons for the AG segments.

Our Earthmoving/Construction revenue doubled to $210 million with a $114 million that are coming through acquisitions, price mix improvements did add $14 million of revenue to Earthmoving/Construction as we saw more product – mining products both sequentially and year-over-year.

We did see a volume reduction of about 22% and that really should not be in surprise when you look at the recent industry news and the channel destocking that is taking place within the construction industry. The margins for earth moving construction slipped to just under 18% from 21% last year, but again they are well ahead of Q4, 7.5%.

The decrease from last year is really primarily related to the addition of Titan Europe. Now their business if you recall that’s about 75% tied to earth moving construction area, but if you look at the Q4 to Q1 margins you will see that it does highlight that the European business is on a much better path as we move into 2013.

So looking at the expense side of the equation. SG&A was up a little bit to 7.3%. That compares to our run rate last year of around 6.5%. I do want to point out that the Planet Group acquisition that we did in August of last year does bring a higher normal SG&A level because it’s a service distribution business, so that’s expected. Then of course the inclusion of Titan Europe in this quarter did dry up our SG&A. If you look at their business historically they ran in the 9% to 10% range, so clearly there are some good opportunities that exist for us too in enroll in that and enter the Titan lean and mean culture.

We added about $1.5 million in higher royalty cost this year. That’s really from the additional truck sales that we’ve been selling out of Brazil. We continue to expand that business. So all-in-all we still manage to run the group, run our company at 8.5% operating expense level, so it’s not bad at all considering all the growth and acquisitions that’s taken place.

I do want to take a minute here and just highlight Brazil. This quarter marks two years since we’ve completed that acquisition. I just want to point out some of the improvements that’s taken place since last date. Both our EBIT and our EBITDA margins down there have improved by over 500 basis points from the time we acquired it.

Last quarter, we mentioned on the call that we have some new equipment. We have a new strip liner that’s in place. It’s really not fully activated yet. We have calendar line, it’s been approved by the government but that really won’t be in place until late Q4 or end of 2014. So the improvements that taken place over the two years are really tied to people improvements.

We set output records that are up 25% for the time we’ve acquired the business. And also keep in mind the business that Titan Brazil has been sacked pretty hard by FX which reduced the results by about 25% when you look at the financial side of it since we made those acquisitions. So you look at what we have done in Brazil the plan is on track, it’s progressing very well, but it really illustrates what Titan can do to improve the business post acquisition. And this clearly isn’t the only example of our success post acquisition but something I want to point out today because again we’re two years into that, that Brazil operation now.

To bring it down to the bottom line on the profit side, our adjusted net income was $0.36 a share, EBITDA was at $69 million. I compare it to adjusted net income of $0.09 in EBITDA of $37 million in the fourth quarter. Really the only significant adjustment this quarter was for the convert exchange that we did in January that added back $3.7 million to the bottom line. So overall it’s a good solid improvement from last quarter when you look at our bottom line results.

When I flip through the cash flow and the balance sheet side now, operations generated cash flow of €21 million, which is flat with the prior year. Q1 is always a tough quarter for us for ops cash flows. We typically experience an inventory of AR build coming off the lower Q4 levels and as expected that did happen again this year, our AR inventories did increase by about $50 million but that’s fairly in line with sales increases, so both our DSO and our inventory days stayed relatively consistent with prior periods.

CapEx, we invested $21 million this quarter, which is on our forecast for the year of around $70 million. We do have ongoing fairly big projects in Quincy and Brazil that will help us become more efficient into the future and we did continue our investment in Bryan that should be wrapping up very soon.

In March, we completed a $325 million add-on bond offering into 2017 notes. The Q part is at seven and seven, eight but the effective rate was 5.9%. So that may we generated growth proceeds from this offering of $345 million. One thing I want to point out going forward in subsequent quarters, you’ll notice that the cash flow statement will reflect the coupon rate for our interest expense versus the P&L will reflect the 6% rates. So, there will be a difference there but a very successful offering obviously. We’re very proud of getting a rate there below 6%.

We took the bond proceeds subsequent to quarter end and took a portion of the bond proceeds as you say and paid off $110 million facility that existed at Titan Europe. It’s there facility to had covenants and if you look back in a 10-K there was a comment made this covenants were tripped at year end, you’re allowed to failing twice, it was not a critical failure but it’s something that needed to be a addressed. So, we did and again that has been paid off. So, when you look at not just the Titan Europe facilities but our overall capital structure, there are no covenants or any related concerns to that matter.

