Titan International, Inc. Aktie

Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Investor Relations for Titan. Mr. Snyder, the floor is yours.

Thank you, and good morning. I'd like to welcome everyone to Titan's First Quarter 2026 Earnings Call. On the call with me today are Paul Reitz, Titan's President and CEO; and Tony Eheli, Titan's Senior Vice President and CFO.

I will begin with a reminder that the results we are about to review were presented in the earnings release issued this morning, along with our Form 10-Q, which was also filed with the Securities and Exchange Commission this morning.

As a reminder, during this call, we will be discussing certain forward-looking information, including the company's plans and projections for the future that involve risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. Additional information concerning factors that either individually or in the aggregate could cause actual results to differ materially from these forward-looking statements can be found within the safe harbor statement included in the earnings release attached to the company's Form 8-K filed earlier as well as our latest Form 10-K and forms 10-Q, all of which have been filed with the SEC.

In addition, today's remarks may refer to non-GAAP financial measures, which are intended to supplement, but not be a substitute for the most directly comparable GAAP measures. The earnings release, which accompanies today's call contains financial and other quantitative information to be discussed today as well as a reconciliation of the non-GAAP measures to the most comparable GAAP measures.

The Q1 earnings release is available on the company's website. A replay of this presentation, a copy of today's transcript and the company's latest quarterly investor presentation will all be available soon after the call on Titan's website.

I would now like to turn the call over to Paul.

Thanks, and good morning, everyone. Our first quarter marked a solid start to the year with revenues and adjusted EBITDA near the high end of our guidance ranges. That result was well earned given the continued headwinds we see in our end markets, largely due in part to the geopolitical developments that are out there.

For Titan, times like this are when we set ourselves apart from others. Our diverse product portfolio, strong global footprint and our one-stop shop distribution surrounded by the strength and the resilience of our One Titan Team is our competitive advantage. While we cannot control cycles, we can control how we respond. And our response is clear. We fight for every opportunity, we earn every customer's business, and we continue to invest in innovation to make equipment perform better. This past quarter, our results illustrate that our team continued to execute well and take operational, commercial and organizational actions as needed.

As our customers continue to contend with end market demand that is hard to predict, the natural response is to limit downside exposure with inventory being an area where many are hesitant to tie up working capital. That approach also limits their ability to respond to any instances of meaningful customer demand and a result, this just-in-time inventory paradigm really becomes a self-fulfilling prophecy, where it's how soon can you get me this, which is the typical response to customer orders. Throughout this cyclical trough, though, we have prioritized our ability to be highly responsive to our customers. With every sale and customer experience so vital for OEMs and our dealers, our value built on our global manufacturing footprint, our strong distribution channels and the strength of our JV and third-party partners is how we help our customers serve their end markets and their end customers every single day.

So now flipping over to the market landscape. I think it's helpful to really look at that by segment. So let's start with ag. In the U.S., farmer incomes are currently expected to be relatively flat compared with last year. Those estimates were published around the same time as the Iranian conflict. So there is the possibility that if input costs remain high, such as diesel, that will continue to be a drag.

On a positive note, though, our sense is that, most U.S. farmers had already bought fertilizer for the season. So the recent increases there should not be as big of a factor. Used equipment inventories have continued to come down, albeit slowly as major OEMs have been making significant progress on finished goods destocking. It's obviously been a topic spoken about quite extensively over the past year. We do believe and we're seeing that sentiment is indicating a willingness to invest in the near future. We just need that catalyst that's going to stoke that fire. So taken all together, the overall Ag current outlook for '26 is pointing to a slightly down year with many pointing to '27 as the likely time frame for that growth to return. Conditions are improving around the margins, but there really is just no clear signal right now for that timing of a rebound. We do believe that could come sharply though when that happens when you look at the length of the downturn, the age of equipment, et cetera.

So for Titan, it's worth reiterating that during normal market conditions, our orders for OEMs are often a leading indicator. We've mentioned that a number of times, you think about the ordering process for us to get raw materials in, especially on the wheel side. So with inventories lean out there in the market, it is reasonable to think that we would see some ordering later this year ahead of the anticipated '27 OEM deliveries. That is all obviously a couple of quarters away, but I wanted to highlight this point as it supports our full year guidance.

In addition, the recent news from the EPA when it comes to renewable fuel standards looks like to be another one of those somewhat supportive regulations and things that we can point to for the future as that would clearly be a good move to change those minimal renewable fuel obligations and help the overall demand picture for grains. So taking that all together, again, we continue to view the environment as cyclical, not structural. The elevated interest rates, tighter credit and policy uncertainty have led to this cautious behavior that we've seen across the Ag sector.

As we've noted before, a significant portion of our agriculture exposure is replacement driven, not discretionary. So even in down cycles, equipment must stay operational and our products remain critical components of that equation.

Lastly, what we're seeing is that, signs in the Ag market is stabilizing after a multiyear reset rather than deteriorating further. While this is not a rapid recovery environment, early indicators, particularly in used equipment and farmer sentiment suggest conditions are bottoming and normalizing gradually. That type of recovery path also aligns well with Titan's operating model.

Importantly, we believe Titan is well positioned from a trade and supply chain perspective. Our U.S. manufacturing base, combined with our global production footprint provides flexibility in an environment where tariffs and trade policy continue to influence cost and sourcing decisions. We are seeing that play out now in the European wheel market where our well-established, integrated and efficient operating model that we have over there is winning us Ag business at a healthy rate.

In summary, while Ag remains in its down cycle today, Titan is well positioned to remain resilient through that cycle and participate as conditions improve. We don't need a sharp rebound to perform. Incremental improvement, combined with our disciplined execution supports our outlook.

Moving on down to South America. Brazilian Ag has been contending with really an unfavorable political climate to kind of put that simply and nicely. That has depressed activity generally. And as a result, we've seen some softening in our Ag tire sales there. Unlike their U.S. counterparts, Brazilian farmers have generally not purchased fertilizer for the next growing season. So higher costs will have a bigger impact on their activity. Conversely, our ITM business in Brazil has been performing really well to start the year. In fact, that's surpassing our own expectations. And so that segues nicely into our EMC business, where if you look at our EMC business last quarter, that has reported, as was the case last quarter, I should say, we once again reported the best growth of our 3 segments in EMC.

Construction equipment demand in the U.S. has been a relative bright spot and looks to be well represented across a variety of end markets, giving us that confidence that demand will remain firm. Activity in Europe has gotten a little bit more muddled in terms of competitive dynamics, although the macro there continues to be supported by longer-term infrastructure investment. We have been winning business in the European construction wheel market, similar to what I noted about ag.

And lastly, flipping over to our consumer segment. We are seeing some positive trends there in Q2. We have some really nice wins coming from our team with a few different customers to start the year. So we are seeing our consumer business growing over the course of the year when you look back and compare that to '25. Overall, inventory levels are healthy, inventory sellout or overall sell-out, I should say, and sell-in appear good. We did see a small drop in Q1 as power sports equipment has been a bit softer with higher gas prices creating that headwind. However, business consumers in outdoor power equipment and turf, they're commercial driven, so they have inelastic demand, and they need to continue to run their equipment to service their customers. So we see that business holding up better in that submarket. So, again, I want to reiterate it for the full year in consumer, we expect to see revenue growth.

So looking ahead to Q2, included in our guidance is an approximately $3 million headwind in operating margins due to the impact of the war in Iran. This is coming from the sudden acceleration of many costs and the mismatch in the timing of price increases with OEM contracts. We've talked about that previously. Overall, these contracts do serve to protect us, but at times, there can be a timing difference.

On a longer-term horizon, though, looking beyond Q2, we do expect the lion's share of the cost increases that will impact us in the second quarter to be directly offset with corresponding price increases.

So in summary, I want to leave with an overarching message that much as it was last quarter, it is ultimately consistent with our long-term focus and positioning. On a daily basis, we center ourselves and our business on servicing our customers. That means having the products they need, where they need them and when they need them. It also means a continued focus on innovation, which is guided by the ultimate question of how do we help our end market users. From farmers to miners to landscapers, we have the most diverse portfolio in our sector, and we want to see our customers get the most out of their machinery investments. That North Star, if you will, is guided by -- help guide the development of our LSW lineup, which has been a big win for Titan for a number of years. I've highlighted the benefits of LSW on many of these calls, but I want to emphasize that once again, the ability LSW has to help farmers reduce their fuel usage. With fuel prices currently high due to the conflict in Iran, our LSWs offer farmers an important tool to help mitigate some of that increased fuel cost.

We do and we will continue to prioritize our investments in R&D, continue to bring these value-added products to the market and in doing so, further solidify our market-leading position in off-road wheel tires and undercarriage.

Over time, we deliberately repositioned Titan into a more structurally resilient and strategically focused organization, capable of delivering through these evolving cycles. That includes maintaining a balanced cost structure, a broad product offering and a global manufacturing and distribution footprint that's second to none. Strategic actions like the Carlstar acquisition further strengthen our ability to navigate these market cycles with greater stability.

As we look ahead, we are confident in the durability of our business model, the diversity of our product portfolio, our global footprint and most importantly, the strength of our people and our ability to continue delivering value to our customers.

With that, I will turn it over to Tony.

Thank you, Paul. Good morning, everyone, and thanks for joining us today. As Paul noted, our results for the first quarter were solid with revenues and adjusted EBITDA above the midpoint of our guidance ranges.

There are some important financial metrics to highlight this quarter. First, sales grew 2.9% year-over-year. EMC segment sales led our growth, expanding 11%. Gross margins improved to 14.1% and adjusted EBITDA grew to 31% -- sorry, grew to $31 million.

Reviewing our business by segment, I'll start with EMC as it continued to lead our growth as construction remains strong. Segment revenues were up 11% to $160 million. Geographically, sales volumes had solid growth in both the Americas and the European wheel business, driven by strong OEM demand. As was the case last quarter, the EMC segment enjoyed a nice contribution from foreign currency translation, which added 6.1% to the relative performance. While Ag segment sales were relatively flat from the prior year and slightly down organically, we are encouraged by this as we have had several years of double-digit Q1 sales reductions in the segment. U.S. aftermarket sales were flat in the quarter compared to prior year, but more importantly, it is expected to grow when looking ahead. We also saw an increase in LSW sales.

Another positive note is that we had solid growth in our Europe Wheel Ag business, driven by improved customer orders and are expecting to have a stronger year altogether in Europe. Our Brazilian Ag business continued to moderate as farmers in Brazil are still contending with higher input costs and high interest rates. Governments in the region have been working to support their farmers by boosting renewable fuel production, thereby absorbing some of the green supply. Altogether, we expect 2026 to remain challenging in the region.

Lastly, in consumer, Q1 sales were down modestly from the prior year due to market conditions moderating due to tariffs and continued elevated interest rates. However, on a positive note, we saw improved demand from our OEM customers, which aligns with recent analysts and recent OEM earnings reports that pointed to tough exposed businesses being less cyclical and more resilient.

Looking at margins by the segment in the quarter, EMC showed nice expansion as revenue growth allowed for better fixed cost leverage. EMC gross margin in Q1 was 11.3% versus 10.4% in the prior year. Ag gross margin was slightly lower compared to prior year at 12.1% versus 12.4%. Consumer gross margin improved to 19.9% compared with 19.6% as cost reductions and productivity initiatives had a positive impact.

Moving on to SG&A. If you followed our company for any length of time, you know that we maintain a lean organization that handles market ups and downs with more predictability. For the first quarter of 2026, SG&A, including R&D, was $57.7 million compared to $54.4 million for the comparable period in prior year, primarily due to foreign currency and general inflationary impacts, including health care. We continue to take actions to manage and reduce our costs.

Operating cash used during the first quarter was $47 million, which was consistent with our normal seasonal ramp in working capital, particularly accounts receivable, which increased concurrently with a sequential step-up of $95 million in sales.

CapEx in the first quarter was $13 million compared to $15 million in the prior year period as we continue to be prudent and make measured investments in our business. As a result, free cash flow was negative $60 million with debt -- with net debt at quarter end of $441 million and a leverage ratio of 4.3x. This usage of cash was in line with our expectations for the quarter, and we expect it to improve through the rest of the year. Reducing our leverage remains a key goal as we progress through the year.

Tax expense for the first quarter was $4.6 million, which was in line with our expectations. The effective tax rate of minus 23%, as we have previously explained, is a function of where our profits and losses are distributed geographically and the applicable tax laws in each of these areas. I'll reiterate that as we see a rebound in market conditions domestically in the U.S., we expect to get back to normalized tax rate levels. For Q2 2026, we expect tax expense to be in the $4 million to $5 million range, which is similar on a sequential basis to Q1 this year and comparable to Q2 last year.

A strategic event of note during the quarter was our decision to close our Jackson, Tennessee plant. We recorded nonrecurring restructuring expense of approximately $25 million associated with this decision. Of this $25 million, it is important to note that the vast majority, approximately $23 million was noncash. The plant closure was a long-term synergy that was identified at the time we closed the Carlstar acquisition as we knew the combined business would have excess manufacturing capacity in the U.S. and that this decision will be accretive to our earnings. We expect to complete the closure by the end of October and estimate total cash cost to close the plant to be approximately $7 million, while yielding annual cash savings of $5 million, which will accrue beginning next year.

Now moving on to our financial guidance for Q2 2026. Our guidance for the quarter is revenues of $470 million to $490 million and adjusted EBITDA of $25 million to $30 million. Versus last year, that guidance implies some top line growth, along with modest reduction in bottom line performance compared with last year's Q2. The primary factors driving the bottom line reduction are OEM pricing pressure and additional cost pressure that Paul went through related to the Iran conflict.

For fiscal year 2026, our financial guidance remains unchanged and is as follows: revenues of $1.85 billion to $1.95 billion and adjusted EBITDA of $105 million to $115 million. This guidance range is reflective of modest improvement compared to 2025 on both the top line and bottom line and reflects our belief that Titan should benefit from increased customer activity in the fourth quarter, supporting readiness for an expected Ag recovery next year.

On the whole, our end markets remain dynamic as equipment buyers contend with ever-changing and challenging market conditions. We at Titan have the financial discipline and are strategically well positioned to navigate these conditions, serving our customers better than anyone else.

Thank you for your time this morning. We would now like to turn it back over to the operator for the Q&A session.

