Titan International, Inc. Stock

Good morning, ladies and gentlemen, and welcome to the Titan International, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] On the call today are Paul Reitz, Titan's President and CEO; Tony Eheli, Titan's Senior Vice President and CFO; and David Martin, Chief Transformation Officer. We will begin with a reminder that the results management is about to review were presented in the earnings release issued this morning, along with the Titan Form 10-Q, which was also filed with the Securities and Exchange Commission this morning.

As a reminder, during this call, management 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 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 the latest Form 10-K and Form 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 second quarter 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. Our second quarter results reflect solid improvement from prior year with revenues of $485 million (sic) [ $484 million ] and adjusted EBITDA of $34 million. Our diverse business model is an important part of Titan's ability. We talk about that frequently and enables us to continue succeeding despite continuing difficult end market conditions in the Ag segment. Our one-stop shop product and distribution strategy, which is well executed by our experienced team, places our customers at the center of everything we do. It is really a key element of this business model that is diverse that allows us to continue driving success through a range of different and challenging market conditions.

In our earnings release, we highlighted the fact that each of our three reporting segments accounted for between 30% and 40% of revenues in the quarter. Within each segment, we also have further diversification, whether it be geographical, product, or end user profile. Now diving into our Ag business, farm incomes continue to be pressured with lower commodity prices and input costs such as fertilizer due to the ongoing conflict in Iran.

And along with that, borrowing costs remain elevated. Those factors are weighing on OEM activity as farmers are hesitant to invest large sums of money in new equipment. For Titan, our Ag aftermarket business and our global footprint continues to provide some offset to that OEM weakness. When you look within the tractor category [Audio Gap] of the differentiated end users as higher horsepower units, as we all know, are used by the large row crop farmers, and they have been most impacted by the turbulent trade policy that has been ongoing.

But when you look at the lower horsepower units, they serve a variety of uses around almost any farm, and they also are used quite extensively by hobby users and municipalities. So these equipment owners have fared better than the row crop farms. And as a result, these types of users have been more active buyers on a relative basis. Looking at our Consumer segment, our diversification is really a function of our ability to serve a broad base of customers and end users with our extensive product portfolio.

With our wide range of off-road wheels and tires, our customers include recreational users of power sport and off-road equipment, along with trailers that are used to move that equipment. And then you also can throw in professionals like landscapers and golf course operators. As you can imagine, those varied end customers have much different motives when looking to buy tires for their equipment. A recreational user may -- might be highly motivated by a cool tread design, or you counterbalance that with the timing of a purchase based on getting something like a tax refund or a big commission check.

On the other hand, the professionals that I mentioned like a landscaper, they depend on the equipment running each day to keep up with their client schedules and make money. So as a result, worn-off -- worn-out tires are often a required immediate replacement, reducing the owner's ability to defer those type of purchasing decisions. So then lastly, looking at our EMC segment, we derive a significant portion of our revenues from Europe. They're driven by infrastructure activity that's influenced by some different factors than what you would see here in the U.S.

Our global footprint allows us to be a key partner for global OEMs. And along with that, they focus on areas with -- when they start to focus on areas with stronger demand, we have the ability to follow suit with them. End markets such as construction and mining can also have harsh operating conditions in many cases. That would take a toll on equipment, and that creates demand in the aftermarket. So if you tie that all together, Titan is well positioned to continue succeeding with our diverse business model. Of course, like everyone else, we are looking forward to the day when it comes, and it will come when you have a sustained recovery in demand across the Ag segment.

Many of our Ag end markets are characterized by continued usage of machinery and equipment like I've highlighted, and that continues even in softer economic conditions. So given that, worn-out tires and tracks need to be replaced as does equipment when it fails or it ages. Farmers, similarly to the operators I mentioned like landscapers, they're still working their fields. They still got acreage that needs to be tended to. So low grain prices will drive down and have driven down along with the pressure from the input cost, farmer income for this year, but they are continuing to utilize their equipment.

Tires and parts wear out, and that is going to necessitate replacement. So with us, roughly 45% of our aggregate sales consist of aftermarket products. And so we are, therefore, well positioned to benefit from that dynamic. In our Ag sector, we are also a secondary beneficiary of government support. I know that gets talked about a lot, all the way up to our President and the Secretary. But if you look at the farmers, I mean, they're independent, pragmatic can-do people here in the U.S. and around the world. Government support, though...