We’re continuing to review the facility that exists to Titan Europe. We’re going to make sure that debt remains in place makes strong financial sense. So, we may continue to use some cash up the balance sheet for further debt reductions. I wouldn’t expect that this time the additional payments to exceed $50 million in the future.

In January we also finished or completed a convert exchange for $52.7 million of our 20/17 convertible bonds. We swapped after 4.9 million shares and $14.2 million in cash. If you run the math you will see it was a very good transaction for us. So only $60 million remains out of that original $172 million issuance.

So post these financing transactions, we now have approximately $750 million in debt. The $525 million have a maturity date of October 2017 and looking here today we have over $400 million in cash at the bank. So our net trailing EBITDA leverage ratio is still a low 1.4 times and even if you look at it on a gross basis, it’s at a 2.9 time level.

Our pro forma interest expense factoring all these transactions would be approximately $13 million a quarter going forward absent any other further debt reduction payments. So our balance sheet is in strong shape to continue to invest and grow and expand this company into the future. There is one more final note that I want to point out I think is pretty important for everybody and that has to do with our fully diluted share counts.

At the end of the fourth quarter, our fully diluted count was $58.3 million. It did go up this quarter to 66.6 and that’s due to the impact of the January convert exchange which added $4.9 million shares and then we are also now experiencing and feeling the full impact of the Titan Europe shares, the $6.2 million of Titan Europe shares that were issued in October and in December of last year.

When you look at last year’s share count, it was only accounted for those for really part of the year because they were issued late in the year whereas now you are seeing the full impact. So again, our fully diluted share count is the $66.6 million – 66 million shares.

So wrapping it up. It’s a good solid quarter much quieter than in place of Q4 but we certainly didn’t sit around quietly as we continue to build a strong foundation for this company. And now I like to turn it over to your questions. Operator?

Maurice Taylor

Hello, just a second here, Paul. One thing that is probably going to show up in the second quarter, so that everybody is aware is that last year Titan Europe had an earthquake and over in Italy and of course that not only did that affect their wheel making facility and shut it down for a while and we spoke about what had happened in the fourth quarter when we acquired it because there was a lot of stuff we did to help them out and there was of course, a lot of items that they bought to maintain their customer base and everything.

And we have come along and a couple of weeks ago with the insurance company, the claim was in all basics were settled at €40 million, €40 million is 52 million and there is a 5 million deductible, so on that from the insurance company will be €35 million. But the Italian government because of the nature of the earthquake has a program, where we should be allowed to receive that 5 million in Euros the deductible, from the Italian Government.

So our people have told us we can expect approximately US $52 million. So a portion of that I believe will probably show up. Sometime the lawyers are doing their paperwork, but you’ll see that in the probably the second quarter numbers and in fairness that should be spread back over the back quarters because that’s really where the damage was.

We are going forward. That plant is running. We are making some changes over there, but I want to commend them to the action that they did to get that plant running and everything and we will have some money as we proceed to make the corrections over there.

That the government has requested. So we mainly got a summit rough. They have already removed certain portions of it, but it’s going to take over next three years, but that’s a, when someone sees it slopping in there, wonder what the hell this next quarter, it’s been done, so that, it’s been a greater plan and it’s just the paperwork, so that will show up in the second quarter. Let’s go to questions.

Question-and-Answer Session

Operator

(Operator Instructions) And first question come from the line of Steven Volkman with Jefferies

Steven Volkman – Jefferies

Hi. Good morning, guys.

Maurice Taylor

Good morning Steven.

Steven Volkman – Jefferies

I had kind of two related questions. The first one is the unusual type items that we’ve been talking about over the past couple of quarters vis-à-vis, the union negotiations and so forth I guess the raw materials would be other Q1, is it – can we say that those are now behind us and that the second – third quarter would be more normal or how do we think about that are going forward and I guess the related part is, is there any update that you’d like to give us reasonably in the full year forecast that usually laid out in the past?