[Operator Instructions] Your first question comes from Mike Shlisky with D.A. Davidson.

This is Linda on for Mike. My first question is on the Ag. I think in your Ag commentary, you highlighted challenges, particularly in Brazil. My apologies if I missed your commentary in Europe, but could you give us a little more detail on Ag markets in Europe and the rest of South America compared to North America?

Yes. No, it's a good question. And we are seeing some differences in those regions. And it has somewhat come on suddenly. There's always a number of different moving parts going on in the global marketplace. But starting more specifically in Europe, we've seen that market just remain more stable through time. So as the challenges in the world are out there, Europe has remained more stable.

What we're seeing in particular to Europe, though, is really getting some good wins. Our team has built a very well-established supply chain integrated network and an efficient working model. And so we've been able to pick up some nice sized wins in that business in that marketplace. And so specifically, my comments on Europe were more directed at what Titan has done specifically there to garner some new business, and we'll see that impact through the course of the year, as Tony and I mentioned. But overall, the European market has just been less susceptible to the ups and downs.

So then you flip over to Brazil, that is definitely not the case where Brazil can swing and larger movements quite rapidly. What we're seeing there outside kind of what's going on with the global Ag marketplace, farmer incomes, et cetera, is just that the politics in Brazil have gotten complicated and messy for them. Spending a lot of time with our team talking through that. It's just having an impact on business in the short term. Again, overall, I think the dynamics of Brazilian agriculture are good. And certainly, they had a strong '25. But they are facing some political headwinds right now as they work through a presidential election that has some different viewpoints on what's best for society and the economy there. So that's where our comments are directed with Brazil is that we are seeing some short-term impacts there. But again, remain positive in just the fundamentals of what's going on in Brazil.

And then North America, I mean there's been so much talk about North America. As you look back to the beginning of last year and the expectations for when the rebound was going to happen, and a lot of thoughts were that, that should have already taken place and then some global disruptions have pushed it back. We continue to see that mindset where the -- around the margins, things have continued to improve, however you want to look at it from inventory, the age of the equipment. I do believe what Secretary Bessent has been saying about the administration support towards farmers is important. I think we're at a point where it will go up. It's just, again, that continuing question of when.

What our comments are directed at is at Titan, in order for the OEMs to fulfill their orders when demand picks up, we are a strong leading indicator for that, especially on the wheel side. And so what we are saying in our guidance is that with that belief that we support as well that '27 will be an uptick for agriculture, we expect to see some orders that would start coming in later this year to support that.

And with the inventory positions in the marketplace, we believe that in the age of the equipment, there's enough factors that if things do improve, it can be a nice healthy improvement that kicks into gear in relatively short order because of the length of the downturn, which I believe we're kind of getting around that 40-month mark, which is really long in duration.

So I hope I answered your question. I kind of touched all the key areas. If you have any follow-up, let me know.

That's very helpful. And sticking with Ag, with the commentary, what are you hearing or what are the OEMs telling you about 2027 at this point?

Yes, it's tough. I mean, it's still a little bit early, especially when you throw in the Iranian situation and just the spike in energy prices and costs around the world. And so a little early to kind of get those feelings for '27. We have seen -- one of our major customers did put a little uptick in for the remaining forecast for the rest of '26. But really, if they did start giving us forecast for '27, I'm not sure we would take a lot of action and spend a lot of time focused on it just yet.

As we get past Q2 into the second half of the year, that's when we'll start having those serious conversations with our OEM customers about where '27 is going. But right now, the global disruption just makes '27 pretty hard to talk about.

No, that makes sense. And then switching to a different topic. Have the Section 232 tariff changes that took effect in early April made any impact on your pricing and orders for 2026?

It will have an impact. It certainly will. It's kind of a balance between good and bad. And we've spent some time really over the last week understanding that. So depending on which part of our business we're looking at, there may be some cost increases, but other parts of our business will see some benefits as the imported products will face some cost increases.

So my overall assessment in working with our team on the 232 changes is that we will get some cost increases that we will be able to support through price increases. And it is smaller than the amount of cost increases that our competitors will face with what's being imported. So net-net, we should see a positive, again, assuming that our competitors are not just going to eat those 232 cost increases and that they will have to pass most, if not all of that on to the end customer. So the net-net balance to us would be positive from the 232 changes.

That makes sense. And then my last question. I understand your rubber is sourced mostly from West Africa and not so much passes through the Strait of Hormuz. But do you have any of your chemicals or any, I don't know, other raw materials sourced or pass through from that region?

The short answer is no. There's nothing we do that is directly impacted passing through there.

Your next question comes from Steve Ferazani from Sidoti.

Appreciate all the commentary this morning. You certainly addressed some of the main questions I had. Appreciate that. Paul, it's been a couple of years since we've had any company that we cover point to Europe as a strength. So I want to cover a little bit about what specifically because I don't hear that a lot. So that's a nice surprise.

And also in general, your thoughts on EMC, what -- obviously, in your guide, you're assuming EMC remains very healthy. I mean that was your best margin and revenue in that segment, and it looks like 7 quarters. What can hold that up, maintain it versus what are the risks given all the geopolitical concerns?

Yes. No, it's good. And you're right, Europe doesn't get mentioned often, and I guess that maybe says something about the continent and what's been going on there. But for us, Europe, we -- I'm going to point to really the strength of Titan when I answer this. I mean we play the long game with what we do. We talk about that a lot with how we approach servicing our customers, how we look at this business where we want to have the most diverse product portfolio. I mean having that one-stop shop isn't just about distribution. It's a one-stop shop of having the products available for our customers.

And in Europe, we took an ultimate long game started many years ago with different pieces. As I look back a year -- 10 years ago, excuse me, building an integrated supply chain that used low-cost countries. The problem with Europe is obviously the cost structure there is high. It's why the continent is not talked about in a positive way often. We built an integrated supply chain that started with a joint venture partner in China that has performed tremendous. So we're able to service a number of needs with finished goods in markets. But a big part of that is we're able to service our own plants in Europe with components that keep our cost structure better than the competition.

We also have a low-cost plant in Turkey that's fantastic that we've continued to invest in. And we're able to take components from Turkey while servicing and being by far the dominant provider to the Turkish Ag market, which is, I still believe the fifth largest Ag market in the world. We have a dominant market share there where we have run a competitor out of business in Turkey. We're also, again, able to supply components from Turkey into our European Wheel business.

And so with all that being said, it's really starting to pay off. I mean our structure is better than anybody else's. Wheels are critically important. They're highly engineered products that require massive investments into, not just plants and equipment, but in the tooling to service that. And we've really put the squeeze on our competitors there, and we're starting to win a lot of business. And I think as the chaos goes on in the world, that's where these decisions that Titan has made over the long term could really pay off. And Europe is really good example of that. So that's why today, I've been highlighting Europe. It's become an important part of our message for this year. We've been -- like I said, we've been talking about how we run the business for a long time. And I just want to highlight that as a strength of us as it's starting to pay off. It is in some of our Q1 numbers. It will continue to be in more of our numbers throughout the course of the year.

So then answering your question kind of EMC overall, Steve, I mean, it is clearly an area of strength just globally. Some of that maybe gets distorted on energy, AI center build, et cetera. But for us, it's been -- it performed well. And I think typical to what we say about Titan is the diversity of where and what we serve with our products. So we picked up some strength in the U.S. We're doing good in Australia. We're continuing to see the aftermarket hold up as we referenced quite frequently.

I think the part that we kind of caution some of our comments with EMC, Steve, is just around the -- primarily the German OEMs. They're facing some pretty intense competition. I do think over time, Europe has got to wake up and put some regulations in place that I know they're doing some local content rules with autos, but the large equipment manufacturers there, I think something needed as well. But we've seen our German OEM forecasts have been more volatile this year. And for many years, they were just stable as it could be. So the one spot that we're keeping a close eye on is just what happens with some of the German OEMs that -- so maybe our commentary is a little bit different than what you'll hear from some of the larger OEMs just talking about EMC in general.

Got it. Got it. Appreciate all the detail on that. You covered a lot of this, but I just want to make sure I have clarity on it in terms of your 2Q guide versus full year? Because it looks like -- certainly, it sounds like lower than maybe what you were margin-wise 2Q, a little bit lower than probably where you were internally, certainly lower than us. But it sounds like you're addressing this as -- I remember post-COVID, the inflationary period where you had to rechange some of your agreements with the larger OEMs where you would get the catch up on the inflationary pressures, but there's a lag to that. Is that what you're sort of pointing to in terms of 2Q versus the rest of the year where the margins will be particularly pressured because of inflation in 2Q and then you catch up in the second half of the year? Is that what I was hearing?

Yes, it's timing in the sense that when the costs take effect, like the pricing change is based on structured contracts that have specific times, quarterly, some semiannually. So it's not -- it doesn't happen at the same time. We already have it in the contracts. What's different this time is then we have to go renegotiate. Now it's already there. We're not renegotiating anything. It's going to come through. So for the rest of the year, we don't expect to see much of an impact because we would have had that price come through outside of Q2. Now at some point, we will actually get a benefit because of the hit we are taking in Q2 now. So that's why we called out Q2 because it's just timing.

Okay. So this is really -- a lot of this is thanks to a lot of those agreements you worked on 3, 4 years ago, you were ahead of this?

Yes.

Got it. That's very helpful. And then in terms, Paul, of your guide, so you are indicating you do expect to see that recovery on Ag to at least some degree in 4Q ahead of what we hope is a better recovery in '27. What do you need to see over the next 3 to 4 months that would give you more or less confidence that, that could be coming?

I think it's a common answer is just some stability in the world. Farmer income, that gets beat up all the time. I mean, clearly, that -- it's getting enough government support that I'm not concerned about farmer income, but clearly, some stability. And I think it kind of comes down to psychology and sentiment really. It's -- I think farmers are wanting to purchase. They've got equipment that's aging. Inventories at most levels look okay. It's just getting that psychology and that sentiment to kick into gear and say, yes, now it's a good time to buy. It's just that confidence. And so I'm of the belief that the world is going to get more stable versus more complex, even though some days that's hard to see that, but I think we're on a path where that could happen.

So we believe that there is some uptick coming later in the year. Also, we are getting some wins kind of scattered across different parts of our business. That's also implied in the guidance. It's tough to see when you're in a flattish type environment. There are some good things going on and some good projects that we're winning. We're not really spending a lot of time highlighting a ton of that. I talked about Europe, but there's some one-offs that have been going in our favor as well. So that's built into the guidance as well. So I think it's 2 things that are realistic and attainable. We're not shooting for the stars when we say that. And I do believe, again, Ag has got to kick into somewhat of a more positive gear. And like we said in our comments, Steve, it doesn't have to be shooting to the moon. It just needs to get a little positive sentiment. I think it will -- that recovery will happen in '27.

Your next question comes from Joe Gomes with NOBLE Capital.

So first, just kind of technically, any more restructuring or impairment charges you're going to be taking in the second quarter?

Yes. Not impairments, just restructuring expenses related to moving, relocation costs and all that. Like I said in my script, it's a total cash cost of $7 million. We've taken a piece of that this quarter in Q1. We'll take the remaining to the rest of the year. But there's no other noncash impairment happening.

Okay. And then the R&D expenditure is a little bit higher than I think the consensus view year-over-year. Paul, maybe you can just give us a little idea of what you guys are looking, investing in on the R&D side these days? What can be looking forward to coming out here from the labs, so to speak?

Yes. It's a good question. And we actually were just talking about it yesterday. Looking back on the quarter, all the announcements that we put out on products. And for us, we see a lot of excitement where we can use the Goodyear brand in our consumer segment. We have a tire coming out or it is out. Just saw it in our plant actually on Tuesday, where you can use it in the consumer segment and run it with no air at all. So it's not even just a run flat. We have to put an air to start with. So it can compete against some of those higher-priced products in that segment that have a tendency to degrade over time, whereas we believe ours are going to hold up. And so by putting that Goodyear brand on there, feel like we can get the attention of the marketplace really quick. So we've seen a lot of excitement in our consumer division on product development.

Just like I was referencing being with that team on Tuesday at our plant, I think the words they said were we have introduced and will be introducing more products in the next year or if you take last year and this year than they did in the 10 years prior to Titan owning that consumer segment. So it's great to see the excitement that we're having. And a lot of that is just our team has got products and well positioned in the marketplace already. So I don't want to make it seem like we're reinventing the wheel. But we are making that wheel and that tire better, and that's what we're good at. And so the Goodyear brand is a nice way to do that.

Along with that, we're always looking for other ways to continue to invest and improve our product portfolio. We -- at Titan, Dave, Tony and I have always said, when it comes to product development, we will support that investment and we do. So that's the engine of our company. So I'm just overall, really excited about what our teams are doing and what they're coming out with. But I think that's one product I would highlight is just what we can do with the Goodyear brand on the consumer division.

Okay. And then one more, if I may. I mean there's some reports out there about a broadening recovery in mining/construction equipment demand, channel destocking has run its course there. It sounds like Europe in your EMC division is doing well. Just wanted to double check with you. You're hearing and seeing the same things as we're seeing in the broader reports out there on the construction and mining markets.

Yes. I would say so. I mean our business does move in a few different directions than what the global OEMs report. So there's not just an easy comp where you can say, okay, this is how Titan's business is going to perform. We -- at Titan, where our success comes from is just having that diversity of our geographical footprint and our product portfolio. So we do some things that are different. We have a foundry that can get us into the aftermarket in pretty unique ways so we can as aftermarket remains a more stable place than OEMs over the long run, we can service that.

For OEMs, we are seeing good orders. I think there's a lot of support out there in the infrastructure side, government investment, data centers, et cetera. So I think on a global basis, we're able to ride that as well.

As I mentioned earlier, probably the only thing that we're watching a little bit closely is just kind of where things go in Germany. It's a big customer base of ours with our strong European manufacturing footprint we have there. So we're watching that closely. But, Joe, I would just characterize it, I mean, we try to be as diversified as we can in everything we do and touch as many different corners as we can. So sometimes a little bit tough to just catch an OEM report and say, okay, well, that belly weather is just let's go match it up to what Titan does. And so we want to be able to be successful over the long run. And I think there's some good short-term trends in EMC. We've seen in our numbers. And for the year, we got a good outlook of that continuing.

Your next question comes from Kirk Ludtke with Imperial Capital.