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Okay. We'll continue. Among our priorities, we are focused on controlling what we can control. And with that, today, we are going to have our Chief Transformation Officer, David Martin, share his perspective and key priorities after we have Tony go through the financials. As many of you know, David recently assumed this role after serving as CFO for 7 years, and this move allows him to focus squarely on ways to improve our business as technology continues to rapidly evolve.

Finding ways to reduce costs and improve efficiency is crucial in today's world, while we also continue to prioritize our investments in R&D that bring innovative value-added products to the market and in doing so, further solidify our market-leading position in off-road wheels, tires and undercarriage.

So wrapping up, I want to say we remain confident in the durability and diversity of our business model, the strength of our aftermarket position, the breadth of our product portfolio and the dedication of our global One Titan team. Together, these advantages position Titan well to navigate cycles while continuing to create value for our customers and shareholders over the long term. With that, I'll turn it over to Tony now.

Thank you, Paul. Good morning, everyone, and thank you for joining us today. As Paul noted, we delivered solid second quarter results with revenues near the top end of our guidance range and adjusted EBITDA above the top end. This demonstrates the resilience of our portfolio and the continued execution of our team. Compared with last year's second quarter, several financial metrics stand out.

Sales increased 5.2%. Consumer segment sales led our growth, increasing 27%. Gross margin was solid at 15.5%. Adjusted EBITDA improved to $34 million, reflecting strong operating performance and $6 million of tariff reforms. Free cash flow generated was $26 million. Turning to our segment performance. The results reinforce the value of Titan's diversified business model that Paul discussed earlier.

In recent quarters, EMC has been a primary growth driver. And this quarter, consumer led the way with sales increasing 27% as our Titan specialty line experienced a notable rebound in demand. Reported segment gross margin was 23.7% compared with 20.4% a year ago. The current quarter includes $4.6 million of net tariff reforms, which reduced cost of goods sold. While those reforms benefited the quarter, it is important to note that our margins in recent periods were negatively impacted by higher input costs associated with tariffs.

And while we can't really isolate the impact, it does factor into the comparative business performance over the past year. Our EMC segment increased 1.4% in sales compared with the prior year, with gross margin improving 12.5% from 11.5% last year. Foreign currency translation remained a tailwind, contributing 3.2% to segment revenues. While North America construction OEM demand softened modestly for the first quarter, margins benefited from the cost reduction and productivity initiatives implemented across the company's production facilities.

Our Agricultural segment continued to face pressure from lower farm income and elevated financing costs, which weighed on end market activity. Segment sales declined 5% from the prior year period. Lower activity levels impacted fixed cost leverage and together with higher input costs resulted in segment gross margins of 11.4% compared with 14.6% a year ago. As we noted last quarter, activity in our Brazil agriculture business remains challenging. High interest rates, political uncertainty ahead of the upcoming presidential elections and elevated input costs, particularly fertilizer costs tied to the Iran war continue to pressure farmer profitability.

OEM and dealer inventory levels have also become elevated, creating additional near-term demand pressure. As a result, farmers remain cautious with equipment purchases and activity in the region remains low. Moving on, SG&A, including R&D expenses, was $58.1 million for the second quarter of 2026 compared with $56.7 million in the prior year period. As a percentage of sales, expenses improved to 12% from 12.3% a year ago, primarily reflecting the benefit of cost reduction initiatives.

Operating cash flow was $39 million in the second quarter, improving from a usage of $47 million in the first quarter, consistent with normal seasonality in our working capital, but also an improvement from $14 million generated in prior year. This strong performance on cash flow was driven by focused execution by our team to optimize our working capital investments.

CapEx was $13 million in the second quarter compared with $10 million in the prior year period, primarily due to timing of capital expenditure. Year-to-date, CapEx remains comparable to prior year period as we continue to make prudent and measured investments in the business. Net debt was $413 million at quarter end, down from $441 million at the end of the first quarter. This reduction reflects progress towards one of our key priorities for the year, which is strengthening the balance sheet and reducing leverage as we move through the year.

Tax expense was approximately 0 for the quarter. As we have discussed previously, our effective tax expense can vary based on geographic mix of profits and losses and the applicable tax rules in those jurisdictions. The main driver of the variance versus the range we provided last quarter was setting discrete tax benefits recognized during the quarter and the impact of jurisdictional mix of earnings.