Maurice Taylor

Well, the – let’s take the last one. I’m still thinking where I think we’re going to come in. I mean, I appreciate that there is some people who look and say, well jeez you only did like $69 million or 70 million in EBITDA this quarter. I was going to hit you 340, well 100 million or 200 million EBITDA gets me there real quick. So, I’m looking at structurally, we are changing as a company that was mainly AG to where – and once you cross different boundaries in this different hemispheres, seasons flip upside down.

So, we’re getting so between down under and everything, I think we’ve got a good fact and I don’t – I think I can still hit those ranges that’s my guidance that I gave you is the same guidance that I’ve said to my board and we’ve nailed it right out. In my board meeting I laid out the reasons why I don’t think I got to change that now.

On your other two questions, let’s take the commodity question which is the price of what we pay for our steel and natural rubber everything else. I’ve always stated that when the pricing starts down, we generally were a quarter or so getting hit because you are moving and some product you got more flexibility if you have more in the aftermarket.

If you are in the OE, you’re going to get hit for a quarter and it saves your margins. I believe that from what my purchasing people, but I don’t have a lot of faith on purchasing people, I don’t. Make that lengthy commerce. They can tell you the best line, but they can forecast the future, they wouldn’t be working for us.

So, I really don’t know. I do know this that everybody is being running on the gold but I was around when everybody went nuts and was cheering when gold broke to 1,000. I mean if you remember CNBC, they were all clap and everything, well. It means that you’re not going to comment Harry Caray if gold goes to 1,005, they are still going to be digging like hell.

So, I don’t know what’s going to happen. I probably come out of these. I know for the next 90 days, we don’t see anything dropping and we had over 90 days hell, make sure over 90 days just to ship the natural rubber from the Far East, Indonesia in that regard.

So that said you know, it’s, I hope I prefer stuffed rise, but other people don’t want to see that. The Union situation, we are already seeing the benefits that are coming now. The situation of our workforce, the unknown all the BS that goes through and all the rumor mails,. Now people are back to work, they know what we got to do. I think that there’s a number of issues that came up, which we’re dressing and what happens as you acquire all these different companies.

Everybody has a different attitude about how things should go, how their ex, they might have spent 15, 20 years working for a Continental, General and someone else from Goodyear and someone else with Relic and have the difference. We’re trying to patronize and make sure and our belief is that we run our factories.

We appreciate the workforce we have and we expect whatever we do at one plant is the same thing and followed at our plants referenced to discipline, promotions and everything else and we are finding that we got still a lot of work, a lot of work in the supervisor level that certain plants don’t follow the same rules. So, but we’ll get there. I have traveled this whole freaking world as a friend of mine Doug, he’d been running all over- he is a young guy different than an old fart like me running around. But I see the positive. So, I’m kind of like really excited. I think it’s going to be a good year.. So, that’s where I see it.

Steven Volkman – Jefferies

That’s helpful. I appreciate it. And maybe just a quick follow-up and I’ll pass it on. You mentioned a number of acquisitions in your pipeline and grab these things, sort of come together whenever they come together but can you just give us a sense of size of maybe in revenue size, are we talking about something intend to $20 million range or we’re talking $200 million or just kind of a ballpark of what we think things could look like?

Paul Reitz

Well, if you were size a month in the revenue size, okay because I probably have all six of phone, okay. So, if you were to add them in the revenue side, the revenue side would probably run us in the range of those six, would probably be five, pretty close to about $500 million in revenue.

There is a seventh one that we’re kind of like stumbling, not stumbling around, we haven’t got down to what we’ll pay, okay and naturally everybody I think they should just give it to us, okay, but that is about 500. So six for 5, one for 500, so I think we have of anybody in the world, I think we’re probably the most logical for all of them. So it would not surprise me in calendar year ‘13 and 13 is my lucky number. So I figure we got a, I got an 80% chance to get them all.

Steven Volkman – Jefferies

All right. Well, best of luck. Thanks so much.

Operator

We’ll go next in the line of Ian Zaffino with Oppenheimer.

Ian Zaffino – Oppenheimer

Great, thank you. As far as the Italian plant, what type of production you’re beginning to get towards mid third, fourth quarter? How long to 2014 is this going to take, to ramp up to where it was before the earthquake?

Maurice Taylor

Well, I think first good morning there.

Ian Zaffino – Oppenheimer

Good morning.