I was just curious if maybe -- we've talked about U.S. farm incomes a bit. And I know that, that's an important metric for your business. Have you been hearing anything about additional farm subsidies to help U.S. farmers offset the impact of the conflict?

I had a chance to hear Secretary Bessent speak to a small group 2 weeks ago. Look, when you hear him talk on TV, he always mentions the farmer, and he's good at that with his background with the South Dakota farms that he had in his family. I believe he's divested them now, but he understands the economics of farming very well. And the comments I heard from him 2 weeks ago, again, small group wasn't public. He does continue to bring up the importance of farmers to our society, our economy and the struggles they have been having.

And so I point that as a leading indicator. It's hard to take that and run to the bank with it. But I do believe he's one of the most powerful people in our administration. He's an incredible guy. He's doing an incredible job. And when he says something, I think it's important. So I put a lot of my weight in that, Kirk, with some of the comments I made today that he just continues to reinforce the importance of making sure the farmer is taken care of. And so it's kind of hard to tell the impact of the farmers right now, where is oil going to go? It just continues to gyrate. I think as we noted and you know, I mean, the fertilizer costs are fairly locked in for the first part of the year as they've got to continue to make more expenditures, do they need more support? Are they going to need less? It's really tough to tell right now. But I think just look at the overall broad support that Secretary Bessent has continued to say will be there is the strength of confidence that, again, I rely on, and I put a lot of faith in that.

For us, I mean, we are -- as Tony mentioned in his comments, we've seen an increase in LSW sales. We got to continue to market that. One of the things David was working on when he was transitioning from CFO to CTO that we're continuing to work on is how we can ensure we're getting LSWs into as many hands as we possibly can? Do we need to look at how we finance them to get in the market, rent to own, whatever it may be? But these LSWs do save on fuel. It's been proven. It's not our studies, it's theirs. And as fuel costs do go up, it does give us an advantage to sell more LSWs.

And one comment I'm going to make, I'm sorry, I got a lot of thoughts in my head. I'm going to say one more thing. When we keep talking about Ag, the one thing that I think has been overlooked is when the last time we've had a weather disruption for Ag. One of the things that drove the farmer income and commodity prices over a long period of time is that, there was weather disruption somewhere in the world every few years. We haven't really seen anything for -- you can tell me, it's been -- seems like it's been 6, 7 years. I think at some point, something happens. And when that does, that can change commodity prices really fast. It's like with everything when you extrapolate what you see today too long into the future and then something changes and you have to change your models. I think we're looking at models that are just assuming there will never be weather disruptions again. And I just don't know if that's going to be the case.

Got it. And then with respect to Brazil, you mentioned the politics are messy. I believe that election you're referring to is in October. So is there anything -- and politicians say a lot of things, it's hard to know what actually happens once they're elected. But is there anything in that election that you think might fundamentally change the outlook for your Brazilian business?

Yes, that's the hard part. We don't know. So if you look at Brazil, things happen there and they don't blink an eye, whereas if things happen here in the U.S. or Europe, it would be like a asteroid just hit the planet, and we're all going to turn to vapor. I mean it's incredible how resilient the Brazilians are. And I mean that in the highest regard.

And what they've seen is a market that was running really fast, all of a sudden because of the elections and their political elections, you think ours are volatile. Theirs are at a different level. And they could sway the economy in ways that maybe we're not as used to in the U.S. And so just in talking with our team, in fact, we'll be making a trip there in just about 3 weeks. But just in talking with our team, it's moving and gyrating quite rapidly. They don't quite know what it's going to mean. But for right now, it's created uncertainty and uncertainty creates pullback in orders. And so we're seeing the OEMs take some weeks out of their schedule in their recent forecast. Does that continue the rest of the year all the way into October, it's really tough to tell. But things in Brazil change fast.

And so what we do, Kirk, with our team in Brazil, what I think it is one of our strengths. I mean they've been together with us for a decade plus. They're incredibly good at managing this. The way we can shift our cost structure, the way we can adjust volumes and what our team does to handle this volatility is -- I say it many times, but I think our results prove it. I mean the strength of our team is our competitive advantage. And so these things that go on that maybe we talk about in the U.S. are just crazy. They're used to the craziness, and they do a good -- really good job responding effectively and quickly.

So again, I'll be down there in a few weeks, maybe pick up a little more as to what we see for the back half of the year. But just in working with them through the first quarter, just had a call with them last week. It's just tough to predict the back half of the year right now, just sort of dealing with what we got in front of us today, and it's become volatile and the election has been the primary driver of that.

Got it. I appreciate it. Ag exports are critical to their economy. That's not going to change. I think that would be... Is that fair to say?

Yes, exactly. You bet.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Reitz for any closing remarks.

Well, thank you. I appreciate everybody's attention. Of course, I really appreciate what the Titan team did this first quarter. I look forward to talking to everybody again next quarter. Have a great rest of your week. Thank you.

Thank you for attending today's presentation. The conference call has now concluded.

Good morning, ladies and gentlemen, and welcome to the Titan International, Incorporated Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Investor Relations for Titan. Mr. Snyder, the floor is now yours.

Thank you and good morning. I'd like to welcome everyone to Titan's Fourth Quarter 2025 Earnings Call. On the call with me today are Paul Reitz, Titan's President and CEO; and Tony Eheli, Titan's Senior Vice President and CFO. I will begin with a reminder that the results we are about to review were presented in the earnings release issued this morning along with our Form 10-K, which was also filed with the Securities and Exchange Commission this morning.

As a reminder, during this call, we will be discussing certain forward-looking information, including the company's plans and projections for the future that involve risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. Additional information concerning factors that either individually or in the aggregate could cause actual results to differ materially from these forward-looking statements can be found within the safe harbor statement included in the earnings release attached to the company's Form 8-K filed earlier as well as our latest Form 10-K and Forms 10-Q, all of which have been filed with the SEC.

In addition, today's remarks may refer to non-GAAP financial measures, which are intended to supplement, but not be a substitute for the most directly comparable GAAP measures. The earnings release, which accompanies today's call contains financial and other quantitative information to be discussed today as well as the reconciliation of the non-GAAP measures to the most comparable GAAP measures. The Q4 earnings release is available on the company's website. A replay of this presentation, a copy of today's transcript and the company's latest quarterly investor presentation will all be available soon after the call on Titan's website.

I would now like to turn the call over to Paul.

Thanks, Alan, and good morning. Before getting into our results, I want to take a moment to congratulate Tony Eheli on his promotion to CFO and having him today on his first earnings call. Tony has been a key member of our management team since joining Titan in March of 2021. Our ability to promote from within our organization is really a major plus and a sign of the talent we have on our team. Therefore, this is making for a seamless transition. I'm really enthused to see Tony taking charge as CFO and real proud of what he has done at Titan.

I also want to thank David for his accomplishments as CFO. Note that he is hard at work. He's got a new role as Chief Transformation Officer. It's great that we have the depth on our team to make this transition to put David in that CTO role and believe it will bring value to our shareholders. We look forward to sharing more about David's efforts in coming quarters.

But let's turn over to our results now and take a look at 2025. We concluded the year with another positive quarter as our Q4 exceeded prior year in revenue, gross margin and adjusted EBITDA. These results are ahead of our revenue guidance and also better than our adjusted EBITDA expectations. As I look back at 2025, this was a year where the diversity and breadth of our business from a product and geography standpoint combined with our new product introductions, our one-stop shop distribution capabilities and the strength and commitment of our team enabled Titan to weather a formidable storm in the ag sector and deal with the evolving trade policies.

I'll touch on that point again later into my comments. Broadly speaking, the ag market had a bumpy tough year. It's really due to a number of factors that were weighing on demand. I do want to note that we are optimistic that the resulting OEM finished goods inventory destocking has largely run its course. We've seen that in our internal dealings and then we've all heard it recently from leadership at OEMs. While none of the major OEMs are forecasting any meaningful overall ag growth in 2026, we nonetheless think the bottom is behind us as equipment inventories stabilize, equipment keeps running and aging and the government continues with its support to farmers.

Additionally, we are optimistic that trade policy will get a bit more settled in '26 and interest rates do look to be holding steady. This all leading to -- hopefully, leading buyers to start buying more equipment and feeling confident about their purchase decisions this year. With that being said, we do have guarded optimism for the year that's illustrated in our guidance that expresses some growth over 2025.

So let's start by taking a deeper look into each of our segments beginning with ag. At a higher level, livestock producers enjoyed a good '25 while row crop farmers had a more difficult time. I want to note that because row crop farmers raising commodities such as corn and soybeans are natural buyers of larger horsepower equipment from tractors to combines and sprayers. Depressed grain prices, higher input costs have weighed on their P&Ls resulting in a reduction in demand for new equipment.

The government programs have been really strong in '25 to support the liquidity and balance sheets of farmers and that government support is expected to continue along with hopefully some policy actions to drive biofuels to provide some tailwinds for the farming sector. Of course it also bears repeating that as long as those farmers run their equipment, they continue to need replacement tires to keep their tractors rolling. On the other hand though you got livestock producers. They tend to utilize mid- to smaller -- midrange to smaller equipment and with their operations enjoying better profitability in '25, the resulting demand for their equipment has fared better than row crop.

The net result was the market for smaller equipment performed better than large and is forecasted to continue on that path again this year. I do want to note that Titan has a strong business in the smaller equipment sector as we can provide complete wheel tire assemblies to OEMs that they can simply bolt on to equipment thus greatly improving their supply chain and inventory management processes.

Moving over to the EMC segment. That enters 2026 as our end market with the most optimism. The end markets we serve such as construction and earthmoving are generally in a good place right now, maybe not the same type of robust growth that we reported in Q4, but they are in good shape nonetheless. Activity in this segment is well supported by infrastructure spend and demand for minerals, which will be a benefit for our aftermarket mining sales. A good portion of our EMC sales are tied to the European construction market and the EU seems to be prioritizing investment in infrastructure. So our business there is well positioned.

Moving over to consumer segment. We are optimistic as recent reports from leading powersports equipment OEMs are pointing to dealer inventories having reached a state of equilibrium. So that hopefully means any return to demand will drive production and thus a need for tires. I'll also reiterate that aftermarket sales constitute a significant portion of our consumer segment sales and there is less cyclicality to that part of the business. It's been an important part of how we've been able to drive continued strong margin results through the cyclical trough this time around.

Before I hand it off to Tony, I do want to close with some comments on our business and tariffs. Obviously there are a lot of unprecedented global macro issues right now, but I want to emphasize that our end markets are overwhelmingly composed of end buyers that depend on their equipment to make a living. That could be farmers planting and harvesting crops, contractors building roads, miners extracting minerals or residential landscapers mowing lawns. That all equates to very durable long-term demand for our products.

In the short term, we've seen a lengthy over 30-month downturn in ag as end buyers defer purchasing new equipment and move towards a philosophy of new to me in the form of used equipment. Even when this is the case, the continued usage of existing equipment in all of our segments drives demand for replacement tires, including our LSWs that make used equipment perform better and undercarriage parts that need to be replaced. At the same time, the equipment those tires and parts are fitted to continue to experience wear and tear driving up demand for new replacement equipment at some point.

For Titan, that means we can win now and also win later and the way we maximize that opportunity is by continuing to innovate, expand our product line and stay close to our customers. And finally, regarding tariffs. I've expressed optimism throughout 2025 regarding the long-term benefits to Titan from the implementation of tariffs. My viewpoint was based on a number of factors, but first and foremost were the 3 favorable rulings that Titan received from the International Trade Commission over the past 15 years. In those cases, the ITC ruled that Titan's primary foreign competitors operated unfairly. We felt confident that was happening and that's why we brought the cases forward and that was deemed to be the case in the rulings in favor of Titan.

It is clear to us that the administration was also targeting unfair trading practices with our IEPA-based tariffs. However, the implementation of these tariffs in a constantly evolving manner resulted in uncertainty and I know I'm stating the obvious with that. In our industry, there was a surge of imported tires before the tariffs went into effect, especially we saw that in ag. This story is not unique to Titan. It is being played out in many industrial companies similar to us. We also saw many of our import tire competitors absorb most of the remaining tariff cost throughout 2025. They have gone on record stating that.

In essence, the potential positive impact from the administration's policies were neutralized in our sector during the past year. I want to note though we still achieved a solid performance in 2025 despite the volatility caused by tariffs. It does look like that tariff uncertainty is going to continue into '26 especially given the recent Supreme Court decision. Even so, we still believe that in the long term, tariffs are important to our industry to mitigate unfair trade practices that have taken place for many years. It is becoming more clear that the administration has options to improve trade policy that go beyond tariffs. That includes quotas, embargoes.

These could be useful tools to support U.S. manufacturing as well. Titan has proven for decades and most recently during the pandemic, the resulting post-pandemic supply chain shock and now the evolving tariff situation in 2025 that no matter what may happen in the world, we are very well positioned to serve our customers with our geographical footprint, our network of joint ventures and strategic sourcing partners and our one-stop distribution and dealer network. In closing, I want to reiterate our optimism that we believe '25 was a trough year and with that behind us, we are hopeful to continue to make gains and improvements in 2026.

With that, I will hand it off to Tony.

Thank you, Paul. Good morning, everyone, and thanks for joining us today. I want to take a moment to thank everyone for their well wishes. I am certainly excited to be in the role of CFO. And as I have noted in conversations I have had with many of you over the last 2 months, we have an excellent team with a well-developed plan.

As Paul noted, our results for the fourth quarter were solid with revenues at the top of our guidance range and adjusted EBITDA a bit better than we predicted. There are some important financial metrics to highlight this quarter. Sales grew 7% year-over-year. EMC segment sales were a particularly bright spot growing 21%. Gross margins expanded modestly to 10.9%. Adjusted EBITDA grew 17% (sic) [ 18% ] to $11 million.

Unpacking our business by segment, I'll start with EMC as it was our best performer. Segment revenues were up 21% from a particularly weak fourth quarter last year to $141 million. Globally, construction and mining continue to be active end markets underpinning demand for both new equipment and replacement parts. Geographically, the growth was strong in Europe, which is the largest market for the segment sales while the U.S. also delivered solid growth from OE demand in light construction products. The EMC segment also enjoyed a nice contribution from foreign currency translation, which added 5.6% to the relative performance. As a reminder, a significant portion of our EMC revenues are in markets outside the U.S. so a weakening dollar can be a tailwind for the segment.