I'll reiterate that as market conditions in the U.S. recover, we expect our tax rate to move back toward more normalized levels. For the third quarter of '26, we expect tax expense to be in the range of $4 million to $5 million. Turning now to our financial guidance for the third quarter of 2026. We expect revenue of $440 million to $460 million and adjusted EBITDA of $27 million to $33 million. For fiscal year 2026, our financial guidance remains unchanged with revenues of $1.85 billion to $1.95 billion and adjusted EBITDA of $105 million to $115 million.

As Paul and I have noted, our Agricultural segment continues to operate in an uncertain environment. Given current market conditions, our prior expectation that customer activity will accelerate in the fourth quarter ahead of an anticipated agricultural recovery early next year now appears less likely. As a result, we currently expect full year sales to trend towards the lower half of our guidance range, which would represent modest year-over-year growth.

With respect to tariff reforms, we expect an additional $7 million to $9 million of refunds net over the remainder of the year. We intend to reinvest the proceeds back into the business with a focus on initiatives that enhance our product offerings and deliver greater value to our customers. Before turning it back over to the operator for the Q&A session, I want to hand the call off to David Martin, our Chief Transformation Officer, who will share some thoughts on key initiatives he's working on.

Thank you, Tony, and good morning, everyone. Well, it's been an exciting 7 months in my new role. And today, I want to share how we are applying AI and transformation at Titan. Titan is a company built by people who know how to get things done with strong industry experience and an entrepreneurial culture. We make complex products, serve tough end markets and operate in places where local knowledge matters.

Transformation has to build on that -- the focus of my role in the CTO position is simple: improve performance, move faster and give people better information and take manual work out of our business and functions. It won't be about chasing dreams and shining objects. I'll walk through some of those important focus areas now.

First is operations. In the plants, we are connecting production data, machine information, quality data and operator experience so teams can see issues earlier, understand root causes faster and make better decisions on throughput, downtime, scrap, yield and quality, among other things. The second area is supply chain and enterprise visibility. Our footprint creates complexity in forecasting inventory freight and working capital.

Analytics and automation can make that information cleaner, faster and easier to act on, helping us lower costs and manage inventory more effectively. Our third area is -- we have a great deal of knowledge that sits in separate systems, spreadsheets, reports or individual experience. We are building a more connected thread from design and testing through quality, production and commercial feedback. We are applying that same mindset in finance, legal, compliance, contract management, workforce planning and reporting.

Reducing manual work, standardizing repeatable processes and making information easy to define and use are keys to this. We have several early projects underway or getting started, including plant-level industrial analytics pilots, a new approach to contract life cycle management, supply chain analytics improvements, and AI-driven LSW payback calculator app for sales enablement, product development cycle improvements and a new human capital management foundation through Workday.

Our approach is practical. Start with the clear business owner and a real problem, we'll test and learn and then we'll scale where value is clear. That matters at Titan. We are decentralized and very operationally focused with our resources. Corporate can provide tools, standards, oversight and support, but the value has to show up inside the business in the plants, with customers, in engineering, supply chain, finance and across all of our functions.

Our people know the bottlenecks, the reports that take too long, the decisions that need better data and the work that can be simplified. My job is to listen, help prioritize these -- the right opportunities and put support behind the areas that really matter. For our employees, the message is very simple. You don't need to become an AI expert. My goal is to have everybody stay open, look for ways to simplify work and help us apply these tools where they can make real difference. I see that momentum building every day in my conversations with our teams across the business.

And I'm encouraged by how many people are turning to use AI productivity tools to work smarter and solve practical problems. I want to thank our One Titan team. The progress we make will come from the people closest to the work, our plants, our commercial salespeople, engineering, supply chain, finance, all of our functional leaders and then our business unit leadership. The goal is to be a company that executes with stronger visibility, responds faster, improves productivity and makes even more disciplined decisions. It's about performance at a higher level.

Our AI and transformation initiatives are focused on measurable business outcomes across manufacturing, supply chain, engineering, product and business development and administrative functions. We have identified opportunities expected to generate up to $15 million in operating improvements over the next 3 years. This is aggressive and aspirational, but also very grounded in the real opportunities across the business that we are already vetting. We expect to begin realizing benefits in 2027 with a target of $3 million of improvements by the end of next year.

Importantly, these investments will be funded through our ongoing capital expenditure programs. So we are not increasing CapEx because of our AI and transformation initiatives. We're being very smart in how we allocate our capital. As we move forward, I will be ready to share more on concrete progress and financial performance against our targets.

So I'm really excited about the opportunities in front of us and look forward to getting after it in the second half of the year. So thanks for your time this morning, and I'd like to turn over the call to our operator for our question-and-answer session.

[Operator Instructions] Our first question from the line of Mike Shlisky with D.A. Davidson.

The audio has been a little funny on the call, so I may have missed a few comments along the way. I'm not sure that anybody else, but I may have missed two sentences. Hopefully, I only asked something that was already covered in your prepared remarks.

Mike, yes, I apologize for that. We got noticed in the middle of the call that the audio is bad, and we're trying to correct it. So hopefully, it's clear now. I apologize for that. We became aware of it in the middle of my comments.

Okay. Well, hopefully we will somehow muddle through here. So first, Paul, your comments on commodity prices were interesting. It appears to me as though commodity prices have been improving recently. I think we had corn at nearly $5 just this past week. This is the December futures price.

So I was a little surprised to hear that you -- as you are calling commodity prices still kind of struggling. I guess if some of these $4.75, $5 corn prices hold through the end of the year and farmers do actually realize that across a lot of their crop sales, and that includes the old crop, by the way, do you foresee any improvement in 2027 if we see commodity prices hold?

Yes. Totally agree with your comments, Mike. And mine were in the broader scale of the commodity price range over the course of the year. Clearly, like you said, you articulated very well. I mean, we're starting to see some positive things happen. What we've been watching closely, what I've been really spending a lot of time on throughout Q2 is trying to get our feelings for where things are going in the future. We got some indicators early part of Q2 that we thought, as we talked about previously, that we would see more of an uptick later this year.

And what we're seeing is exactly what your question is leading towards. I mean we're seeing things building. Commodity prices are more favorable. Equipment is aging. Used inventory is better positioned. So we're seeing the market conditions really, really improve to create that foundation for an uptick that is coming. Again, we just haven't quite seen all the indications that it's going to hit this year, but still remain favorably in position exactly like you stated that the foundation is there for next year.

Okay. Okay. Great. And then maybe can you just go a little deeper, Tony, on the guidance because you guys just said -- Paul, you just said Ag is still a little challenging here for the rest of the year. Which end markets or what part of your other markets that maybe got better for the fourth quarter that maybe kept you from cutting the top line for the full year?

Mike, thanks for that question. So when we look at our business, first, our Europe business continues to do well. The opportunities there, we continue to win new business in Europe. So that's going very well. And we're looking to get some good growth in that part of the business.

Now it's not a significant piece of our Ag business, but they are looking very healthy in what we're seeing in the markets there. The second aspect is in our consumer business, where we are winning business, new business with OEs, and that continues to happen, and we expect to see some of that benefit as well help our Q4 results year-over-year.

Your next question comes from the line of Joe Gomes from NOBLE Capital Markets.

So just on the Ag business, I mean, you talked about OMEs continue to reduce inventory. How much further can they reduce inventories to? And is maybe the replacement cycles becoming structurally longer here? Are we really just thinking this is an abnormal cycle what's happening here given all of the impacts that we're seeing between interest rates and geopolitical stuff? And just maybe, Paul, you could touch a little bit on that, I'd appreciate it.

Yes. I mean, Joe, if you think about what's taken place this year, I mean, we live it. Everybody lives it and you kind of get used to it, but it's pretty astounding week-to-week, month-to-month, everything that goes on, creating that envelope of uncertainty in the business activity. So I want to look at what we're facing with the Ag cycle as exceptional, not a change in the norm structural.

I do know in spending time out in the field with a number of OEM dealers, they put a ton of effort into managing inventory. This isn't something they just woke up in 2026 and said, let's go try to tackle it, even though it may appear like that from some of the comments. I mean the well-capitalized OEM dealers have been working on inventory for a period of time. I do feel that the ones I speak with have done a great job. They're in a good position to benefit from a recovery.

As I mentioned in my comments, the government support is very good and the fact that it solidifies balance sheets, keeps their financial position strong, enables them to keep buying some of our replacement products, our tires. But it doesn't necessarily drive the equipment purchases. And I think that's where that sustained recovery in farmer income is what's going to take -- have to take place in order for that to happen. But I do think inventory is in a good position. Now there may be pockets either geographical or by dealer to dealer or brand to brand that maybe it's a little bit out of balance.

But I'm telling you the ones I've spoken to spent a long time just a couple of weeks ago with a quite large dealer, and they've done a tremendous job. And it's personally hard for them to do that, but they've done a tremendous job. And so I think we're in a good position. I think the foundation is there, get a little calmness if that's possible in the world activities.

I do think it's possible, I should say. We can't -- I don't think we're going to continue with that. And I think the Ag cycle gets back to more normal trends. And there's great new equipment out there. There's aging equipment that needs to get replaced and eventually, it's going to start happening.

Okay. And then I guess, kind of what are you hearing from the OEM customers on the EMC side of the business going forward here for the second half of '26 and maybe into '27?

Definitely more stability. Again, our OEM business for EMC is a little bit different than others. It doesn't necessarily follow the bellwether of a market leader that you can just look at their comps. But our business, we got really good performance as we exit Q2, and we see that being sustainable through the rest of this year. So that segment has hold the [ hyped ] experienced some good performance and has some stability behind it as we move into the back half of the year.

Again, we're exposed a little bit different than the U.S. infrastructure cycle, more positioned towards Europe. We do have some exposure down into Brazil, a really good position in Brazil that's been performing well outside the Ag cycle that we've highlighted. So I think we counterbalance throughout EMC quite well and do see some good performance and stable performance through the rest of this year.

Your next question is from the line of Kirk Ludtke with Raymond James.

Maybe on the consumer side, you mentioned that the revenues were up pretty substantially due to higher volumes in your Specialty business. Can you maybe elaborate on that? Is it partly the rollout of the Goodyear brand? Or is there something driving that growth?

Yes. I think Tony highlighted this earlier, and I'll add a little color and then let Tony kind of wrap up there from more of the financial perspective. But yes, our team has done a great job. I think the one thing I want to highlight and the reason why I say they're doing a great job is since we've moved more heavily into the consumer business with the acquisition 2.5 years ago, we have launched more new products into that segment than they had in the previous 15 years.

So Tony mentioned the OEM wins that we're getting. It's not because we just woke up, fell out of bed and OEMs called us and placed some orders. We have done a lot to position ourselves much stronger within that segment, and we're starting to see the payoff, like Tony mentioned. And we feel really good about our pipeline of new products that we're continuing to put into the marketplace.

Go online and look up VPO. I'm not a social media expert, but my guys showed me the number of YouTube videos on that is astounding. And we have literally just barely launched that product, literally just barely launched it. And so again, the pipeline of products that we have coming into the marketplace, along with what we've already done has really helped driving some wins despite some market conditions that haven't been as favorable with the OEMs.

And so that's kind of getting buried under the scenes, and Tony did a good job explaining that. I mean the OEM wins are offsetting some market conditions. And so again, we're very well positioned for the future when the market does improve. So the Goodyear brand is part of that, like you said in your question, Kirk, we are using that and launching it. That's certainly a premium that will drive nice margin and growth for us in the future as well. But from a positioning in the market, it's been fantastic to see what our team has done with launching new products and the impact it's having.

I mean, Paul has explained everything we're doing great in our business. So that's all -- I mean that's it. And the only other thing I would say is you'll recall where we were last year, Liberation Day, there's a weak comp in there. I would acknowledge that in my role. So -- but that also ties into the Q3 conversation as well because that weak compare in Q2 creates a tough compare in Q3. And so overall, the business is doing well, and that's what Paul has tried to explain in terms of the wins and how we're progressing.

That's great. And then the transformation position is a new one as far as I can remember. Should we expect a more aggressive approach to operational restructuring going forward?

Well, we're constantly vigilant with regard to how our operations are performing and especially given market conditions, if they persist, we're always going to be prepared to make the right decisions. In fact, if we think about the AI and transformation initiatives we have, that's actually going to help us improve even in the midst of a pretty low market that's going to really set us up well for when it does recover.

And then when you think about productivity, efficiency and those types of things, it's going to give us better access to make even better decisions about how we allocate our production domestically versus some of our sourcing opportunities as well. So all of that's pretty exciting because it plays together.

Great. And then lastly, on tariffs.

Your next question is from the line of Derek Soderberg with Cantor Fitzgerald.

Two-parter to start. What's sort of the scale of the challenge of the fertilizer issue? It seems like it's sort of compounded the issue from the Ukraine conflict. Can you talk about the scale of that challenge relative to the sort of ongoing farm income and financing challenges for farmers?

Just to help us understand the scale of that issue. And then the second part is what might be the impact if we sort of see a prolonged conflict in the Middle East here? And is this sort of -- does it potentially create a crisis for farmers? And maybe just help us kind of quantify that.

Yes. I got a couple of viewpoints on that, Derek. And let me start with -- I mean, when you look at Brazil, the farmers there did not purchase fertilizer in advance, plus they have two crops. And so they're more susceptible to the higher input costs throughout 2026. U.S. farmers, more of them had purchased fertilizer at the end of last year, lower prices before the conflict.

And so they're able to get the seeds in the ground and get things going better than Brazil did. Then you kind of take that and roll that forward into the future and go, okay, what does that mean if fertilizer stays as high as it is? You're going to see potentially less fertilizer be applied. And at some point, that could impact yields. And I think there's a more favorable dynamic that could come from that, where crop prices or grain that gets thrown into the bins at the end of the year, maybe helps relieve some of the storage at the end of the year, and we get better prices going forward into the future.

So I think there's a counterbalancing mechanism to that. You think about weather events around the world for the last kind of 5, 6 years, there really hasn't been any. So farmers have been able to basically produce at a high level with extremely strong yields. So I think there's some counterbalancing things to the higher fertilizer costs, that would have a favorable longer-term impact. But in the short term, yes, the fertilizer costs are high, as we all know, at times, they're in tough supply. And I think you're going to see some impact to the usage of fertilizer.

Brazil is going to be probably the first because they just don't have as much coming into the year, and we know that was the case. And I think you're going to see the U.S. farmers face the same thing. They're going to have to balance input costs and one way to do that is just buy less. But again, I think there's a counterbalancing mechanism. The way I look at it and the way I've been thinking about it the last few months, there's a counterbalancing mechanism that helps us on the longer term with some crop prices.

Got it. That's helpful. Appreciate the color. And then just one to clarify on the tariff piece. I think I heard $7 million to $9 million in tariff refunds through the remainder of the year. That's an incremental amount on top of what we saw in 2Q, correct? And maybe I missed it, but how will that sort of $8 million or so be sort of spread across 3Q and 4Q?

That's -- yes, it's incremental to what we got in Q2, and we expect a similar amount in Q3, so about $6 million in Q3 and then the balance in Q4.

Your next question comes from the line of Steve Ferenzani (sic) [ Ferazani ] with Sidoti.

Tony, can you walk through a little bit about the improvements in working capital? And I'm looking at it, it looks like particularly Q quarter, year-over-year, it looks like particularly on the payables line. How much of this was a timing element? And how much of this is permanent improvements in sort of how you're handling working capital?

Yes. So overall, on working capital, the team continues to execute on all three components. And so I know the payable is a big piece for Q2, but it's not just that the [ AR ] as well, they're executing well on the collections, driving that heavily. So that's a big plus to the team on that front. We continue to optimize our inventory levels more and more. We've talked about our strategy around driving the strategic sourcing products, which we're going to have from third party, and we're going to drive sales on that.

That requires some investment in working capital also in inventory as well. So we're optimizing that inventory level. And all the additional inventory that comes in with respect to that strategy to help support the sales in that area, we're able to manage it well with what we produce with our raw materials and all that. And specifically on the payables, we continue to optimize and address points you look at to how we manage the cycle of our payments. So yes, we'll continue to see improvements. However, would it be the kind of improvement we saw in Q2? No, we don't expect that kind of improvement to continue all through, just to be reasonable on that. But we continue to drive improvement in that.

And then given that the Ag recovery maybe has pushed back a little bit, any changes in your CapEx expectations in the near term?

No, no changes on our CapEx expectations. David talked about what we're going to do on AI. We're going to make some investments there as well. And all that is going to be managed within our normal CapEx budget, our normal CapEx range we've given. So we're continuing to invest in the business.

And then just the benefits you're expecting from that plant consolidation, is that really a 2027 story still?

That is 2027 beginning Q1.

Okay. Beginning Q1. Okay. I will get a hold of you on that. All right. Thanks everyone. Appreciate it.

Your final question from the line of Kirk Ludtke with Raymond James.

I just wanted to -- is the tariff recovery, is that a full recovery? Did you get 100 cents on the dollar?

That's -- it's a net amount which we have recognized, taking into account specific customer situations where we may have obligations to give some refunds.

Okay. I understand. Got it. And do you feel like you're even with respect to the reciprocal tariffs? Is that -- have you -- is it a wash pretty much?

When you look at the tariffs...

In other words, should we be thinking... Yeah, go ahead.

Go ahead.

No, I was just wondering if maybe your historical results were depressed more than the periods that received -- that included the refunds are benefited. You know what I mean?

Yes. There's a broader perspective that we look at here at Titan. So I'm going to give you the inner working viewpoint because we're a different company than a lot of the high-profile stocks that are out there in our industry that everybody follows. We're not a final assembler of components from other companies into a finished good that we have access to a dealer channel. So what Tony is referencing in his comments is the direct tariffs. We also have tariffs that go into underlying costs, for example, steel.

And so my viewpoint is going to be -- our team has done a great job managing through the tariffs and the volatility the administration has created. And we're able to keep our price and costs fairly well aligned. We haven't had to talk about that a lot publicly. There's a lot that goes on behind the scenes. So we do have the pricing leverage with our products to handle the volatility in the tariffs. But there's the Section 232 steel impact, the volatility in freight costs and those types of things that we're exposed to that from period to period can have a bigger impact.

I'm not a big fan of the Section 232 tariff. I think it's ridiculous what it's done in our industry when you are a converter of steel into a component, a finished good that then goes into somebody else's finished good. All we have done is seen nothing but a negative impact from 232 with the inflation on raw steel in the United States. So don't look at what goes on at steel companies because that's the stocks that everybody follows. We are a purchaser of raw steel. And so I do think there's some relief in our numbers in the future if we ever get our steel tariffs better aligned to reality of being a converter of raw steel into a finished good in the United States of America.

So yes, Titan has been impacted by those tariffs in our results in a great business with great products, great market share, very important to our end customers, but hit hard by tariffs that we do not control. And so when our country, our administration gets their arms around what to do properly with steel tariffs, then yes, our results can and will be better in the future. So there's two different things. There's the direct tariffs that we're going to talk about publicly.

We do a lot managing that operationally. Behind the scenes, there's an impact from tariffs that we can't control that our administration is completely not understanding the impact it has on companies like Titan. And that is in our results negatively for the last 2 years. And in the future, again, we will see better results out of that part of our business. I'll get off my soapbox. I think I said enough. I could go on for another 10 minutes, but I'll stop.

I got it. I got it. No, that's what I was getting at. It's still a drag. And then lastly, on Brazil, when will we get some clarity on what the public policy is going to be toward your industry?

That's a great question. We spend a lot of time with our team talking about it. It is -- there's a high correlation between public policy and impact to the business sector in Brazil. It is different here than I think what we are used to in the U.S. or even in Europe, where public policy is talked about business impact less or so. I was looking at the polls just on Monday, it's a tight race.

It's going in a direction that has negatively impacted business in Brazil. We're not going to know until the election is over. Unfortunately, we're caught in limbo just like every other operator in Brazil right now. It's a little bit of a shock how quickly it came this year, considering the performance before that, but that's Brazil. It can get hit hard quickly and it can recover quickly. We really adapted our business well to these conditions. Our team is hard. Just talking to them last week. I mean, this is not easy, but it's real.

The political environment does create a real impact on businesses, and we are managing our way through it. We've done a good job controlling our plant operations. We just finalized our union negotiations in the middle of this volatility with the political environment. Got a very good agreement with the union. It's a win-win for both sides, but it's a really tough environment. And unfortunately, it doesn't go away until that election happens. And all I do is watch the polls just like everybody else and help our team and get through this tough time. But politics and business are very tightly correlated in Brazil.

We have reached the end of the Q&A session. I will now turn the call back to Mr. Reitz for closing remarks.

Well, I appreciate everybody's attendance today, and apologize for the technical difficulties that we had in the middle of some of our earlier comments. Hopefully, it still came through clear enough that you could understand what we were driving towards. But the Q&A, I think, covered a lot of it anyway. So again, appreciate everybody's participation. We'll talk to you next quarter. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

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.