Maurice Taylor

I should expect you to start asking about the Italian side. I am a little surprised that you have not request that they have tour, I wanted to hear your European excursion, you should have good time over there.

Ian Zaffino – Oppenheimer

That’s my ancestors over there.

Maurice Taylor

I understand they probably treat you very well. The wheel business is back up and running, okay. What will happen as you know Europeans are starting to figure out at some place they’re going to have to go to work. I appreciate that France is still undeclared but with everybody moving now out, someone is going to get the message, but they are going to have to go to work, well. But until they decide that the month of August they shut the facility down but as our people who come in and work.

So every August, our plan is to remove a portion of the roof, so it will probably affect us a week as no one ever gets offended on time and you have the sacrifice -of a brothers, but I would say there’s no constraints on them at this point in time. They got their paint machine running. They’ve got their – they did a tremendous job and they spend a tremendous amount of money getting that thing up and running. So, I expect them not to have any problems moving forward of ramping up, I think they can take an awful lot of business. So that’s how I see that over there.

Ian Zaffino – Oppenheimer

Okay, so going forward we can hear good things from them as opposed to bad things.

Maurice Taylor

Yeah.

Ian Zaffino – Oppenheimer

All right. Thanks.

Maurice Taylor

You’re welcome.

Operator

We’ll go next to the line of Schon Williams at BB&T.

Schon Williams – BB&T

Hi, good morning, guys.

Maurice Taylor

Good morning, sir.

Schon Williams – BB&T

If you could just maybe talk a little about the – if the seasonal progression throughout the year, I mean I know it’s a little bit different now. It was that Titan Europe in the mix but in a normally maybe we would expect a little bit of a revenue just seasonally Q2 versus Q1, I’m just wondering I don’t know – are you expecting kind of normal trends or you expecting some acceleration in Q2 now that we have the union kind of fully online. What do you think, could you just address maybe what Q2 should like versus Q1 from a revenue standpoint?

Maurice Taylor

I believe that Q2 is going to be larger than Q1 in all respects, okay. I believe that’s going to – well every quarter this year is going to trump the quarters of last year just because of the acquisitions, all right, that’s a fact but the other factor that is going to be played out is that we’re going to pickup not only in the operations and what we’re trying to do in the continent of Africa’s, the South America, the situation in Australia all those facilities will be helping the seasonality of numbers that come in from our old system.

It used to be, you could flip-flop one year or the other, but first and second, you never know which one was going to come out the strongest and then third was so-so, and actually the third could have been the worst quarter, but sometimes it will be the fourth quarter and I think now we have the opportunity to watch that the others are going to start to come on up, so then I will be stronger and that’s what I see.

Schon Williams – BB&T

Okay and maybe if I could follow up to Jim’s previous question about the guidance. You mentioned picking up an additional $100 million to $200 million of EBITDA, I just wanted to clarify was that acquisitions that you are talking about, are you talking about making your internal initiative driving that?

Paul Reitz

First thing is I don’t know what, I am the one who you talked to. I am the one that everybody talks to and I am the one that my boards talks to on these guidance and the numbers, but I am not the one who put together the numbers in the budget.

So there’s an awful lot of people in this company, who are tied to those numbers, the numbers that I give out and I would as I probably didn’t say, they are feeling pretty comfortable with them too. So they got a lot of writing on them. So, I expect that there will be some pushing and shoving as we keep marching through the year but that’s what we got, I’m not the acquisitions and what like everything else till you got all worse than everything else pal. I’m not counting on them to throw any of it in.

Schon Williams – BB&T

Okay, that was helpful. I’ll get back in the queue again.

Operator

We’ll go next to line Larry DeMaria with William Blair.

Larry DeMaria – William Blair

Hi. Good morning, Maurice.

Maurice Taylor

Good morning, Larry.

Larry DeMaria – William Blair

Just couple of questions. Can you just, just on, under the prepared comments, but probably at the end of the day in Bryan is this point away at or near, where you want to be in terms of full capacity at a run rate and secondly as it relates to Bryan and mining tires, what do you think the mining customers, obviously mining the market is getting weaker but you’re still tied more to replacements, so can you just frame some of the conservations you’re having with customers and give us a little bit more color in the mining side?