Ag segment revenues were up 2.6% from prior year driven by FX tailwinds, which had a positive impact on the segment adding 3.3%. Digging a bit deeper into the ag segment in the U.S., we are starting to see some variability in demand and volumes as a function of equipment size. Through 2025, much attention was given to the struggles of corn and soybean farmers and how that weighed on demand for larger tractors and combines. On the other hand, farmers raising livestock had a good 2025 and their finance is in a better position on the whole.

Demand for mid- and small-sized equipment suited to the operations fared better. Our ag business in Brazil saw activity moderate a bit after being a source of strength in late 2024 and the first part of '25. Broadly, farmers in Brazil are contending with higher input cost and high interest rates coupled with declining market prices for their grains. An upcoming election cycle is also weighing on demand there as people wait for clarity on policy direction.

Lastly, in consumer, Q4 revenues were up 1.5% from the prior year as activity was generally slow in the non-specialty part of the segment while the specialty business held up well. Entering 2026, recent commentary from leading off-road vehicle OEMs has pointed to dealer inventories being at desired levels. With that, a resumption of end market demand should flow through to demand for manufacturing inputs as wheels and tires. At the same time, we don't see any reason to expect a decline in usage thereby supporting solid aftermarket tire demand. After all, people will still need to mow their lawns and off-road enthusiasts will still need to ride their ATVs.

Looking at margins by segment in the quarter. EMC showed nice expansion as revenue growth allowed for better fixed cost leverage. EMC gross margin in Q4 was 9.3% versus 5.9% in the prior year. Ag gross margin was level to prior year at 9.1%. Consumer gross margin slipped to 15.6% compared with 18.1%. The year-over-year decline in the consumer gross margin was due primarily to the product mix and reduced leverage.

Moving on. Our SG&A including R&D expenses for the fourth quarter of 2025 were $52.8 million compared to $55.7 million for the comparable period in the prior year primarily due to lower legal cost benefit and insurance costs. For the full year '25, excluding the impact of the additional 2 months of the Carlstar acquisition, SG&A including R&D expenses increased under $1 million or just 0.3% year-over-year. Operating cash flow in the fourth quarter was $13 million while CapEx was $18 million. For the full year, CapEx was just below $55 million and down substantially from $66 million in 2024.

Q4 free cash flow was negative $5 million and was comparable to prior year. We ended the year with net debt of $383 million and a leverage ratio of 3.8x. Managing working capital and CapEx will continue to be a key priority in 2026. During the quarter, we recorded valuation allowances against certain deferred tax assets totaling $40 million. While our long-term strategy and market outlook remain positive, recent cumulative losses and market conditions have required us to have a more conservative view on our accounting guidance. We have commented on our taxes in recent quarters and I'll reiterate as we see a rebound in market conditions, we expect to get back to normalized tax rate levels.

We anticipate taxes in Q1 '26 to be in the $4 billion to $5 billion range similar to Q1 '25. On tariffs, as Paul noted, we believe that well-implemented tariffs in the long run are a benefit to Titan and the recent approach to implementing tariffs have not been beneficial to Titan. However, we have still managed through this and protected our bottom line from the impact over the past year by taking appropriate actions to mitigate tariff cost amidst the frequent changes. We expect that our multi-sourcing strategy will continue to provide a competitive advantage as we manage through the fluid nature of the tariff policy.

Now moving on to our financial guidance for Q1 '26. Our guidance for the quarter is revenues of $490 million to $510 million and adjusted EBITDA of $28 million to $33 million. Both of those ranges imply relatively flat performance compared with last year's Q1. We are reintroducing fiscal year guidance for 2026 as we believe we have reached the trough in most of our markets. Revenues of $1.85 billion to $1.95 billion and adjusted EBITDA of $105 million to $115 million.

This guidance range is reflective of improvement compared to 2025 on both the top and bottom line. We are confident our sectors are starting to move past the cyclical trough. The extensive destocking we saw across our end markets have supply chains fairly tight and this gives us some optimism that an uptick in end market demand will flow through to us.

Thank you for your time this morning. We would now like to turn it back over to the operator for the Q&A session.

[Operator Instructions] Our first question comes from Mike Shlisky from D.A. Davidson.

Tony, I appreciate your comments here on the guidance for 2026. Could you give us maybe some just broad directional thoughts on each segment's top line and bottom line? It just seems like in the last quarter we had such a different direction and trajectory between construction, ag and consumer. I'd be curious if you could give us some broadly who's going to outperform, who's going to underperform from a segment perspective in 2026.

Yes. By segment like we saw in Q4, EMC was the outperforming segment. We expect that to continue into 2026. Ag we expect to be flattish and that's because while we see improvement in small ag, we are yet to see that improvement in large ag. And then for our consumer segment, we also expect improvement both on a lesser note relative to EMC and that's on the top line. Bottom line, we expect improvements in both EMC and consumer. On the ag side, we see more OE pricing pressure there and so that will not have as much improvement as the other segments would.

Outstanding. And then just looking at the ag segment on a quarterly cadence basis, you've been positive for a few quarters now in ag. Would you say that ag will have a better second half compared to the first? That's where the OEMs are kind of pointing. And perhaps there's positive, but relatively low growth rates in the first 2 quarters and some better growth in the back half of the year. Is that the right way to look at it for ag for '26?

Yes, that's right. You're right on that, Mike. We expect the first half of the year really to be somewhat what we're seeing already flattish. Later in the year we're expecting growth. We're expecting some recovery given what the OEs are saying and that's been hopeful that we will see some recovery on the large ag front.

Great. And then lastly, I wanted to inquire about the South America JV and the situation in South America broadly. We've heard some mixed comments from the OEMs. You've got a JV rolling out. Just some thoughts as to how that's been going from your perspective and from a broader market perspective.

Yes. It's a good question, Mike, on Brazil and South America generally. I mean Brazil gets all the conversation with the emphasis they have on ag. The political turmoil, I would say, is kind of front and center there and when you talk to the Brazilians, it's unfortunate they lived through way too much of that and it's coming to life again. So we have seen the OEMs pull back on their production schedules to start the year coming off a really strong '25 as Tony noted in his comments. So we're watching that closely. But from Titan's perspective, I mean the JV has given us that boost of additional confidence and strength in the marketplace.

Our strategy that we've seen play out very successfully for decades in North America with the wheel tire combination is what we're replicating in Brazil. It's obviously early days of that, but the teams on both sides are really in a good position within the marketplace. So it's how do we capitalize on the strength of our 2 positions together. We're starting to see some of that come together. I think it's something that will play itself out more in the back half of the year, again in the early parts of the year with the market conditions. What we don't believe in is using price as a weapon to go chase volume.

We have 2 good businesses again in both wheels and tires there to do that. But we are seeing the wheel business gain some momentum by being associated with Titan. Certainly the OEMs like the position that we bring to them. So we'll give you more updates on that as the year progresses, but feel really good about where we're at. And just to note, I mean these 2 companies, us and Rodaros, have known each other for a number of years. So these aren't 2 strangers that just decided to form a joint venture and a partnership. We've been working together for a number of years so great to see it be formalized into a joint venture.

Our next question comes from Derek Soderberg from Cantor Fitzgerald.

Just wanted to start on consumer gross margin. I'm wondering how we should think about gross margin for that segment in '26. And I don't know if you can talk about some levers you can pull on this year to bring that margin back up.

Thanks for that question. We're expecting some improvement in the gross margin for consumer as I had mentioned earlier and we are also winning new business with the initiatives we're driving that we know would improve the margin. So yes, it will be some incremental margin, something reasonable, but we expect it to stay in a decent range of where it's been with some improvement there.

Got it. And then just in the EMC segment performing pretty well, can you sort of detail which specific end markets and geographies you expect to sort of perform well in '26? Just talk about kind of what's going on there and what we should expect for this year.

From an EMC standpoint, as you will recall, Europe is a big piece of our business in EMC and the construction there is driven by infrastructure and so we are seeing -- we will be seeing a lot of good performance there from our Europe business. But like I also said, also in North America and the U.S. we've seen light construction as well and that's also improving as well. So it's across our geographies that we are seeing this positive momentum on EMC. Now with the exception of Brazil, which we've heard things about in Latin America and the elections coming up in Brazil and all that, so maybe not so much. They've had such a wonderful year in the last -- the last year was really solid in Brazil so things have softened a bit there. But outside of Brazil, we're expecting that growth to be across the regions.

Got it. That's super helpful. And then just 1 quick final question. Just anything we should be looking out for on the R&D front this year? Where is sort of the priority when you look at the product portfolio? Anything you're working on to sort of capture additional aftermarket share adding to some new technologies? Anything on the R&D front that you guys are prioritizing this year?

Yes. Derek, I mean it's become really the backbone of who we are. So even circling back to your question on consumer margins, one of the ways we have added value to the Carlstar acquisition, which we now call our Specialty division, is by bringing innovation into play. We have significantly increased the amount of new products that they've introduced. We're putting the Goodyear brand on a number of products in that segment. And so when we do that, we're increasing margins. So part of our levers that we're pulling for the margin improvements in consumer are really through the product innovations and R&D.

So tying that together to your question, we're looking at 15% of our '26 sales are going to come from new products that we've introduced in the past 3 years. So again this is the backbone of who we are. What we -- where we see that coming into play, we encourage it to be across all of our business. So we got a new Titan forestry line coming out to continue to innovate with deep drop wheels. Our ACES brand we continue to launch and develop further. We have a really cool VPO product that can run without air in the outdoor power equipment segment. So you're competing with airless tires there at a much lower price point.

Again as I mentioned earlier, what we can do with just our branding is add value and every time we put a new product into the marketplace, it makes equipment perform better. So it's a win for the end user. And a lot of times we can do redesigns that improve the efficiency in the operations and the construction of those products as well. So again 15% of our sales in '26 are coming from R&D. We don't look to have to spend more to achieve that. So I think the run rate you saw in '25 is where we'll be. But again just in that consumer segment, what we can bring to that acquisition another year behind us, we'll just continue to improve the strength of that business through our R&D efforts.

Our next question comes from Steve Ferazani from Sidoti.

Welcome to the call, Tony. Look forward to further conversations with you. Paul, the striking number to me was the real strength in EMC this quarter. I think we discussed this last quarter with the expectation that there might be divergent paths. But even with FX, still surprised by how strong in the seasonally slower, how quickly were you able to meet demand given we didn't see the normal downturn? And if you could just generally give some color around that. I know so much of that's your European undercarriage business. But if you can sort of break that out for us, how quickly you're able to meet demand and where you really saw it.

Yes. I mean it's one of the challenges that we had throughout '25, but it's also the strength of Titan that when demand surges, business gets complex and chaotic, we do well. That's how we -- I kind of mentioned that in some of my comments during these periods we've seen over the last 5 years. And I continue to believe and we continue to see that's a strength of ours. So when demand surges like it did, as Tony mentioned with EMC in Europe, our aftermarket mining business it continues to perform well. But as demand surges, which you could say with EMC was at a lower level in the prior year. That's why we made the comments about the run rate going into '26, maybe Q4 isn't indicative of that. But nonetheless, it's still in a very good position.

But to answer your question, Steve, I mean I expect our team to be able to handle surges and our customers count on us. That's the outline strategy of who we are. We need to stay close to our customers and continue to be able to service them and part of that is an environment where forecasts are tough to necessarily get accurate all the time. We can't expect them to be and so we need to be there when our customers step up. So in a quarter like that where you do see a big surge in EMC, I think it points to the strength of Titan, how we can take care of our customers. We don't turn away from that business. We don't run from it. We figure out how to get it done and that's how we approach.

Going into '26, I think you're going to see fits and starts of pockets that are going to outperform and you see some that are still stuck, but we don't sit still when those outperformance opportunities come. That's again what we continue to do. That's who we are and that's what we must continue to be. But I think EMC is a really good example of that coming off a lower level, we saw a nice surge in '25. And again, as Tony said, see that as a really good growth opportunity to continue in '26.

That's helpful. The operator had cut me off for a little bit so I apologize if these questions were asked when I was cut off. But on the consumer segment, you noted the softer margins and it seems like it was even lower than what we would expect on throughput. I know you have that rubber mixing business thrown in there and that can be lumpy. Did we see an impact in 4Q that might be onetime given the lumpiness on rubber mixing or was this something else?

Yes, Steve, that's right. The rubber mixing business, that was the impact we saw in Q4 that impacted the margins. We had very good margins in that business. The volumes were down in that business and that was the impact we saw. So you're right, it's one-off. It's happened and so we move on from there. We expect the other parts of our business to be accretive in terms of margins and so that's why we expect improvement going forward.

Was that a lumpiness issue or a loss of business issue that may not come back?

Yes. It's an unpredictable business. We don't necessarily have contracts in how we service that marketplace and so I don't think as their volumes go down, we lose that business. But we -- actually there was just an article a couple of weeks ago in one of the trade rags that talked about our custom mixing business. And so we have a lot of strengths. We need to kind of reposition that in the marketplace to win back that business. So to answer your question, Steve, it's not like we lose it. It just goes away because of the volumes of the customers going down and so that's why it is lumpy. We got some hopeful trends we're starting to see in '26 that hopefully will materialize.

Got it. That's helpful. Just on, I don't know if you provided it, I missed it, CapEx guidance for '26. Given your EBITDA guide is a little bit better, do you have hope that you can be cash flow breakeven or would that be a little too early for '26?

We continue to drive and strive for improvements in our cash flow. Getting to a breakeven just given the moderate top line that we're expecting to see and the requirements for working capital, I think it may be a little bit of a stretch to say we'll exactly get there, but we expect an improvement from '25.

Okay. What is your expectation for CapEx in '26? I'm sorry if I missed it.

$55 million.

Okay. What do you consider maintenance CapEx for you now?

It's somewhere in the $30 million to $35 million range.

Okay. So the additional investments are going where?

We are having some growth investment initiatives, new products -- support new products, support our plant efficiencies as well. We're also investing in those areas. So these are critical areas that we believe we have to invest in so that when the market comes back, we'll take advantage of it.

Makes sense. Paul, any color on -- I always like to ask you what should we be looking for to see a more stronger recovery in ag? Is it continued focus on crop prices when we see them move, that's when we can expect your business to pick up? Is that reasonable or any different, any changes?

Yes, it is reasonable. But kind of looking through that a little bit, input costs moderating. I think that's been a little bit of a surprise to everybody how input costs remain elevated. Looking at the amount of crops that get put into storage is a big driver for obviously pricing. Some favorable trends in inventory and equipment aging as we've talked about. I think that's all coming together, Steve. I really do as you've heard from others. It's been a tough downturn when you look at the length and the duration of it. So we remain prepared to adjust as needed when that uptick comes.

But yes, I think you're right. I think the government support though -- I got one more thought though. I mean government support and kind of the timing of it has made it a little bit confusing to start this year. What maybe thought was going to come last year wasn't coming to this year. So hopefully, we get all this stuff behind us, get some moderation and farmers start putting a little more money in their pocket as they should be, whether it comes from government support, input prices coming down and the costs coming down or prices going up. But I certainly believe that the trough is here and behind us and some brighter days ahead.

Our next question comes from Kirk Ludtke from Imperial Capital.

Tony, on the guidance, can you maybe give us a little color as to how -- what you've assumed for Brazil? Is it at least maybe just directionally up, down sideways?

Yes. Brazil on the guidance, that's going to be somewhat flattish. But from a quarterly perspective, at the earlier part of the year it's going to be softer, but we expect it to come back in the latter part of the year.

Got it. And I missed the cash taxes for the full year.

$20 million.

$20 million for '25 or '26 rather?

Yes, similar to '25.

Got it. And working capital source or use? Sounds like it might be a use.

Well, because when we think about growth especially in the latter part of the year, Q4 and you think about inventory, your inventory you carry at the end of the year is actually towards the subsequent period, the prospective period. So if our customers are saying this is a trough year, which means there should be growth in '27 for them, we expect to be carrying a little bit more working capital at the end of the year to support that growth next year. But with that, we're still going to manage through for efficiency.

Got it. And you may have mentioned this, but which businesses did you take the tax allowances for?

Two pieces of our business, the U.S. and our Luxembourg business. Luxembourg is actually the holding company in Europe for us. And the U.S., like you know, it's primarily because we carry the debt in the U.S. -- the main debt in the U.S. So that's been the situation with the U.S.

Okay. So it's across all the business segments?

No, it's not across business segments. Like I said, it's primarily first of all, interest debt driven the cost we have in the U.S. And so that's the big piece of it, not really in the businesses.

[Operator Instructions] We have our next question from Alexander Blanton from Clear Harbor Asset Management.

Paul, you talked earlier about the tariff situation in terms of the tariffs that are charged on foreign competitors who are dumping product into the U.S. I would like to ask about the -- and these are input costs that you mentioned being up. How much of those input costs are tariffs that are charged to you on imported raw materials, if any?

Yes. The answer to that, Alex, has a lot of different dimensions. So let me try to streamline the thoughts in my head and give you a concise answer to that. I mean first, my points about our past with the ITC and understanding unfair practices is just to illustrate that this has been going on in our industry for 15 years and we have cases that have been brought in front of the commission that prove that our industry has unfair practices. So our basis for supporting tariffs is really grounded in facts that have gone in front of a panel of judges and proved to be the case.

And so we look at it from the overarching premise of that along with a diversified business that can take care of our customers and we got to be well positioned for whatever goes on in the world and we've done a good job with that. However, in '25, to get to your question, what we saw is that the chaotic nature of how tariffs were implemented creates a lot of discrepancies on the cost or the prices of raw materials and other inputs that goes into our products based upon where you are in the world. Now that at a high level what we read in the media is one thing and what takes place in the real world is something different meaning there's ways to get around tariffs depending on how you switch the location of a company, how you label a product.

So we really don't always get clear indication of what a cost is going to be so it gets difficult to price. Now we do believe we have good pricing power in the marketplace. I think that's supported in the margins in the financials we reported for '25. But my point is the tariffs were very chaotic not just in the things that you see with the implementation of tariffs, but how that impacts raw materials getting to your questions. And so the price of steel for example, it used to be a commodity that had more consistent pricing on a global basis. Well, now clearly with tariffs, pricing of steel is all over the map and there's no guarantee that the steel getting into the U.S. is going to face a consistent tariff. Regardless of what the administration tries to say, that is not reality.

There are ways to avoid tariffs and we have seen that, we've seen our competitors admit to that. And so we have to just stay close to the marketplace, understanding what is going on in the market, the needs of our customers, price our products accordingly and at the end of the day have a strategy that can be diverse, it can be fluid and it can take care of our customers. But I do believe that the Supreme Court ruling will make the tariffs more stable as far as the nature of how they are implemented and we do look forward to a day that we can answer your question a little easier as far as what the input prices are -- input costs are for the raw materials because right now that is something that the tariffs had a pretty significant impact on.

And again you don't read about that in the media because a lot what we call manufacturing in the U.S. is just assembly of finished goods or components and there's less converting raw materials into finished goods like Titan and other industrial companies do. So again it's been a chaotic period in '25 with the tariffs. But my closing thought on it, like I said in my prepared comments, is the Titan team has done a really good job handling that. We have a good strategy to get through that and I think the results are indicative of that.

Well 2 of your customers, Caterpillar and Deere, both have published an estimate of what the full year 2025 tariff.

They're assemblers, Alex. It's what I just said. They're assemblers. They don't convert raw materials into finished goods. They are assemblers that assemble components and sell it to their dealer network. We are not that.

Right. But I was just thinking have you a similar number? What's the impact on your earnings of the tariffs that you're paying on imported goods?

Right. The nature of our company is different than that. Well, just stop for a second. They assemble components so they pay a price for a component and they know what that component costs and what the tariffs were. We are buying raw materials of all different natures from synthetic to natural rubber to chemical to carbon black to steel to all different forms of steel and we're doing that on a global basis in different currencies. And so us being able to quantify it like Deere and Caterpillar do, it's a completely different business not to mention we're not the size of them. I need my financial team focused on how to make our business perform better and take care of customers.

And so what we look at is what is the pricing in the marketplace and how can we make sure we have enough pricing power and that's how we look at it. Again we are converting raw materials all over the world on a given daily basis thousands of different SKUs being produced and hundreds of different raw materials being put into those SKUs. We're not buying finished components and assembling them together. So they are 2 different business models. And in the U.S., we have a tendency to read all the headlines from those companies and think that's manufacturing. That's assembling, that's not manufacturing. They're not converting raw materials.

We currently have no further questions. So I'll hand back to Mr. Paul Reitz for closing remarks.

You bet. Well, thank you, everybody, for your participation in today's call. And I want to end by thanking the Titan team for the strong performance in '25 and where we look to be going in '26. So thanks again, everybody.

This concludes today's call. Thank you all for joining. You may now disconnect your lines.

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

Thank you, and good morning. I'd like to welcome everyone to Titan's Third Quarter 2025 Earnings Call.

On the call with me today are Paul Reitz, Titan's President and CEO; and David Martin, Titan's Senior Vice President and CFO. I will begin with a reminder that the results we are about to review were presented in the earnings release issued this morning, along with our Form 10-Q, which was also filed with the Securities and Exchange Commission this morning.

As a reminder, during this call, we will be discussing certain forward-looking information, including the company's plans and projections for the future that involve risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information.

Additional information concerning factors that either individually or in the aggregate could cause actual results to differ materially from these forward-looking statements can be found within the safe harbor statement included in the earnings release attached to the company's Form 8-K filed earlier as well as our latest Form 10-K and Forms 10-Q, all of which have been filed with the SEC. In addition, today's remarks may refer to non-GAAP financial measures, which are intended to supplement, but not be a substitute for the most directly comparable GAAP measures.

The earnings release, which accompanies today's call contains financial and other quantitative information to be discussed today as well as a reconciliation of the non-GAAP measures to the most comparable GAAP measures.

The Q3 earnings release is available on the company's website. A replay of this presentation, a copy of today's transcript and the company's latest quarterly investor presentation will all be available soon after the call on Titan's website. I would now like to turn the call over to Paul.

Thanks, Alan, and good morning, everyone. Our Q3 2025 results continue to demonstrate the ability of our business and our team to perform well in a challenging time.

Our Ag and EMC segments reported solid sales growth of 8% and 7%, respectively, compared with the prior year. While consumer was off just a little year-over-year, the segment sales rebounded nearly 15% sequentially. As a result, we were able to deliver consolidated revenues in line with guidance, along with adjusted EBITDA near the higher end of our range.

Free cash flow was also a highlight in the quarter, allowing us to continue investing in the business while also working to reduce our debt.

Stepping back from the quarter for a moment, this has been a year filled with many companies talking about unusual business conditions around the globe.

Our end markets, especially Ag, fall into that category. However, there are a number of positives that are taking hold. Maybe they're not fully taking root yet, but they are certainly in place to provide a foundation to help drive more positive market conditions.

First, Secretary Bessant, he provided some details after the Trump-Xi meeting, highlighting an agreement with China to resume purchasing soybeans at a minimum of 25 million metric tons annually, which puts the floor level of purchases right around the average level seen since 2009.

After strong positive moves in corn and soy leading up to the settlement, the immediate reactions to the meeting have been muted, a little bit surprising, to be honest, but this agreement should be seen as a positive that will add improvement in market conditions as we move into '26.

Moving on to everybody's favorite topic, tariffs. This is a complex and layered topic for Titan. I will remind you that Titan has significant U.S. manufacturing assets, and we are very proud to be the only domestic manufacturer in many of our product categories.

Along with our U.S. manufacturing assets, we have significant offshore capabilities and third-party sourcing partners, which help us to serve our customers across the globe. Regardless of the exact outcomes of tariffs, we are well positioned to win.

We do believe there is a short-term impact this year that was driven by other factors, not just the tariffs.

The Fed actions regarding rate cuts are another net positive as higher interest rates have been impacting purchasing decisions, especially as buyers waited on these Fed actions.

Lastly, dealer inventories in the Ag segment are decreasing. We've talked throughout this year about seeing some drop in orders that have been positive for us as inventories get too low with some products and customers. I've been talking about inventory levels quite a bit in recent calls, so I'm simply going to say it's good to see that they're getting better.

So given that backdrop, one aspect of our business that I want to emphasize is our competitive positioning. We are positioned as a one-stop shop across the spectrum of tire and wheel size ranges needed in our end markets, along with an undercarriage portfolio that reaches the largest earthmoving equipment.

Products that Titan is known for, such as our LSWs and R14 tires and the wheels they are mounted on are not easily mass produced. Building these tires and wheels require skilled labor and significant investment in manufacturing assets.

Our SKU runs consist of far fewer units than the passenger vehicle tires we all see on the roads. And when you take that into account, including our long-standing relationships with leading equipment OEMs and aftermarket dealers, we are confident our business has a good moat around it.

We are also cognizant of the need to keep reinforcing that moat by innovating and creating new products to add value to our customers and our end users.

On that line, we've been working hard to expand on our Goodyear product portfolio following the expansion of our licensing agreement, which we announced last quarter.

One initial focus area has been outdoor power equipment tires, like those you find on commercial turf applications. And we've been pleased with the market response. And when demand for new equipment begins to pick up, we're optimistic that this will be another growth driver for Titan.

At the same time, professional buyers such as landscapers continue to run their equipment. That's driving demand for aftermarket replacement tires. And again, that is helping offset some of the softness we see with the OEMs.

So switching gears and really looking at our 3 segments at a higher level, our strategic goal of diversifying our business is proving its merit.

Year-to-date, Ag has accounted for 41% of our revenues and EMC consumer accounting for 31% and 28%, respectively. Overall, we think our revenue and gross profit split across the 3 segments is healthy and an important reason we continue to drive profitability and cash flow well above our prior cyclical troughs.

Looking at the conditions in each of our segments, starting off with consumer, we see that business benefiting from a couple of primary characteristics relative to our other 2 segments.

First, it has historically included a larger aftermarket business. Equipment owners tend to regularly use their machinery in this segment, especially those that are businesses. As a result, demand for replacement tires is less cyclical than OEM-driven demand.

Our consumer sector also includes a wider range of customers and use cases from hunters using ATVs to boat and trailer owners to landscaping companies. That type of diversity also helps us weather macro environments like we're seeing now.

Moving over to Ag, which really has represented who we are as a company since our founding. This year's global crop has been a good one. That has continued to increase supply, which is working to suppress the price of leading crops, corn and soybeans.

American farmers have also borne the brunt of tariff-driven trade wars. And as a result, U.S. farmers are looking at a less profitable 2025. And as we all know, farmer income is the primary driver of equipment sales.

Conversely, what we have seen, though, and we've been talking about this for about a year now, Brazilian Ag interest have picked up much of that slack. And again, our diversity as a leading Ag tire manufacturer in Brazil, Titan has been able to offset some of this U.S.-based weakness.

U.S. government also continues to make it clear. We have seen a number of these actions over the last couple of weeks that farmers will be financially supported. Government aid is by no means growth capital, but if it allows farmers to enter '26 with their finances in reasonable order, that would obviously be good for OEMs in the sector. Additionally, that aid would provide the sort of capital needed to support demand for aftermarket tires farmers need to keep equipment like tractors and combines operating.

Moving over to our EMC segment. That did experience some growth due to some drop-in orders I mentioned in our last call, most notably in small construction tires and wheels in the U.S.

In Europe, where our EMC segment is our strongest area, demand has remained somewhat stagnant on the OEM side of the business, but we are seeing really good demand on our aftermarket mining, which continues to be a good source of growth for Titan.

So wrapping these comments up, I want to just conclude by mentioning again, our team is working hard. We're doing a good job servicing our customers. We occupy a strong competitive position in the markets we serve and are a trusted partner to our customers and end users.

Titan continues to execute. And as David will discuss, we are continuing to perform at levels well above the last cyclical bottom, and we remain well positioned to benefit when our end markets return to growth. With that, I'll turn it over to David.

Thank you, Paul. Good morning, and thanks for joining us today. I'll be quick to the point today. As Paul noted, our results for the third quarter were solid with adjusted EBITDA coming in at the top of our guidance range with strong free cash flow. There are some important financial metrics to highlight this quarter.

Sales grew 4% year-over-year, demonstrating that the market may be reaching the bottom.

Gross margins expanded 210 bps to 15.2%. Our operating margin expanded in the third quarter as well. and our adjusted EBITDA grew 45% to $30 million.

Strong working capital discipline facilitated operating cash flow of $42 million and pragmatic CapEx management furthered the quarter's free cash flow to $30 million.

Our ability to drive solid profitability and cash flow despite the challenging macro backdrop is something we continue to be proud of. It stands as a testament to the quality of our team, our operations and our strategy.

The Ag segment revenues were up over 7% from the prior year, driven by higher volumes, especially in Latin America, where we continue to see positive impacts from solid grain demand and what is anticipated to be another record crop yield in the region due to favorable weather and expansion of planted acreage.

Additionally, pricing related to increased input costs contributed to this increase.

EMC revenues were up 6% from the prior year to $145 million. which is primarily driven by some drop-in orders from light construction customers in the U.S. as well as favorable FX impacts related to the strengthening of the euro year-over-year.

In consumer, we saw some of the deferred purchasing from Q2 come back to us in the third quarter as we had anticipated.

Segment sales were $132 million, which was a decline of just under 3% from the prior year, mainly due to lower OEM activity. However, up 14% from Q2, which is very nice to see.

Looking at margins in the segment in the quarter, all 3 showed expansion versus the prior year.

Our Ag gross margins were 13.4% compared to only 9.5% last year.

EMC gross margins was 10.4% versus 8.5% last year.

And then consumer gross margins were 23% compared to 22.3% the year before.

With solid cash flow in the quarter, we reduced our net debt to $373 million from $391 million at the end of last quarter and resulting leverage decreased to 3.7x while we continue to invest in our business.

Third quarter income tax expense was $1 million, which was below the range we discussed on our second quarter call. This was primarily due to the effect of tax planning related to deductibility of interest.

Looking at Q4, we think that benefit will be somewhat less. And for modeling purposes, I would expect tax expense of $2.5 million roughly for -- as a good number to use.

Reiterating my comment from prior quarters, as we see a rebound in market conditions, we expect to get back to normalized tax rate levels as we see our profitability increase.

Now moving on to our financial guidance for Q4.

Our guidance for the quarter is revenues of $385 million to $410 million and adjusted EBITDA of approximately $10 million. I want to ensure that it's clear. The midpoint of our revenue guidance and our adjusted EBITDA guidance imply growth in both metrics when compared to Q4 last year.

Our other operating metrics should also be positive for the quarter.

Last year, in the fourth quarter, we had $2.6 million of other income, which was an abnormally high amount for a single quarter. This is the key driver as to why Q4 guidance is only slightly -- showing a relatively small incremental improvement from the prior year result.

It also bears repeating that our fourth quarter typically marks our seasonal low point and with macro conditions continuing. I'm especially pleased to see our business performing well.

Reiterating our prior comments on cash flow, we will continue to manage working capital with discipline. allowing us to continue reducing our debt and investing in our strategic initiatives, including our continued product innovations.

Our financial condition is good, and it's improving. And I'm fully confident that we're putting Titan in a position to accelerate our future performance. We are positioned well. Thank you for your time this morning. And I'd like to turn the call back over to Becky, the operator for our Q&A session.

[Operator Instructions] Our first question comes from Mike Shlisky from D.A. Davidson.

Yes. Can you start with some Ag-related questions. What drove the year-over-year upside in Ag? Was it farmers were fixing up their old catchers -- or was the OEM asking for wheels and tires?

You're talking about the Q3 performance in terms of the Ag growth, right?

Yes.

Yes. Okay. Just want to make sure I addressed your question appropriately. Yes, we saw nice improvements in primarily at customers with -- in aftermarket. Aftermarket has held steady. We had some slight improvements, but in OEMs, but not a significant amount.

And then obviously, our Latin American activity is up year-over-year as well.

So if you recall, last year in the second half, we were seeing a lot of weakness, a lot of destocking going on. And so this year, you saw a much more steady activity.

Got it. Got it. And we just turn to the Ag outlook for 2026. Paul, is the current plan to expect an upturn in Ag in 2026? And if so, just talk a little bit about the timing and kind of how that might play out? Or has it already started here for Titan given we just saw in the third quarter?

Yes. I mean we do see a return to growth, but describing it more specifically to Titan, layering on to what David just said, we've positioned Titan well and diversified us geographically and also strengthened our aftermarket position. And so where we see Titan continuing to grow will be through the innovations we put into the marketplace along with aftermarket performance.

Now we clearly have a strong OEM business, and we are watching that closely to see where we see '26 going. I think the best way to characterize that is we're at a bottom. But as far as the timing for the pickup, I think I'm going to point to the positives that have been laid into place with interest rates coming down with what the actions of Secretary Bessant and President Trump, I don't think that's coincidental that Trump is putting tweets out talking about supporting the soybean farmer and then Secretary Bessant is going on the TV networks and talking about his experience as a soybean farmer. It's not mere coincidence. I think the administration is going to stand behind the fact that we need to support the farming communities and what they do for our overall society.

And so I think as we look towards the OEM forecast, I think there they're delaying giving us really good solid information as to what they see throughout the entire year and kind of just saying what they see for the -- to start the year, which is, again, kind of a flat start to the year, waiting for some of these initiatives to kick into gear.

And I don't see how any of these initiatives are negative for '26. I think they can be viewed as only positive. And if we're at a bottom and you got some positive factors that are now starting to influence things, I do think we see an uptick in OEMs for '26. But primarily, we're going to hold off on making too many direct comments about where we see '26 for OEMs.

Again, stay close to the situation, but we do see opportunities for growth with our product innovations, the Goodyear brand where we can launch them in some new places and then again, with our aftermarket positioning.

Great. And a similar question on construction, Paul. Some of the major U.S. players that have reported so far and have talked about '26 are already talking about improvement next year, at least a good number of them are. How might that look for Titan in your EMC business?

Yes. I think we're in a good position. Clearly, seeing the same things that you just mentioned that there's a lot of support coming from the governments that are going to -- they're going to put some bills into place that will help accelerate some spending. It's good for us around the world. I mean our business is pretty well diversified as far as exposure to Europe, exposure to aftermarket mining and then obviously here in the U.S. as well. But I do agree that we're seeing our early looks into '26 for EMC are that there's a good basis for some growth going into next year.

And I think that's something that, if anything, that could accelerate throughout the year. I think it's going to start the year in a good position. But again, some of these factors could have, I believe, a more positive impact than what some of the initial looks are. But again, we'll let that play out. But I agree with the assessment that as we look at the EMC segment, there's a good layer of growth that's coming into next year.

Our next question comes from Derek Soderberg from Cantor Fitzgerald.

Paul, you mentioned OEM inventory levels improving. Any insights to the degree to which that was the case maybe over the past quarter? I was just wondering if you could quantify that at all for us, how much it improved on a quarter-over-quarter basis?

Yes. Yes. I mean it does vary by product, by customer. And 2 ways I would look at it. I think as far as some of the large equipment inventories, we've seen them come down roughly like a month, like 30 days of inventory coming off and getting it to a more normalized level. Used is starting to move a little bit better as well with the incentives that are in place, which is going to help obviously get the new moving.

But for us, what we are watching and dealing with in a positive way is just the drop in orders where the inventory gets out of balance. I mean, obviously, there's a lot of forecasting and estimates that go into the positioning of inventory. And we've seen customers each quarter throughout this year have dropped in orders in specific areas where we've had to respond quickly and get the product produced.

And again, I think that's an indication that the inventory is hitting the right level, if not too low of a level in certain cases. And so the Titan team, our strength, as we mentioned at the beginning of the year, is to be flexible, not just with our manufacturing assets, but with our labor to make sure we can respond. And it's -- our team has done a great job when these orders get placed that we're able to respond and again, further solidifying that relationship with our customers.

So again, I think as we get into the forecast for '26, inventory is at least coming in at a position where it's neutral. And one of the things that Titan has been battling throughout '25, as David mentioned, is just the inventory destocking specifically for us and our segments has had a negative impact. So I think for -- at a minimum for '26, we started a good neutral level.

Got it. That's helpful. And then any additional color on what's driving aftermarket mining? Is it precious metals? Are you guys seeing any demand from some trends in rare earths mining, some of that onshoring? Can you provide any color on any end market demand trends you're seeing in that space?

Yes. Clearly, the operating activities of the mine support the business overall. But I think specifically for Titan, it's our position within the market that's allowing us to grab this growth. We do have the ability to produce customized cast products that are made in our foundry in Europe and can really meet the needs of the market in, again, a highly customized way that's very specific to the applications. And so as we see this growth, it's good across the board as far as operating activity, and that's more of our traditional undercarriage parts that we produce in our plants throughout the world. But where we've really been able to outperform and grab additional growth in aftermarket mining is really our ability through our foundry to customize these cast parts and go attack a niche part of the market that others can't quite get to. So there's a little bit of specific growth to Titan that's outside the general trends you may see overall in the mining segment.

Our next question comes from Steve Ferazani from Sidoti.

Appreciate the call. Given the strength in 3Q, and we were really surprised how strong Ag was in 3Q, a little surprised at the top line guide for 4Q. Can you talk about the slightly different elements? Because that number, we know how dramatic the OEM shutdowns were in the year ago. So if inventories are getting a little bit better, if you're guiding for pretty similar shutdowns on that side, and I know you guys have a pretty good picture on that, a little surprised there.

And also, I'm guessing aftermarket is less of a benefit in 4Q, just in general than it would be in 3Q?

Yes. I mean we're seeing the kind of drop, maybe not nearly as much as last year, but we are seeing a drop seasonally going from Q3 to Q4. I believe that OEMs are really just getting themselves prepared for next year, but they're not going to be -- they're not going to turn on production in Q4.

So we're not going to be seeing uptick. So we're seeing the normal seasonality, very pragmatic decisions being made about it. And our aftermarket is light in Q4 as we're going to be seeing a really nice seasonal uptick in Q1.

So -- and that's actually taking place not just here in the U.S., but it's also in Brazil. So that is the same trends that we're seeing there. It's really across the board. So yes, it doesn't obviously imply the seasonal downturn that we typically see… about it, not getting out over our SKUs. I think we are positioned well to take the orders as we need to. But I believe it'd be much more -- they're being very disciplined, and we will too.

So I mean, following Paul's commentary that maybe the start of the year on Ag is pretty similar. I mean you ran through the macro issues, which we can all see. And hopefully, a trade agreement pumps that up and we start seeing crop prices working. Having said all that, you're clearly doing very well in the aftermarket. It looks like you're even potentially gaining some share there. When we think about the start of the year, we're now going to be another year along without the replacement cycle. You've got more aging equipment. You're clearly gaining in those markets. Can we see nice uptick on aftermarket first half of the year year-over-year?

Yes. I mean I think I was just with our VP of Sales Tuesday, and he's optimistic. So I think the answer is yes, to keep it brief. We -- the diversification of our company, I think, is just a key point. And Dave and I spent a lot of time talking about that to geographically be able to take advantage of the positioning of Brazil over the last year as the purchasing interest of China move that direction.

And then as a company with what we've done in the consumer segment to continue to drive innovation into the aftermarket. I mean I think Titan has been very well positioned in the aftermarket. We share with investors how we've changed this company from where it was 10 years ago as far as our aftermarket splits to where we are now. And I think we continue to accelerate in that area. And so we are seeing -- again, the feedback I got just on Tuesday is we're seeing a good start to the preordering for next year. And I do think you start the year off on a positive note with aftermarket.

And then also just kind of following along your commentary and the answer to one of your questions. Historically or at least recent history, Ag and EMC have directionally moved similarly, maybe not at quite the same levels. It sounds like you're indicating that maybe at least in the near term, those may be going into a couple of different directions, which is not what we've seen in recent history.?

Yes and no. I mean I think there's different drivers. I think the Ag -- global markets have been hammered the last couple of years. We've dealt with -- in our particular business, we've dealt with the inventory destocking in Ag. But the way we position Titan with EMC and Ag is that we've increased our aftermarket diversification.

We were just over in Italy meeting with our leader of a big part of our EMC business. And there's a lot of confidence for continuing to see that diversification provide benefits to Titan as we move into '26. I do think there is a potential for a bigger uptick in Ag, as we all know, when the foundation of those actions start to take root that you don't necessarily have an EMC where there's this more consistent growth as government spending, infrastructure spending, et cetera, continues to drive that in a positive way. I do think there's this hidden uptick in Ag that's lurking out there somewhere. It's just nobody is exactly pinpointing the timing on it. But strategically, there's similarity.

Clearly, having the tire business in Ag gives us more diversification to the aftermarket and more levers to pull there in North and South America and the innovations and the positioning and the relationships we have with dealers, whereas with EMC, we don't have that because they're steel-based products, but we've really diversified our business, as I mentioned earlier, with the customized aftermarket mining products that we can produce and then touching into some other parts of the steel-based aftermarket with EMC as well.

So again, I think it's -- a lot of this diversification of Titan is, I think, really providing us good strong benefits that we're seeing in the '25 results that positions us well as we move into '26, whichever direction markets go, which I do believe they're at the bottom with some uptick coming, but we're in a position to capture some of that growth wherever the markets may go.

That's really helpful. Appreciate it, Paul. Last one for me was just on the royalty expense line. That number being much higher sequentially and year-over-year would seem to indicate you were selling an awful lot of third-party tires. Is that the right way to be thinking about that?

Well, certainly, we have the new license agreement, and we had a little bit of true-up to the payments made in Q3 a little bit. But certainly, the mix is certainly favorable towards Goodyear.

Our next question comes from Joe Gomes from NOBLE Capital Partners.

This is Hans Baldau on for Joe.

Could you talk about the potential M&A? Do you know what the valuations are looking like or any areas that you all might target?

I think what we have done as a company historically is look for opportunities when valuations are lower. We operate in an industry that could be considered a niche industry. And there's been opportunities that have presented themselves kind of on a consistent basis, not on an annual basis. And so we are -- we continue to follow that approach. I know David spends a lot of time and effort managing the balance sheet along with our entire team.

And so we look at our ability to be able to participate in any lower valuations and grow via M&A is something that Titan needs to be positioned to, along with investing in innovations, which we've done. Do I think these market conditions potentially give us some opportunity? I hope so. I think historically, it's presented some valuations that maybe do that. Is there anything imminent? It's not really how our industry works. I mean it's sort of -- it's more opportunistic than it is pinpointing this is what we're going to go do because that -- if you pinpoint what you're going to go do strategically, usually, that the valuation gets too high for how Titan historically has done acquisitions.

So you wait for the opportunity, work towards it and see if it comes together. And that's been our consistent approach for the years. And I think the acquisition we did last year is a really good illustration of that.

Okay. I appreciate that. And then could you add some color on the military market? How is your targeting of the military market progressing?

I mean the targeting has been good. The results are just takes time. So the results could be better. I mean, I'll err my personal frustration since I got a microphone, I might well go ahead and do it. I see what European countries are doing. I just read this week about how Germany is going to -- guess what the German government is going to do. They're going to buy military components from German manufacturers. Guess what Europe is doing. Look at Rheinmetall. They're buying products from European manufacturers. I need somebody explains to me why our U.S. government can't buy from U.S. manufacturers. I think it's a pretty simple formula, and I think Titan should be able to participate in that formula as our U.S. government opens their eyes and realizes that we should be supporting our own companies here in the U.S. like every other country is choosing to do.

So if you hear my frustration, there is frustration. I think the opportunities are there. They move slower than they should. We are continuing to go after those opportunities, and we will put ourselves in position to grow our military business. But I don't understand why European countries can make decisions and move much quicker than our U.S. government is.

Our next question comes from Kirk Ludtke from Imperial Capital.

Just a couple of follow-ups. On the Goodyear deal, I think the idea is to use the brand on the Goodyear brand on more of your products. Can you maybe comment on the potential of that initiative and the timing?

Yes. I think it's something that the timing is we'll see more of it in '26 because we do have to develop the products, get them in the market, test them, et cetera, stating the obvious with that response. I was very excited and enthused that we were able to get the additional product categories with Goodyear. As you're negotiating, you never know if that's going to happen.

And so could we have started the product development earlier and assume that we were going to get these maybe, but we didn't. And so I'm very happy with how things turned out with Goodyear. I think the partnership only grows stronger by allowing us to participate in those additional categories. But we do have to do some product development, some testing. I think for me, it's great to see our team enthused that -- what this addition of this brand can do. And really, what it does, Kirk, is our specialty division through the Carlstar acquisition has strong brands. But what we have seen at Titan with the Goodyear brand is it allows you to go into a premium segment with your really high-end innovations.

So you're capturing not just share, but you're capturing a stronger foothold on margin. And I think that's where the excitement of the team is. So are we using it to go just relabel our existing brands Goodyear? No, because our brands are strong enough positioned in the market that we don't need to do that. So what we're doing with the Goodyear brand is, again, going into a market segment that maybe we couldn't have got to as easily before. And we've seen that play out in Ag in North and South America. And I think we can do the same thing with the new product categories we have with the Goodyear name as well.

So probably more of a longer tail on getting there and less of a big splashy number that says look at all these Goodyear sales we have. But we'll get to the right position over time with a premium product that has good margin. It's a win-win for us and Goodyear. And we've proven over the last 2 decades, that's the case.

Got it. Appreciate it. On the net sales, another strong quarter in Latin America. I think you mentioned that's -- why that's happening. But Asia was down over 20% year-over-year. Can you -- is there anything to -- any kind of takeaways from that?

Yes. I think it's just timing more than anything. That's going to be your typical sales from our ITM business in the EMC segment. And you'll see shifts in manufacturing to various customers. I think we had a stronger Q2. So I think it's just timing more than anything.

Okay. Got it. And then lastly, did your Brazilian JV close? Rodaros?

Closed. Yes. We issued a press release last week, actually. So we're really happy about that.

I missed that.

We're happy to get that concluded, and we're off and running.

This concludes our question-and-answer session. I would now like to turn the conference back to Mr. Reitz for any closing remarks.

Well, thanks, everybody. Appreciate your participation in our Q3 call, and we'll talk to you again here soon with an update on the fourth quarter and 2025. Thanks, everybody.

Thank you for attending today's presentation. The conference call has now concluded.

Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. Second Quarter 2025 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to turn the floor over to Alan Snyder, Vice President, Financial Planning and Investor Relations from Titan. Mr. Snyder, the floor is yours.

Thank you and good morning. I'd like to welcome everyone to Titan's Second Quarter 2025 Earnings Call. On the call with me today are Paul Reitz, Titan's President and CEO; and David Martin, Titan's Senior Vice President and CFO. I will begin with a reminder that the results we are about to review were presented in the earnings release issued this morning along with our Form 10-Q, which was also filed with the Securities and Exchange Commission this morning.

As a reminder, during this call we will be discussing certain forward-looking information, including the company's plans and projections for the future that involve risks, uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. Additional information concerning factors that either individually or in the aggregate could cause actual results to differ materially from these forward-looking statements can be found within the safe harbor statement included in the earnings release attached to the company's Form 8-K filed earlier as well as our latest Form 10-K and Forms 10-Q, all of which have been filed with the SEC.

In addition, today's remarks may refer to non-GAAP financial measures, which are intended to supplement, but not be a substitute for the most directly comparable GAAP measures. The earnings release, which accompanies today's call, contains financial and other quantitative information to be discussed today as well as a reconciliation of the non-GAAP measures to the most comparable GAAP measures. The Q2 earnings release is available on the company's website. A replay of this presentation, a copy of today's transcript and the company's latest quarterly investor presentation will all be available soon after the call on Titan's website.

I would now like to turn the call over to Paul.

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

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

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

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

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

I also want to briefly touch on the recent legislation that was passed as we think it will be a long-term positive for farmers on the whole. With the increased depreciation rate as the most important element that's getting a lot of the attention, the ability to depreciate 100% of the investment in new equipment such as tractors in year 1 is obviously beneficial and should improve farmers' balance sheets over time. So bringing these general comments together, I want to stress that we are by no means sitting back waiting for our markets to turn. We continue to be proactive on a variety of fronts to drive growth wherever we can and continue to invest in product development and constructive partnerships.

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

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

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

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

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

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

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

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

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

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

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

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

Now turning to cash flow. We were able to drive the $4 million of positive cash flow in the second quarter by moderating our CapEx spend to $10 million in the quarter as we were judicious with our spending. Working capital was also a positive driver for free cash flow in the quarter when adjusting out the FX impact of the weakening U.S. dollar within the quarter. Our net debt at quarter-end declined $10 million from the first quarter to $401 million. As noted before, we expect free cash flow generation in the second half and we are confident we'll exit the year with a debt ratio closer to our target of less than 3x adjusted EBITDA.

As a reminder, our debt structure provides us flexibility with our domestic credit line and our long-term bonds. Again, we are in a much stronger position as a company compared to the last historical cyclical low. Our second quarter income tax expense was $4.7 million with an effective rate well over 100%. This elevated tax rate continues to be a function of where our profits and losses are distributed geographically and the associated tax regimes within those areas. I expect it will remain at this elevated level for the short term as we continue to navigate this lower market. As we see a rebound in market conditions and our improved profitability across the globe, we can get back to normalized tax rate levels.

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

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

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

[Operator Instructions] Our first question comes from Mike Shlisky from D.A. Davidson.

David, can you maybe clarify the last few comments there, I might have misinterpreted here. So in the third quarter you're saying sales could be roughly similar to what you just saw in 2Q, but the EBITDA could be down 10% to 15%. That's what the numbers are saying. So can you maybe break down a little bit what's behind that assumption? Is there any kind of mix or other issue that's just 3Q specific here?

Yes. There's nothing to really call out, but we normally have our seasonal shutdowns of plant and equipment for the summer maintenance schedules as well as the holiday schedules in Europe. Overall, the product mix we don't think it's going to be quite the same as what we saw in Q2. So moderately off, but nothing significant. So again, we have the opportunity on the high end to achieve what we achieved in Q2, but a little bit of moderation in some areas.

Okay. I don't want to look too far ahead, but looking at the fourth quarter. If you recall last year, I think folks were thrown a bit of a curve. You had kind of EBITDA that was not seen since prepandemic when you were a very different company. I don't know if you would actually give us guidance yet, but are you getting any indicators that these OEMs are going to have a large shutdown again this fourth quarter or is that just kind of in the past at this point?

Yes. We're seeing very similar schedules. I don't think it's really changing a lot. But certainly, I would be encouraged by them picking up production. But right now we're not seeing any indication of that. It's just kind of fairly flat at this point.

Okay. I also wanted to ask about maybe the broader ag sector in general. It sounds to me as if you're seeing some inflection, but it's just still happening only in Brazil. Are you getting any sense that you'll start seeing an improvement in the United States or are the OEMs still just saying we're just not going to build anything more until we start seeing actual farmer orders get better?

Yes. I think there's an overall tone that's just pretty quiet and I would say that's different than prior years, that quietness. I don't think that indicates negativity, but I think it just means right now there's definitely a pause to wait and see obviously what's going on currently with some of the tariff deadlines and then any Fed action later in the year. Where we see some positives though in our industry, you mentioned Brazil. I think Brazil continues on a good path. But where we're seeing some net positive in our industry is that wheel and tire inventory just has been dragged down too low or equipment inventory has been dragged down too low and that's where we get these drop-in orders that can be fairly largeable in size.

As I've mentioned, we saw them in Q1, Q2. Seeing some good trends starting off Q3 so far in July related to our consumer segment as David has mentioned as well. So each quarter we're seeing some very positive trends with good size orders coming in from different customers serving kind of some different markets with products, but that's where Titan's ability and what we have been instructing our team all along is that when our customers need us, we have to be there. And so it's easy to say it on a call today. It's much more difficult and it shows the strength of Titan to do it in reality. And so we are positioned to take these large orders as they come and service our customers and we are starting to see them.

And so I think, Mike, what we believe as we get into next year and it's very early to give you a fine-tuned comment. But I think because of inventory and some general positive trends kind of leaving tariffs and interest rates to the side, we do expect an uptick for next year. And quantifying that further is going to depend on again tariffs and interest rates and some of these elements that are causing the pause. But I think the underlying drivers that are there for us to see some uptick for next year.

All right. Maybe one last one. I've only gone partially through the 10-Q. Do you have -- given what happened with the taxes this quarter, are there any large U.S. NOLs that are on the books that we should be putting into our valuation going forward?

Yes. So there are some NOLs that could potentially hit valuation allowances needed if we don't see market conditions improve. But again, I think it's important to focus on cash taxes and how we're paying it. It's been relatively stable in that area. So that's really what we look at. There can be some movement in the NOL valuation allowance from time to time, but we'll call it out separately.

Our next question comes from Steve Ferazani from Sidoti.

Appreciate the detail on the call. Obviously nice job on the gross margin. I know in a difficult market to get that kind of sequential improvement is impressive and I know that's been something over the last couple of years you've been focused on. I'm hoping you can help me walk through what happened with a little bit more detail on consumer. The expectation was if tariffs were an impact, we'd see it on your gross margins. We did not, your gross margins improved sequentially. Is that a situation where you're trying to raise prices to offset and dealers and customers are rejecting that or can you just help out on what's going on in consumer?

Well, the sequential improvement in margins was a little bit to do with just product mix, a different OEM versus aftermarket and that's really it. And I want to be clear, we're not going out trying to capture price per se. We're managing the tariff cost with moderation of prices accordingly. But it was not a material impact. In fact there was no bottom line impact.

Yes. Steve, we're not having -- pricing has been something that I think is a very big strength for Titan not just consumer, but in ag. We understand the market well, the relationship with the customer. And so like David was just saying, I mean we look at pricing as neutral. So we're not looking to capture volume via pricing. We're not looking to take it on the chin with cost per se. And so I think our position to respond quickly to changes in the cost structure within our markets is reflected in the pricing that we're using to position our products in the market. And we have not had any significant issues I can tell you, Steve, that have risen to my attention that I've had to be involved with on major pricing challenges, which was the other part of your question. Are we seeing some pushback? And the answer is no.

And can you help us out on what -- so the decline in consumer, are you saying that's not tariff related; that's just pure demand, consumer uncertainty and dealer destocking? I'm just trying to understand it.

That's a different question in terms of going to…

It is I'm trying to figure out the mix of what caused the consumer decline.

Yes. There was some mix and again you have to be very -- devil's in the details with products and so forth, but it's hard to explain sometimes. But the one thing that's clear is that there was some pause in the market during Q2 for, call it, tariff impact, just the wait-and-see aspect and nobody wanting to hold inventory. And so you start to see -- that's why we're starting to see some recovery and some improvement in early Q3 because their inventories just got too low. Does that make sense, Steve?

Helpful. I mean it's tough. I mean you see what's behind it, it is tough to walk through and obviously the consumer is much larger than it used to be and the cycles are a little bit different than EMC and ag. So clearly, I have a little bit more questions on that one. But that's helpful. If I can ask briefly about the balance sheet. Obviously your net leverage I think is fair to say it's a bit elevated here, but apparently you're taking that minority interest. Can you just walk through any kind of covenants, financial constraints? And just as an add-on to that question. By our model your year-over-year EBITDA improves in the second half, cash flow seasonality tends to be better. This should by our model be peak leverage. Is that fair? So I know it's 2 different questions.

That's a very important aspect, okay? So yes, we see this being peak leverage. And as we see free cash flow in the second half improve, we'll be [Audio Gap] increasing cash. So all of that plays well within the leverage ratio. Again, I said it earlier, but we have great flexibility within the bonds and our ABL facility and there are covenants, but those are more like what I call springing covenants and we do not get ourselves in a position to where those ever come into play. And so from a covenant perspective, I don't see that being an issue and we manage it accordingly.

[Operator Instructions] Our next question comes from Derek Soderberg from Cantor Fitzgerald.

Wanted to get your thoughts on the Japan trade deal and then you've got this accelerating depreciation provision. Just to me it feels like the setup is quite good for ag. Paul, you continue to mention interest rates. It seems like that's the gating factor. But looking at some of these other trends going on in the market, it feels like that setup is good. And so I was wondering if you can kind of double-click on what you're seeing from a customer perspective and your thoughts on some of the timeline for if these things are really going to start to have a positive impact or it's really interest rates that are still the gating factor and we're going to be waiting until those rates come down and that's sort of the biggest hurdle at this point. Just wondering if we could get some additional thoughts there.