Maurice Taylor

Well, to answer your first question is Bryan were supposed to be no. We had a meeting and of course Bryan is under the group headed by Mr. Bricks and Mr. Bricks requested Mr. Campbell will help give this thing the pushup the mountain for getting at the top and Mr. Campbell has decided that he would like to do that. So we are going to do that this past fourth quarter because we had thought that one of our acquisitions was going to come.

So instead of waiting, so Campbell is going to do it. First, he is going to go down to be – for designated wedding and but on Tuesday he will be there and I’ll be there. The equipment is, a lot of it has been added. There is a little bit more, but we think we have a plan, certain things are going better, certain things are falling into place and other things are a little bit behind. But the back to your – but we’re going to get it there, that’s a given.

The market and I was down in Australia, we met with some very big companies and as you know we created last year a 58-63 loader tire. Those loader tires today have approximately between 3,000 and 3,500 hours on them. No one produces that 58/63, it’s a radio and it’s done such a job and if you, the people who make the change want to work with us now because they can lower their cost, set a chain around lower by $10,000.

When you start doing that, mining companies are real interested. So we have two sets going to Australia, but as you see now that the show at the Berlin Show, I think you were there, we are, we have already our malls and everything is set up, so that we can make that 731/2, which will even make a bigger wheel.

So I am in Quincy and when I get off the phone call, I will be with our engineers to build the wheels, but we’re doing that across the whole product and we believe that the benefits and when it happens not only are we going to drive this back to the OE, we’re going to drive it through the end-users and this is not some technology that’s no, but we are leading it because we have both the wheels and tires and we think it’s going to be a big bloom to our business in the years going forward and that’s what we are doing.

Larry DeMaria – William Blair

Sounds good. So it sounds like kind of rush. Should we see sequential gains in mining tires all year and do we ramp, I know your plan is on the....?

Paul Reitz

We’re going to keep increasing, I think as Paul on his call, we increased this past year over last year and we’re going to just keep going up till we hit our maximum, our maximum out of that Bryan facility is between 500 million and 600 million in revenue, then you can go any bigger. So we’re chugging along. Are we there yet, no, are they up to their first quarter, did they hit their budgeted numbers, no, but do we have room to gain and catch up, yes. And that’s why Mr. Campbell’s is going up there.

Larry DeMaria – William Blair

So can we hit that annualize max by year end?

Paul Reitz

Yeah.

Larry DeMaria – William Blair

Okay. Even with softness in mining, because it’s more about productivity and profitability for you?

Maurice Taylor

Oh, yeah, everybody has to understand, if you freeze the market, there might not be any brand new mines opening up, but you look at orders still there, I mean, it’s not going to go off the charts but mining companies are still making a lot of money. I mean first quarter what was it Berco made 800 instead of a million something. I mean there, forget the price, their stocks, it’s how cash, they are not just somehow shut that mine down.

The new mines which are, besides in the commodities as you run them all up, all the prices they have found to open that up. They are two, three years away that’s when they start drilling up, just begin in there. This part of slowdown is what talking heads want to say, where a lot of the mines are saying okay, let’s start looking at our cost and everything else, hey we said that model is perfect, that’s why I said it. You get the new product out and you’re going to save them some money and that’s where – we’ve grown in this business not because of some wizard, we’ve grown because when it comes to building a product we were the lowest cost there is, so and it performs.

So this is all good for us and you can see it by the numbers and if you look fourth quarter, but I thought we just went back years of know-how. We increased our margins over the fourth, now we’re back to where the boom, no. You just start putting the price material up, you’ll see those margins just shoot right up again, but now we’ve got to, we’re always watching our own.

Larry DeMaria – William Blair

Thanks, appreciate it. Just last one, the last question. As far as deals go, you obviously bracketed $500 million to $1 billion range if you did everything, do you have enough cash to do all the deals, are there other ways to finance them or how are you thinking about paying for all the deals?

Maurice Taylor

Well, do we have the cash, yeah, what we’re probably going to do is we’ll probably have some partners in a lot of these things. So our cash, we got the to do everything I believe, but we’re going to have some partners and out over as we – and it’s not just because their financial partners when these things are announced everybody will figure out pretty quick while we have them and we’re not rolling the – I’m a lot more conservative than everybody thinks okay. I don’t care to – I got bit before. So you bit me once, you are not going to bite me second time. And so, we’ll probably take out these other people, okay, over three to five years but we’re going to have partners.