Yes. It's a good question with a lot of thoughts. I think you're moving in a positive direction. Like you said, where we're seeing these tariff agreements settle is at a level that I would say is net positive for our business and really net positive for the sectors we serve overall. I said in my comments and I'll keep saying it, I mean the world we compete in was not a fairly competitive global marketplace and that was demonstrated when we went in front of the ITC twice, won unanimously and the weakness has always been the Commerce Department. So I think we're seeing the Commerce Department and the activity that's going on within the administration is what's really needed for companies like Titan. We make great products with great people, but it wasn't a fair playing field.

So I think the Japan agreement, like you illustrated, is a good starting point for where we see the rest of the global market being settled related to tariffs. I listened to Bessent this morning. He's phenomenal at what he's doing. He didn't exactly give clarity to answer your question, but I think he did point in some pretty good directions with some of the key countries that these deals haven't been settled at this point. So I do feel good about where we're going. I think the farmer sentiment indicators are positive. I think the backdrop of the way the administration is stepping in with support for farmers.

You look in the construction segment, obviously there's a lot going on there. But I think that both segments tie back to one thin, it's just interest rates. We still see interest rates being that cloudy factor that's hanging out over making purchases and holding inventory because people are looking at it going what I pay today is too high to what it's going to be in the future. I think once you remove that impediment, which maybe we got a step closer this week, then I do think you're poised for a market that is going to start rebounding. We've been in the ag cycle now for we're going on a 2-year downturn and I think all the indicators are that '26 will be an uptick.

The question is going to be when does that spring board into place. One of the things we're going to be working closely with our customers to kind of find out the answer to the question. And with the products we produce, Derek, especially the wheel, we usually do get very good lead time. And right now they're still fairly quiet on next year. But as I mentioned earlier, I do think there's going to be an uptick for '26. The question is again does it really spring into place to be a major uptick or is it just sort of get the year started moving in a positive direction and wait and see for the back half of the year if it really kicks in. So I can't quite answer that question, but something we'll be over the next few months working to get some more clarity.

Got it. That's helpful. My other questions were answered. But I think maybe if you could just provide some detail, some additional color on this deal in Brazil. It sounds like you're investing in one of the bigger companies over there and I think I missed the name on that, but wondering if you can maybe help us plan for how we should model that? Any impact to cash outflows, inflows, revenue outlook? Anything that might help us model that impact would be helpful.

Yes. I'm going to probably spend more time on the strategic side of it because it is a minority investment so the modeling isn't going to be quite as transparent because we will not be consolidating their financials. But it's a strategic relationship we've been working on for a number of years. We've watched this company, gotten to know this company, worked with them with some deals and seen them. They've really built a strong business for our particular products so large ag. They've put the investment into the plant. They have a great technical team. And really what we're looking at is if you can bring a wheel and tire as an assembled product to our customers, we are truly that one-stop shop and that's something you keep hearing Titan say over and over again.

If we can do that anywhere we operate, we feel like we're going to win. We're going to have the best customer service and the strongest customer relationship. And so Roderos is the name of the company to answer your question. They've done a great job gaining market share in Brazil with the products they produce in wheels servicing ag and construction. And again just somebody we've been working with, talking to for a number of years and it's great to finally see it all come together. So I think you really have the formation of a healthy strategic partnership there, 2 companies looking for ways to continue to grow and expand our relationship together.

So we'll start off with an initial minority investment of $4 million for 20% and then we do have some opportunities in the future to see that grow and expand. And at that point then you would start bringing in the full financial consolidation and seeing the direct impact to the financial statement. So I do think it will have a positive impact definitely strategically for the coming months and next year. We'll work more on the modeling side of it after it gets closed to see the incremental volume that we can drive to Titan through the strategic partnership. But again just to be clear, it won't be consolidated as a full set of financials.

Our next question comes from Joe Gomes from NOBLE Capital.

Just wanted to start just for some more clarity here around the consumer side. So what I'm hearing is what's giving you confidence that this was a temporary lull is the low inventory. And then if we get some positive resolution here or stabilization, let's call it, on tariffs and now interest rates, that could even be a better environment for us. Is that accurate?

I think, Joe, you're on the right path with that and I know David has spent a lot of time talking about it and it does get complicated. I mean these questions, there are so many moving parts in how we try to respond and answer it and part of it is also because we have a ton of information available to us. And I would say as we went into the quarter, we knew that volumes were moving downward and there was a number of different factors like we've already highlighted and your question brings into play. Part of it is tariffs and interest rates were the obvious. Part of it was the timing of some of our sales that we had in kind of some programs from last year versus this year.

So there's a lot of moving factors. But what we were really watching closely, David and I along with the leadership team from the Specialty division, was what do we see in July? And what we have seen in July, and we spent some time yesterday just confirming all this, is that some of our customers had paused in Q2 as you see in the financials for the reasons that have been noted and they're now realizing that the retail pull-through demand has remained stronger than anticipated and they're building back their inventory. So again inventories have gotten too low relative to the retail sales.

And so we've seen some really good orders come back in July leading to the positive comments that you've heard from both David and I that this was more of a temporary slowdown still impacted by tariffs and really primary interest rates as we've talked about, but there is positive indicators in Q3 that the fundamentals in the consumer segment are stronger than what was indicated in the actual Q2 results. Does that make sense? I'll kind of stop there and let you digest it.

That's great. Very informative. And then I was wondering maybe you could talk little bit about some of your efforts that you've talked about in the past getting some third-party sourced product and your move again back into the military market. Maybe you could just give us a little update on how those are going.

Yes. I mean we are going to continue to be that one-stop shop, which includes our incredible portfolio of production capabilities around the world, but also where we need those third-party partners or the JVs that we have in the ones that are existing and the new one that we just announced. But we are going to be that one-stop shop to service our customers. And what we bring to that equation with the third-party sourced products is we bring distribution, branding and an incredible technical resource team that can stand behind the products.

So we are willing and looking consistently to fill in either geographical or product gaps in our portfolio to service our customers with a high degree of confidence that if we find the right third-party partner, we will service that product and we will service the customers and do it well. We have been doing that, we are currently doing that and we believe strongly we can continue to grow via that strategy. And so really pleased with the progress. And to be honest with you, we have an incredible team. So doing this requires resources and strengths of people and market intelligence and that's where Titan can really outrun and outshine the competition because our breadth and the depth of the places of the globe that we can touch is a step ahead of everybody else.

So we're going to keep running and growing in that area. Military, we see the opportunities. In fact I had a really good week with military. To be honest with you, I'm glad you asked that question. It's a pretty busy week with earnings, but I've had some good meetings with the military this week and now it's just kind of getting the technical needs from their side corroborated with what our team and our capabilities are and really moving forward with. So at this point there's nothing discrete because projects do take time from an engineering standpoint. If it was just up to me, we'd sign a deal and we'd be running. But there's a lot of technical stuff you got to work through, but it's a timely question because it was a positive week.

Again a meeting that I was involved with directly this week was moving in that direction and we've already scheduled some follow-ups. So we're going to continue to chase those military opportunities because the way I view it from Titan's standpoint in my tenure here as CEO and President, our military sales have been closer to 0 than anything. I know Titan historically had military sales, but during my tenure it's been close to 0. And so I think the direction the administration is going, where the military is going favors manufacturers, producers like Titan. We're building those relationships, like I mentioned, and I see it as only as a positive. So we're not at risk of losing anything because we really don't have anything. So again, I think the meetings that took place this week are positive. And I'm investing my time and so will my team.

Great. And then one last one for me. You really haven't talked about LSW today. And I know one of the goals you talked about was some penetration into the midsize tractor market. Just wondering how those efforts are going and then the overall LSW efforts.

Yes. LSW is something we're always going to be continuing to push behind the scenes. What we're really working on is the marketing towards those midsize farms. We got some really good data from a farmer that was working -- actually it was a contract farmer working on a number of parcels, really good data that supported the yield improvements that the LSW brings to the table every time you turn a piece of equipment. What we're really working on is creating a tool and we're trying to bring in AI to be honest with you and some technical resources. But we want to create a marketing tool that makes this so intuitive and easy to interpret for a farmer that the sale drives itself and to do that, you got to make sure you have all the right data.

So basically what we're trying to do is you can plug in the size of the farm and what your needs are and this calculator will tell you what the return on LSW would be and kind of the yield savings and improvement to your income that would be generated by having LSW. So we're trying to do it the right way from that regard and it's going to take a little bit more time to do so. But the data that we're getting on the support around LSW, it continues to even exceed our own expectations because to be frank with you, it's coming from outside our own internal testing. It's coming from others providing the testing for us, which is clearly the best type of testing support you could have because it's somebody telling you hey, your products are incredible.

And we do have that, but now we're just trying to fine-tune it. So I think there's other things we continue to look at. What David and I would love to be able to provide the farmers in that particular category is some attractive financing. Haven't been able to really get that going in today's markets. I was up in Canada earlier this week and talked with the Canadian team. They have really large farms up there. It's kind of the same thing. He's going to talk to some Canadian agriculture banks, maybe we can get some financing. I think that would really help drive the purchases of LSW if we had an attractive financing package.

So if we have the marketing plus the financing package in today's world, I think we can really kick those sales into gear. So we're working on it, got some smart people looking at these opportunities. But again, the interest rates still are a hurdle to a lot of different things and that's something that hopefully we can take off the equation here soon.

[Operator Instructions] Our next question comes from Kirk Ludtke from Imperial Capital.

A couple of follow-ups. On Roderos, do you need to make an investment there?

No, not beyond that initial $4 million. They've done a great job making the investments into the operations and really put it into the world-class caliber company that it is now with good market share in Brazil. And so that's what we've been watching closely, to be honest with you, through the years, Kirk, to answer your question is them making the investment both on the equipment side and the technical arena and they've already done that. So they're not -- Titan's injection is not an injection of capital because they need capital to get to where they need to go. They've already gotten to where they need to go.

So now it's strategically how do we take the 2 companies and make them better. So I think it's a really good time from Titan shareholders' perspective that we're able to do this. And I do want to say it shows the strength of Titan yet again, our brand and who we are. Roderos has other suitors. It's not like this company was sitting there on an island. I mean to answer your question, they've built a great company with strong market share. And if you are doing that, you are going to have plenty of suitors. It's who Titan is and the value that we can bring together that really drives the relationship to be formed and signed as we did this week. So again, strategically is very important. But from an investment standpoint, Kirk, we're in a great position because they've already done it.

Interesting. I guess I missed that. I guess you said there was a $4 million investment upfront.

I didn't say it in my script. It was part of the Q&A. I didn't have that in my script. So no, you didn't really miss it from that standpoint.

Okay. Got it. And so this sounds like it could be really -- given that you're so successful there on the tire side, this sounds like it could be a pretty meaningful development. When do you think it might move the needle in terms of your results?

I think moving the needle, obviously if we increase our investment to the point where we consolidate or our operational involvement increases and we consolidate it, that would move the results. And it's added a valuation that is attractive and reasonable for Titan shareholders. So I think from that standpoint, it's accretive because it's a profitable and successful business. But as far as moving the needle, I think it's what we can do with our product portfolio together. Obviously now we can sell wheels and tires assembled to the OEMs. We can push more of the LSW together into the marketplace. And so it's all areas that are good growth.

But also what it does and this is not answering your question directly, but it protects what we have. So if you think about they have good market share, we have great market share. When you are a wheel tire assembly type operation like we are in North America, the value and the leverage that you have and really the protection you can put around the relationships you have with customers only increases. And so again looking at it from a strategic perspective, it's very difficult in Brazil to compete with a formidable combination of Titan from the tire side and Roderos on the wheel side.

And so more to come as we kind of get the deal finalized and kind of think about the strategy for next year. We'll make a trip down to Brazil once it closes and work with them on the strategy of where we can market and move some additional products for next year. So at this point because it's a minority investment, moving the needle financially isn't directly there. Let's lay the groundwork strategically and then we'll build the marketing tools around additional product sales for next year.

Interesting. And what percentage of Roderos would you own?

This initial 20% and then we have mechanisms that would drive that higher as time progresses.

Interesting. Okay. And then on the tariff side, so we've been hearing about tariffs now for, well, at least 4 months, longer. But it just seems like your customers in the U.S. would be making plans because it does appear that you're going to -- imported tires are going to be tariffed by at least 15%, probably higher for some countries. What are they saying? Are they asking you about your capacity in the event that they need to move stuff onshore to U.S. suppliers? I mean is there anything you can say on that front about what your customers are saying, U.S. ag?

Yes. That's a good question. We have had customers ask us about our capacity for next year. That has taken place. And I was at a customer last week and the way the meeting closed that they quietly -- the head of the customer quietly said to me Titan is in a good position for '26. That's kind of where we're at. It's more the questions around your capabilities for '26, feeling that we're well positioned to service their needs for '26, but customers are just not talking a lot about '26 at this point. There's too much still -- as you highlighted in your question, still too much related to tariffs and interest rates.

But I do like it -- like that meeting last week, I like it when a customer quietly says something to me. There was no need to do it. They didn't have to. But it does signal I think to me and what I'm therefore translating back to our team and even said this with the Board in our meeting last month as well, we have to remain agile. We got to have the staffing in place and the people in place to do that. That's why I keep highlighting again these drop in orders and our ability to service them. I don't think all companies in our space can do that. I'm not them so I can't speak directly for them.

But that's not as easy in today's world to see Titan manage costs the way we have with our margins and our performance so far this year in a very significant downturn, but also be in a position when customers need us, we can respond. And so that's why again I keep highlighting, I'm not just throwing BS out there for the sake of doing it. It's really important in our business because our business has so many SKUs. It's incredibly complicated from a production operational standpoint. And so for our ability to when a customer says I need you and here's the order and we can do it, that signifies the strength that Titan has.

And so again what I'm saying to our team, investors, to the Board, remain agile. We see a market that has potential for turning. It's going to turn in fits and starts it looks like for a period of time, but we got to be there to service our customers. And so that's what we're doing and I think we're doing a good job getting through that so far this year. I think the guidance that David highlighted for Q3 in a period where you have significant holidays and shutdowns signifies that we're on a good pace for Q3 as well. So again a lot of additional market commentary. I'll stop there. I got 100 thoughts in my head, I could keep talking for 20 more minutes, but I'll stop.

Thank you very much. We currently have no further questions. So I'd like to hand back to Paul Reitz for any further remarks.

So everybody, I appreciate it. Enjoy the rest of summer and we'll talk to you at the end of Q3. Thanks a lot.

As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.