Larry DeMaria – William Blair

Okay, thanks Maurice. Good luck.

Maurice Taylor

You’re welcome.

Operator

Thank you. We’ll go next to line of (inaudible) Research.

Unidentified Analyst

Hey guys, everything was answered. Thank you very much.

Operator

And we’ll go next to line of Jim Young at West Family Investments. Please go ahead.

Jim Young – West Family Investments

Hi morning. In the press release you highlighted the opportunities in Russia, in Ukraine over the next 10 years, could you give us a sense are you referring to more ad opportunities, more lining opportunities and could you give us a sense as to what level of business are you achieving today and what kind of an opportunity do you see over the next 10 years?

Maurice Taylor

Well, what we basically – we started off in the AG side, we kind of like stumbled and found out that these big holes, we’re on the mining side. So, we’re going both ways, all right, it’s both. The Russia now covers nine time zones. So it’s different, there is no ands and buts about it, but we believe that they have the natural resources, there is no question the opportunities in the farming, it’s going to take time, it’s not going to just drop out of the sky.

In fact one of the facilities two weeks ago when I was older a week ago, when I was over there we were flying over an area and you look at the size of tractors that they have on in the field and there is like tractors running, small tractors, probably what we would call light roll cab tractors pulling the implements to prepare the field.

And then as you just mile a or two over here is a big case four wheel drive and that guy is going through that field and it’s a big field but he’s got one implement, one tractor and he just like a cloud at us.

So you’re not going to change from the four to the one over night but as you keep producing, as time goes they are going to go from the four to one because that’s what you would see in the US and the farms are just so huge that I believe that’s what’s going to come about and it takes time.

If you look and you look at the in my press release, if you have 1000 farmers in Russia, my God, 1000 in Canada and look at the go around the globe, it’s the same. You got 1800 in Russia, here you get maybe 6 tractors. So once you start showing them, here’s what the land, because the land is pretty close to the same. So if you put this kind of chemicals on it, you put this kind of seeds on it, this is what you’re going to get.

So everybody is worried about how you are going to keep producing it. You’re not going to produce with 96 tractors and the Canadian guys got about 1.8 per farmer and you are down there with a 10th of a tractor. I mean that’s what’s going to happen and it’s going to happen in South America and that’s why I am not worried about China with three and India with six.

Those are little like right and wrong numbers. So that’s my own personal observation, either ones you wish, but I am excited about, do I like going there? Not really, but it’s for the younger people to go there. Fight the cold, fight with all the other, shall I go out to boil the food?. No. The whole eastern block for cooking the big great, I mean that’s why Italy is going to go down the tubes when it comes to just preserve over there, taking more money, while Russians have good food for years, so, just messing my last remark, okay.

Jim Young – West Family Investments

Good morning, I understand, approximately the conceptual opportunity I guess my question though is, so what are your annualized revenues out of Russia, what were your annualize revenue out of the Ukraine over 10 years as you highlight that there’s going to be high growth opportunity, so in 10 years

Maurice Taylor

We have a privileged squad over there. We can’t tell you what the – we shift stuff up to – we ship stuff to JoanDyer in the US and then take it over there, but they’re not even – they’re just starting, the case tractor heard I will solve them. I can tell you that right now because no one makes it over there but I didn’t send them to Russia, I send them up the case.

The case is building a factory over there, so is JoanDyer, so is Fia. And I know because they’ve told me we want you guys there, all right. But just because they tell us don’t mean we generally go, but in this case, I took my own body went over and I can see what they’re doing. So, will there be ups and downs, hell, yes, because nobody knows what’s going to happen. So everything I’m looking in the forward is all that on for us, it’s nothing that we’re not selling.

Jim Young – West Family Investments

I guess another way to ask the question, Russia has 96 tractors for farmers today, over the next 10 years, do you believe that you are going to go to 200 tractors per cows and 500 tractors, a 1000, where do you, how do you see that market developing?

Maurice Taylor

I see that market developing over that period of time. I would see that 96 probably going up you know, into the mid-hundreds, are they going to instantly take it to everybody a 1000, one tractor per one farmer, no, but I do believe you are going to see it in the next 10 years that they are going to go from the 96 probably up to 600, 700. I think they can get surely get us, we are mechanizing that process.

Jim Young – West Family Investments

Thank you very much.

Maurice Taylor

Thank you.

Operator

We will go to the line of Philip Volpicelli with Deutsche Bank Securities.

Philip Volpicelli – Deutsche Bank Securities

Good morning Maurice. How are you?

Maurice Taylor

Pretty good, Phil. Yourself?

Philip Volpicelli – Deutsche Bank Securities

Very well, thank you. The seven acquisitions that you are looking at, is it safe to say that none of those are in North America or could you give us at least some regions as to where the seven might be located?

Maurice Taylor

I can tell you right now none of them of the seven that I mentioned are in North America. All right.

Philip Volpicelli – Deutsche Bank Securities

Okay and the goal there would be, to be able to source mostly tires or steel wheels?

Maurice Taylor

They are, I’d better be safe and just tell you that they bolt on to everything that we have.

Philip Volpicelli – Deutsche Bank Securities

Okay, that’s fine. And I guess this is probably the hardest of the three. Do you have any sense of how soon one of those may be consummated, are you at a final stage on any of them or are they all still in kind of a negotiation stage?

Maurice Taylor

No. One is in the final stage, it’s just that you go through lawyers and they give you and it just takes, we had our own in-house lawyers and we had the outside lawyers and you got outside accountants, you get all of them into and it’s just a, nobody wants to whip it out real fast.

One of the seven that I mentioned, the lawyers for freedom trainee or for an interpreter 250 an hour, the lawyers 900 an hour, so I just went – because they sent this contract that they wanted my signature, I just went and screamed that my own in-house counsel, I pay him that. So in a lot of front, so, I mean it’s nuts what people are trying to charge you.

Philip Volpicelli – Deutsche Bank Securities

I understand. And then with your comments regarding, you have enough cash and you’re going to use partners, does that mean that we should not expect any incremental debt on the balance sheet when you finance these and they your minority shares or so or you have minority shareholders in some of these...?

Maurice Taylor

Well, I will just say that somebody else stepped up and says okay, you buy x percent, we will buy x percent and there is a value that they are making besides the cash, I don’t need them, more cash, all right, but based on the deal because of their expertise maybe in the country, maybe from the connections and what everything else. So, I figure and most of my Board agrees with me that you bring them in and then you say okay, we will, we have total control of the management and we have an option 3 to 5 years to take them out. We have a set formula that will take them out. They are going to make money, then they have an option after five years to give us support and so I am doing it.

Philip Volpicelli – Deutsche Bank Securities

That makes sense. And my last question. You mentioned that earthmoving volumes were down about 22% because of channel destocking, do you think we’re largely through that now, what is your sense of the inventory in the channel on the earthmoving side?

Maurice Taylor

Now, you’re talking about construction.

Philip Volpicelli – Deutsche Bank Securities

Yes, that’s question about construction?

Maurice Taylor

That’s construction. If everybody remembered how the last year, year and a half construction was coming back and everybody bang, bang, bang while, it came back. It jumped 30%, but if you went from 100% down to 10%, a 30% leaves you up of 13%. So the construction is out there for, there is spottiness for residential, but those numbers are just, hell, they are not moving the equipment.

And Chad will tell you that, Deere will tell you that C&H but you go on up to the decoders how things are really human. So I just – what I am saying is that where we used to produce 60,000 back haul tires, you probably only producing today 10,000. I don’t – yeah, we like the 10,000 but it doesn’t get me all excited, it’s not going to get you excited either trust me for what it moves.

So, that’s what I meant, I don’t even count it in, I mean it’s in as a fixed cost, I don’t count construction stuff for making any money yet and it won’t until you start getting this – country moment. And I don’t think you’re going to see – you’re into what they call the new normal, you know. So I’m looking for the rest of the product.

Philip Volpicelli – Deutsche Bank Securities

Got you, great. Thank you very much and good luck.

Maurice Taylor

Thank you.

Operator

Thank you. And gentleman, there are no further questions in queue.

Maurice Taylor

Thanks everybody, it means they all hung up. And I can go now. Thank you, dear. You have a good day. Bye-bye.

Operator

Thank you, you too. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Titan International's CEO Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts