Titan International Inc (TWI) 2015 Q4 法說會逐字稿

Ladies and gentlemen, welcome to the Titan International, Incorporated fourth quarter 2015 earnings conference call.

During this session, all lines will be muted until question-and-answer portion of the call. (Operator Instructions)

Any statements made in the course of the conference call that state the Company's or management's intentions, hopes, beliefs, expectations, or predictions for the future are considered forward-looking statements.

Please note that the Safe Harbor statements contained in the Company's latest Form 10-K and Form 10-Q filed with the Securities and Exchange Commission extend to this conference call, and any forward-looking statements involve risks and uncertainties as detailed therein.

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

Thank you, dear. Good morning everyone. I'm assuming if you're on the call you've already received the press release and the 10-Q information.

2015 was not a good year, which we all kind of knew going into it, hoping it would balance out. It didn't. This is the third year now for Titan that we've seen a downward drift in sales, and this one was a big one.

We believe that in this period of time that we are getting the ship, as they say, lean and mean. We've cut a lot of people and we have gone and been consolidating. We now are in the phase of where we are reducing costs, and reducing costs from the standpoint of engineering a lot of costs out various products.

I could get real technical and explain that if you have a disk that you put in a wheel and it's a full 360, if you take that blank and make it smaller and you just have little scallops on it and weld four spots, you have saved a lot. You have not diminished the strength or the character of that product in any way, but you have reduced the cost because you reduced the amount of steel and the welding going into it. This is a process that we'll keep going on.

The good thing about what we've seen, as I said in my CEO comment, is the price of steel has really dropped, the price of oil's dropped, so price of natural rubber.

So we expect that going out into this next year, 2016, we believe that it's going to be pretty close in the revenue side as what 2015 was. And that probably, because of the situation we did last November 1st with Goodyear, we will start to benefit from that territory, which is Europe, Russia, all the Middle East, and Africa. So we expect that to actually propel us.

So that we look forward to 2016 of increasing our revenue, even though we think it'll be kind of on the slight side. We also believe that it's going to be a year that we don't have a bracket or negative in our numbers.

So we've been through this before. It comes along every so often. We are a cyclical business. There'll be some of you right now that would probably say, well, some of the OEs are forecasting 15% to 20% down. Well, I would caution you to remember one of them is already through their first quarter. Number two, the big -- they've sucked up the inventories that they carry for both tires and wheels, so that they're now getting real lean. That hit us last year.

So I expect the large ag, which we count as basically over 200 horsepower, combines and big sprayers, we expect that to be pretty well on the flat side. And if we see a pickup of farmers today that turn around and say, hey, instead of buying a new piece that's working, tires wear out. So, and we're picking up that with the large farmers, [with] them with our LSW.

So we believe pretty firmly that we can turn this -- this baby's going to turn around for us.

And if you look at the charts that everybody puts out on U.S. farm cash receipts, you'll notice that their receipts are basically right in there in the higher than anything from 2011, back.

So we think we're pretty good for that part of the business moving forward.

We have also one of the things that I said in the third quarter, and actually I did it at a presentation [of] Jefferies over a year ago. We have gone and made the statement that we would look at our Trac business, which is ITM, which, truthfully, this first quarter is doing very well. But long term it doesn't flow right with our wheel and tire business. So if we get a number that looks pretty good, we would take it to our Board.

So we've got a lot of activity up in the oil sands. We're going to have our kickoff open house the latter part of March, and that's moving.

We have made application to the Brazilian government to bring in our -- put a wheel facility into the Brazilian plant. And we have turned around, and we look for that to be a big boost for us down in Brazil.

Brazil, everybody calls Brazil a real basket case right now. But when you look at the farm goods, the commodity prices for corn, soybean, wheat, et cetera, you'll notice that the price is all in U.S. dollars. So when you have a real that's gone from 1.6 to 4, everything they sell is in dollars.

So we expect Brazil and Argentina to be a big boost for us from the farm side.

The construction side and the truck side is still going to be on the lower end, even with the real being deflated as much as it has. When we took it to U.S. dollars, it doesn't come out right.

But anyhow, that's what we are looking at from our side.

And as you can see, our cash, everyone has opinions of what, but our cash is basically the same as what it was the beginning of the year. We will be cash positive in 2016. We're going to bring our -- we do not have big items on our CapEx.

So we're looking to have a good year. After three bad years, it's a blessing in disguise.

A lot of that sales level from our peak, which was I think around $2.3 billion, of course was the big hammer that hit in the Russian exchange and everything else (inaudible) When he talks about it, John, he'll talk about that tax deal which is just a GAAP. And if we are positive, we're going to put it in next year for the back end. So they just keep bouncing back and forth, which is, to me, a little crazy, but that's neither here nor there.

With that, I will turn it over to Paul.

Thanks, Maury. Good morning everybody. You know I'm stating the obvious when I say 2015 was a challenging year. We got hit with significant demand reductions in all of our end markets that were caused by conditions that are as tough as anything we've faced in a long, long time.

At the end of the day, our financial results are the scorecard that we're measured by. And there's a story behind our numbers that isn't published in the black-and-white results.

I want to take a few minutes this morning to talk about the Titan story 2015, and then I'll turn it over to John, let him dive into the financials.

At the start of 2015, we launched a program called our Business Improvement Framework that got our organization and our people focused on making the tough decisions to fight the impact of the significant decline that we were seeing and going to see in our market conditions, and then, obviously, to our overall sales level.

Basically, this program could have been called our markets are ugly and we better do something about it. This business improvement program has empowered our teams to act aggressively with the necessary reductions to our operating costs throughout 2015. So we really spread it far and wide and we empowered our people to take the actions that were needed.

For example, as Maury alluded to in his release and his comments earlier, we've reduced our headcount by over 2,500 people from the start of 2014, and certain locations have been able to increase their per-person productivity levels during that process, during that time period where we're reducing headcount. That's not easy to do.

Another example can be seen in our SG&A costs for this most recent quarter, in the fourth quarter of 2015, they were 30% lower than they were last year during this period.

But this really goes beyond just cutting cash-related operating costs. Maury mentioned earlier there's a number of initiatives and thoughts that we have with how we can take materials out of our product, reduce our material cost both on the procurement side and then all the way through the production side, and not really change the quality of our product one bit.

Another example is in 2015, our U.S. tire business made improvements in their production processes that reduced our cost of quality and scrap rates compared to the prior year.

Again, it's really impressive to make those type of changes and improve your quality, reduce your scrap, at the same time as reducing the headcount and adjusting to the change in the revenue levels.

Through this Business Improvement Framework, we also got our teams thinking and implementing about long-term projects that provide a positive MPV or EVA. We realize that we're in this game to win in the long run.

So did our efforts work in 2015? Yes, I definitely think so. And you can see what we achieved directly in our gross margin percentage, which ended 2015 at 10% versus 9.5% last year.

That's in the face of a 26% decline in our total revenue, that we were able to achieve that half percentage point increase in our GP percent. So, yes, our business improvement initiatives have worked.

But we aren't done yet, and fully envision this being a sustainable lasting program.

I was at one of our plants earlier this week and I met with my general manager and his technical engineers. His team of jedis walked me through another $5.5 million worth of improvements that are going to be put in place in 2016. And that's just in this one location, just one plant.

So let me move away from the cost side. Let me jump over to talk about our brand and LSW. We all know that a brand lives and breathes within a company [and its] customers. You could argue that a brand is your most valuable asset.

So we've really been putting a lot of emphasis on growing the strength of the Titan brand in 2015. And we've done that by building high-quality products, taking care of our customers, and then leading the way with innovation.

In a recent market study, Titan Goodyear farm tires were a recognized brand amongst 95% of small and large farmers. Simply put, at a 95% level, we clearly have a very strong brand to work with.

If you were then to take a look at BKT, Mitas, and [Trailer Board], their recognition scores are all below 35% among small and large farmers, with BKT coming in at just 20% for large farmers. So 20% for them, 95% for us.

It's a fact that Goodyear Titan farm tires and Titan wheels are the overall number one farm tire and wheel brands in the world respectively. These strong wheel and tire brands give us the luxury of being able to build upon the strength of our market-leading positions with innovations such as LSW, which we believe will reshape the future of our industry.

LSW wheel tire assemblies simply make the market and the equipment in the market perform better.

At the end of the year we put together this book. It comes from all our large test farms that are running LSWs. And it's basically a summary of their thoughts and what has taken place on the LSWs they're running on their farm. And it's really awesome to hear what they have to say.

So for example, and I'm going to give you a couple quotes here, By far, the most drastic performance change I've ever seen. Rubber tracks are no longer necessary.

Another quote is, My tractor with LSWs pulls like an SOB and doesn't struggle in some conditions like it did before. I personally like that one.

Here's one more for you. This LSW set up is the ticket. There is no other way to go.

Based on some recent market surveys we've done, we now find and 23% more farmers recognize LSW compared to IF and VF. And let's not forget IF and VF's got about a 10-year-plus head start on LSW.

So look, our job and responsibility at Titan is to simply move as fast as we possibly can to keep spreading the word on LSW, keep developing new LSW products, and then build quality LSW wheel tire assemblies, and sell and market the heck out of them. That doesn't mean our conventional products are less important to us today, as we will continue to be focused on doing exactly what we do now, producing high-quality conventional products that meets the needs of our customers.

What LSW means to Titan is that we have a really big arrow in our quiver that others don't, and will power the future for Titan.

So let me just wrap up here by talking a few minutes about our organization. The foundation for how we operate is centered around One Titan. In simple terms, this means leveraging our world-class global assets by working together to make effective decisions that are best for Titan, Inc., and of course, taking customer-focused actions on a daily basis. You got to take care of your customers. You got to take care of your people. You got to take care of your shareholders.

The market conditions were ugly in 2015, but the Titan team didn't dwell on that at all. We united as an organization to move forward. We fought the daily battles of a challenging market. And, again, you see what we accomplished with the increase in our gross margin percentage in 2015, and the fact that our cash balance basically ended the year at the same level as where it started.

Now, this is attributable to the many efforts of many people working hard and working together at Titan. It's tough out there these days, but we are definitely making significant improvements as a company.

So with that, I'd like to turn it over to John to talk through the numbers.

Thanks, Paul. Good morning everyone. Well, as both Maury and Paul had mentioned, 2015 was a very challenging year. But despite the difficult year, we've adapted well by focusing on what we control.

Quality continues to improve, costs have been managed diligently, and we continue to reduce headcount commensurate with volume.

Our Business Improvement Framework that Paul referred to, BIF, as we've coined it, has made 2015 a relative success in terms of being able to mitigate the negative consequence associated with our significant sales decline.

While our sales were down 26% to prior year, our adjusted gross margin as a percent of sales in 2015, actually improved 40 basis points.

Income from operations was a loss of $24 million. This was only $3 million worse versus prior year after adjustments. So on a $500 million reduction in sales, we held operating income nearly flat. This resulted in only a 0.6% decremental margin. So that's less than 1%.

So let's turn our attention to operations and talk about revenue. Sales for the year were $1.4 billion. This was down $500 million or 26%. The year-over-year decrease was driven mostly by currency and ag at $198 million and $208 million, respectively.

The remaining $95 million variance comprises our earthmoving, construction, and consumer segments.

I reference currency. This drove a reduction in sales of $198 million or 40% of our revenue decline. This impact was felt across all the international locations, our Latin America, undercarriage, Russia, Europe, and Australia businesses.

The most significant rate movements were represented by the ruble, 59%, the real at 42%, and euro at 20%. If you adjust for the currency impact that I just outlined, sales declined only 16% versus the reported 26%.

As we break down our segments, let's start with ag. Ag continues to be the key driver to our sales decline. Ag in total was down $208 million or 20.5% when you exclude currency impact.

North American ag was down $199 million or 29%. $177 million or 89% of this particular erosion is driven by reductions associated with our OE customers. From a product perspective $176 million or 88% of the same North American ag reduction was a result of reduced demand for high horsepower equipment.

In Europe, the continued decline in ag is still driving our main OE customers to reduce volumes. It is a buyer's market, as low demand levels align with falling steel prices and new competition from low-cost producers all put pressure on price and margins.

And offset to that, we continue to win new business in Italy, France, and Turkey that'll drive an additional 80,000 units in 2016.

We are still the market leader as we continue to be rewarded by the market for providing innovative products that our customers want.

The Goodyear tire project is now underway in Europe, with the initial orders being supplied from the U.S. The early reception to the reentry of Goodyear is very encouraging and demonstrates the brand still holds tremendous value in Europe.

Latin America, Maury talked about this a little bit. They continue to suffer from a number of negative forces, deep political crisis, weak GDP, increasing unemployment, and high inflation.

But in spite of these challenges, Titan has actually gained market share with our OEs, increasing from 38% to 44%. Our Titan team in Brazil has been admirable in terms of their performance and perseverance to drive forward in the face of all these obstacles. They have been very diligent to reduce costs and ensure competitiveness in a very difficult market.

Quick comment on undercarriage, Russia, and Australia businesses. When you exclude currency impact, both undercarriage and Russia showed positive growth for the year, while Australia was basically flat.

Turn our attention to earthmoving, construction, our sales for earthmoving, construction were down $39 million or 6.4% when you exclude currency impact. A good portion of the $66 million currency impact was attributable to the euro devaluation negatively impacting our undercarriage business.

Our North America business experienced a 20% decline, primarily driven by reductions with our OEs. When adjusting for currency, our rest of world businesses were nearly flat year over year.

So I want to talk about the consumer segment briefly, because I think the reported sales performance results could be misleading.

Our sales for consumer were down $56 million or 20.8% when adjusting for currency. Another view of that variance, $82 million of the gross $103 million miss for our consumer segment is driven by Latin America.

76% of this Latin America miss comprises FX and supply agreements. Supply agreements primarily represented by the Goodyear compound activity brought in house to improve profit. So yet another initiative towards the Business Improvement Framework that you've heard a lot about.

When we adjust for currency in the Latin America supply agreement, sales declined only $10 million or 3.7% versus the reported variance of 38%.

So with the book closed on 2015, that puts sales just at $1.4 billion compared to $1.9 billion last year, representing an erosion of $500 million.

As evidenced by the past couple years, these markets have been very difficult to gauge. We continue to focus on the delivery and marketing of our innovative products that make our customer's equipment better.

So let's move on to gross margins where we have performed exceptionally well despite the significant sales decline. So as noted a number of times, our gross margin dollars were down $2.8 million to prior year, or $43 million on an adjusted basis.

Our adjusted gross margin of 9.9% of sales was an improvement of 40 basis points to prior year, on $500 million less sales.

As I continue to state on these calls, we have battled to overcome the sales decline. We've also had to contend with a weaker mix, as most of the ag erosion was related to high horsepower equipment which represents a higher margin product category for us.

We've been talking for several quarters regarding our Business Improvement Framework. You heard Paul talk about it quite a bit. We continue to realize the benefits of our efforts and the impact of our initiatives continue to accumulate.

In fact, this is the only manner in which you could explain or rationalize improved gross margin performance in the face of both significant sales declines and unfavorable mix.

Net material cost reductions across the board have enhanced our margins. You heard a lot both from Maury and Paul in terms of not only are we getting reductions on price of commodities that we pay, but we're also engineering out material costs, so reductions we've seen across steel, natural rubber, synthetic rubber, carbon black, fabric, and chemicals.

I continue to reference on these calls, we've significantly improved the procurement of raw materials through the centralization of purchasing into our new supply chain organization.

We've been procuring better than the benchmarks where generally this was not the case historically.

We continue to demonstrate that we've been proactive in real time and reducing headcount in our plants commensurate with anticipated lower production levels. Over the course of 2015, we reduced in excess of 500 headcount across our global plant footprint. Early in 2016, we reduced yet another 100-plus employees at our Bryan plant.

Quick note on operating expenses. SG&A, R&D, and royalty are down $76 million to prior year. This drops to $40 million when you adjust for the 2014 goodwill impairment.

While they are a series of puts and takes across these categories, this decrease is primarily a function of our Business Improvement Framework initiatives, or BIF, and currency impact.

And as I've stated on previous calls, our operating expense structure has been historically lean, but we continue to drive alignment of our strategic objectives and the elimination or redeployment of lower value expenditures.

So moving down the P&L, let's discuss foreign exchange loss. This is a really good story in 2015. If you recall last year, we lost $32 million to FX on our intercompany loans and balances. But to remind everybody, this does not impact cash.

In 2015, our foreign exchange loss was only $4.8 million, an improvement to earnings of $27 million. So as we've discussed over the course of 2015, we've taken a number of actions to mitigate risk in foreign exchange through balance reductions, reclassification, and our new hedging practice.

Our hedge settled and positively impacted both earnings and cash by nearly $5 million in 2015. We re-classed Brazil debt to long term, and by our calculations averted a $5 million loss in doing so.

During Q4 and into Q1 of this year, we lowered our ruble exposure by $25 million. This was accomplished through the capitalization of an intercompany loan resulting in the purchase of additional shares of Titan Tire Russia.

This action, combined from U.S. dollar repayments from Voltyre-Prom eliminated nearly three quarters of our total ruble exposure relating to loans. So this will really help us in 2015 in further mitigating risk.

And we will continue to explore additional opportunities to mitigate FX exposure. We have a couple ideas that we're kind of banging on right now.

Let's summarize and bring this to bottom line relative to profit. Our income from operations was a loss of $24 million. This is $73 million better than prior-year, just $3 million worse after adjustments, resulting in only a decremental margin of 0.6%.

And this is a testament to the diligent efforts of our One Titan team to reduce costs and drive profit improvement.

Net income applicable to common shareholders was a loss of $93 million or $1.74 per share for 2015, as compared to a loss of $129 million or $2.43 per share for 2014.

Adjusted net income attributable to Titan was a loss of $7.1 million or $0.13 per share, and adjusted EBITDA at $54 million. That compares to prior-year adjusted net income attributable to Titan at a $26 million loss or $0.49 per share, and adjusted EBITDA at $89 million.

In regards to net income, and Maury spoke about this, referenced it a little bit earlier. I'm sure everybody noticed our effective tax rate was disproportionate with our pretax loss.

Under U.S. GAAP principles, our recent U.S. cumulative losses indicate that Titan needed to record a valuation allowance against its U.S. deferred tax assets. Titan evaluated the realization of these deferred tax assets and recorded a valuation allowance of $50 million.

In addition, Titan continued to record a valuation allowance on certain foreign entities that resulted in additional $25 million in 2015. So in total, Titan recorded a valuation allowance of $75 million in 2015.

The recording of the valuation allowance does not affect cash and the majority of the deferred tax assets are related to net operating loss carry forwards in various jurisdictions.

The U.S. losses have a lifespan of 20 years. So Titan expects that it will be able to fully utilize these losses in the future. And you heard Maury reference it. And this is what he meant by this.

So as Titan generates income in future years, we will be able to utilize this valuation allowance to offset future tax liabilities, thereby increasing net income.

So let's touch on a few balance sheet items briefly for the year. AR was down $22 million after the netting of revenue impact and DSO erosion. This primarily represents currency translation.

Inventory dropped $62 million, almost evenly split between inventory reductions and currency translation.

We've been using terms, consignment programs, holding more stock to battle for more share. This has had some unfavorable impact on working capital.

AP was down $23 million, primarily a function of currency translation, offset in part by a five-day improvement in DPO.

As I stated last quarter, our EVA framework had the initial focus and emphasis on productivity and profitable growth as evidenced through our strife with gross margin.

Working capital has become an acute focus in 2016 for additional value creation and cash flow.

In regards to PP&E, we've stated in previous quarters we've been carefully scrutinizing capital to ensure strategic alignment, positive EVA returns, and cash generation. As a consequence, we spent $48 million versus $58 million one year ago, generating positive cash.

Cash ended the quarter nearly flat to 2014 yearend at $200 million. What makes this even more impressive, this overcame a currency translation impact of $15 million. So our cash balance would have been $215 million, excluding the impact of currency.

We are all well aware of the concerns that have existed and continue to persist over our liquidity and cash flow as we fight through these down markets.

We continue to be mindful of our cash position, manage it diligently, as evidenced by our performance this year.

So let's discuss our debt position for a moment. At 5.38, our net debt to trailing adjusted EBITDA has deteriorated from one year ago at 3.6, but only slightly to the previous quarter. Our actual debt level is slightly down from one year ago.

So this is just a function of math, as during this downturn we have dropped off higher earning quarters and substituted lower earning quarters.

As I did last quarter, I want to make everybody aware our convertible bonds are due January 2017. We are proactively managing this, having discussions with our board and exploring a number of alternatives to address this maturity.

So wrapping up, I believe our 2015 results were admirable in the face of some very difficult end markets, accompanied by significant sales decline. We have improved our adjusted gross margin performance by 40 bases points and 26% less sales for the decremental margin of 0.6%.

And while there's been much accomplished by our One Titan team, we fully understand conviction and perseverance will be the necessary [ingredients] to come through these challenging times a stronger company for our future.

And I will continue to say this because I genuinely believe it is true. We, One Titan, will be in a position to couple the ultimate market recovery with the significant improvements we've made and the manner we operate the business that will result in a very positive outcome for our shareholders in the future.

So with that, I'd like to turn the call over to the operator for questions.

We will now begin the question-and-answer session. (Operator Instructions) At this time, we will pause momentarily to assemble our roster. Schon Williams from BB&T Capital Markets.

This is Rob [Nichol] on for Schon. So you mentioned revenues are going to be slightly up in 2016. I was wondering if you could just maybe give a little more color and walk us through each segment. What should we be expecting up or down in ag, earthmoving equipment, and consumer?

Well, in our numbers, and what justifies that is twofold. Number one, we believe that the tires for Europe, Africa, the Middle East, Russia, with the Goodyear brand is going to bring us more revenue. Paul has been working on that with Bill Campbell.

So we expect that sometime before the end of this quarter to be shipping or have it wrapped up, sending tires from there, okay, from our overseas facilities. We can start off by backing it up with out of Brazil, which is a low-cost producer now. But eventually, we're going to produce them over in Europe.

Everyone should understand that when Goodyear was running their French plant, they had a plant in France, two in Turkey, and one in Port Elizabeth. And when you look [in] a down year, they generated between 250 million and 300 million in sales dollars.

We've had a number of the distributors call us and wanting tires. So the problem has been in getting the spec sheets, all the work that you have to do because it changes. You have a spec sheet. But you might be using a different nylon for your fabric, et cetera. So you have to go through every single one of them, and we've been doing that.

And that will give you -- which takes so doggone long, to be able to build tires and test them. And we believe that that's what's going to bring us on the ag side.

The situation with the ITM, ITM has been working under [Sotilia Lamand], where she turns around, and they were mainly an OE. So they've been concentrating the last two years to go much heavier into the aftermarket. And they've been very successful.

So once you get into the aftermarket, this first quarter from them is over their budget. So they're doing pretty good.

And I mentioned earlier that at the right price we will probably exit that business. So we look at that, and we figure we should be able to -- anything else that drops a little bit in the ag side in North America, you're going to see [how many have] smaller tractors, 100 horsepower and less, you're going to have a larger volume with almost all of them.

When I was at the show in Saint Louis, [I met] people out at the show out in California, that the story is that they're going to be buying a lot of the smaller horsepower tractors.

(Inaudible) we expect to -- it could be down a little bit. It's really dropped. It's off almost probably greater than 50% right now. But we believe that that's going to steady out. And of course, that was our real bread and butter for our business, both in tires and wheels.

But since we started the LSW program, there has been more farmers looking, do they only buy a couple pieces of new equipment and then keep the equipment to have? Well, big farmers, they understand the benefits that they get with tires that have relatively new. So in that case, they'll buy the LSW tire and wheel package.

So that's pretty much what we expect that's going to happen. We think everything else, whether it be mining or whether it be construction, you can't forecast what construction's going to do until you see what happens with all the bidding process. And that's going on now for sewages, bridges, you name it. So that's what we see there.

Okay. That's very helpful. Thank you for the detail. In the Canadian reclamation plant that you called out in the press release, how should we be thinking about that in terms of revenue contribution in 2016?

It will contribute. Well, any time you build something brand new and something that's kind of like new to what people see -- I'll be going up there in the next two weeks. The buildings are all up. The equipment's there, except for the special wash machine, which should ship in the next 10 days.

The big thing is, is you got to clean these tires before you put them into the reactors from the standpoint you want to get the carbon black. You don't want a lot of dirt in there. And all you're doing is heating up dirt, making it so you got to clean your carbon black and everything else.

So we're on schedule, as we said before, to have that thing up and moving at full bore, on April 1st. Now, we'll have a test run the latter part of March. And if everything goes right, this has been -- you're looking at almost five years that we've been doing this.

I think our friends Suncor, we're on Suncor's property, and we've worked with them, they're moving the tires into the property right next to us. We expect good things. But as I tell everyone, you're only looking at about -- still operational, you've got about $40 million in assets -- I mean in revenue [that's actually] going to generate there. And, but it's got big -- 50%-plus in the EBITDA.

And so I think, in our numbers, I think we're pretty close to only looking at about $20 million in revenue, of which we own 60% of that business. We have other partners in it.

All right. That's extremely helpful. Thank you. I'll hop back in the queue.

Larry DeMaria from William Blair.

Couple questions. First, can you give us a handle on maybe how you see the cadence of ag sales throughout the year? I guess will we kind of comp up all year or is it second half? Or just how you see the cadence throughout the year in the ag side.

Well, the first thing, as I mentioned, if you look at the cash receipts, I spend an awful lot of time out on the road, and I've been with an awful lot of dealers, whether they're Case or Deere. And almost all of them have been moving a lot of used equipment.

And I think you have to give the OEs a lot of credit, instead of going out and banging up the market of new stuff, they've been sitting there pretty good taking their punishment and letting the dealers sell off a lot of their trade-ins.

So the dealers have reduced the pricing of their used equipment just trying to get it down, mainly because they wish to get it down.

You've got a lot of big farmers who might trade in 10 big tractors to buy 10 of the newer ones, but that the price of the trade-ins is way down, so they're looking at, well, let's just use them for another year.

But they got the cash. When you look at cash receipts, farmers are getting -- unless a farmer went out and bought an awful lot of land and mortgaged his land, they're pretty good.

Yesterday I was in Fargo, the day before, I was here in South Dakota. And you can see they're getting all ready to plant. So I think --

I think the [FDA] said today, yes, corn plant is going to be up and prices are going to be down for corn.

So I guess we're just trying to figure out if -- maybe some of the farmers are okay. But will your ag sales be up throughout the year or is it second half loaded? Or how do we see the cadence quarterly through the year?

Well, I think what we're going to see, in ours, I think that we will probably be stronger in ag sales in quarter-wise in second quarter than we will be first quarter, because we flushed out the inventory, the OEs.

We're switching -- our ag sales in the second quarter will be dependent on various parts of the country and weather. In other words, if you have a wet spring, our ag sales are just going to jump pretty good because you got to have bigger flotation tires, and that's the way -- and we make them. Nobody else makes as many as we do. And those have probably the best margins.

Then the summer will be like most summers. But then come fall, it depends there, too. If it's a dry fall, which it was -- fall last year was probably the first time in 20 years it was such a great fall, you did not have a big rush of [taking] tires out for combines and tractors because it was so nice. If it gets to be wet, then that's going to be a real big boom. So we are dependent on weather, Larry.

I understand. Let me ask a different way then, maybe. What does the order book look like year over year, I guess, at this point for the quarter (inaudible)?

I would think every quarter because nobody knows, [like I said] --

No. The order book. The order book year over year.

-- it's soft. Yes, the order book. I would say it's a mixed bag. The big items are not being ordered until the last moment, okay. I would say from 150-horsepower down, your order deck is moving up.

Okay.

Above it, which is our bread and butter, it's more of the last moment. And the same thing is going on in the aftermarket.

Now, the big kahuna for us, of course, is the lawsuit we filed on everybody from China, India, and everything, and that's going to make a big differential. So now that the DOC has already said, hey, they're moving forward, International Trade Commission agreed on India and Sri Lanka.

You were around when I did it before, Titan did.

Yes.

And we were pretty successful. There's no doubt we'll be successful now. We're going to try a different, because the ICT didn't touch the tire and wheel assemblies because of not enough volume there. Has to be 3%, and it wasn't. But our point, as my press release said is that this is nuts.

Steel, you have duties on steel and everything. But technically, if you mix them together, there is no duty.

So I think with our friends, the steelworkers, we're going to have to do that administratively. And I think we'll win that too.

So line up the cry towels for some people, but it's the law. And I think the law's on our side and we will prevail. And when that happens, you can just pull up the chart, you can figure out how many hundreds of millions of dollars, and that's not all coming to Titan. My friends at Firestone insist that we always have to lead and pay the bill.

Yes.

I think that right now everybody's been put on notice. So if you go buy a bunch of stuff now, and we win, the duty goes back to the [time], because you've been given notice [that] the lawsuit, and they took it up.

Okay. So it goes back retroactively if the (inaudible)?

Yes.

Okay, that's a good deal. Good luck with that, Maury. Last question and I'll jump off. Could you just help us with EBITDA and ITM? Because you said, obviously, it could be for sale. But how do we think about maybe trailing 12-month EBITDA, something like that, just so we get a sense of value? Thanks. And good luck this year, Maury.

Well, I'd rather not, because we never break anything, then you set a precedent.

But let's put it this way. It's north of nine. I mean in the nine figures, then we would be interested in selling it.

Okay. All right. Thanks, Maury. Good luck.

Yes. Thank you.

Joe Gomes from William Smith.

Most of my questions have been answered, but just two quick ones. Given where the stock price is today, the fact that you guys have some nice cash on the balance sheet, projecting positive cash flow for this year, I mean, what's the appetite for buying back stock these days?

Well, I would love to have bought a bunch of stock when it was down around three bucks, four -- $2.80, whatever it went to. I would have loved to. Only problem is, I'm restricted, Titan's restricted. We can't do it because of the bonds, the big senior bonds, okay. We've had enough lawyers look at it. We've looked at it, so.

Okay. You can't do anything in terms of any buyback at all?

No. I can always buy bonds back.

Okay.

That we can do.

And you talked a little bit in the past about making some more strides in the aftermarket. And I was just wondering if you might be able to give us a little more color as to what you guys are seeing and how that is going and gaining share in the aftermarket?

Well, you see, you have two situations. We're the only one that has this situation. You have the tires that have been the same tires for the last 40 years. Now, you sell, in the aftermarket, you sell them to tire dealers, big wholesalers, et cetera. So you've got a sales force that's out doing that.

Then you have the new, which Paul explained, in the LSW tires, which we have gone out, and we have like 180 farmers now who have turned around and found out that you put a set [of new] tires on your tractor, your combine, your sprayer, your implement, you can turn around and that equipment will perform better, even a freaking grain cart will perform better.

So what is happening is that in order to make that channel, we only have a couple who I would call very progressive dealers in tires who have taken the LSW, because you got a wheel and a tire.

Now, so we have gone to equipment dealers, the guys that sell the equipment, and the farmers. So we're doing both. So that we went to the big farmers. The big farmers are buying. We have made them house accounts. We call it our R&D farms.

But what happens when other farmers see them, they want the same thing. They go to the equipment dealer, whether it's a Deere, a Case, or whoever, AGCO, and then we sell right to that equipment dealer because you have to buy a tire and a wheel. Once you've got yourself set up, you just have to buy tires. So that's what we're [growing] there.

And we're doing the same thing in the construction business. Going to the big huge construction contractors. And that's the long term. We're going to be our destiny of the product we make.

Okay. Thanks for the insight. Appreciate it.

Alex Blanton from Clear Harbor Capital.

You talked a lot about gross margins and gross profit, but I don't think you mentioned what the decremental margin was in the quarter. Your sales were down $75.5 million. And on that, your gross profit only went down $6.5 million, which is 8.6%, which is highly unusual and you don't see that very often, that kind of a sales decline with the kind of --

Do you want to touch on that Paul or John?

Yes, I would like just a little more information on how you achieve that. What are the kinds of things you're doing in your plants? I know you mentioned materials costs and so on. But what about the efficiencies in the plants? What are you doing there?

Well, what is going down, as Paul talked about, you go in, and what happens is you start reviewing everything that goes into a tire or everything that goes into the wheel.

I mentioned one about the scallops versus a full 360 contract. So in our welding process, where you might have on a -- just think of a 46-inch size big wheel. Well, it's got a 360 degree weld. Well, you can put four six-inch welds, and that's all you need to keep that center if it's pressed in there in that wheel. And you'd have some scallops on that thing.

So what you do is you're going to buy because it's a circle, and you're punching a circle out of a square, if you turn around and make your square a little smaller, you're only chopping the corners of the square off, and when you form it, those come up, and then you weld those.

Well, when you're dealing with big steel, you've got the situation where you're taking a lot of metal out. So a lot of these items, that's for a wheel.

Now, let's get to a tire. You get to a tire and you -- the large -- we're the largest when it comes to all these 100 horsepower and down, let's just say 40 and above, tractors. And those are going up this year. And we supply, whether it's Mahindra, Ellis tractor, Kioti tractor. You just go down them all, Kubota, that come in, and they buy tire and wheel assemblies.

The same situation there, when you look at the tires, a lot of times, they just said they want this tire. So when you look at certain equipment that's out in the world, you see that they've got various tires where you can take a lot of cost out of that tire. That tire's [been around] for 40 years. And so they just got used to it. They don't need that tire on that piece of equipment.

Looking at it, you can make it so it looks the same, but you can take an awful lot of stuff inside that (inaudible).

Alex, to answer your question on that, Alex, I mean, it's really indicative of all the efforts that we've put in over the last couple years to get to this point.

We've highlighted a number of those factors that have led to this. I mean, our scrap rates are now lower than they were last year. Our cost of quality through our warranty continues to go down. We have plants that have gotten more efficient as we've reduced headcount.

And what Maury's alluding to here with taking out raw materials, couple examples on that, we've put in sensors in one of our large tire plants that can take out the variability. So as you know in finance, any time you got variation, it adds risk and decreases value.

Well, we've taken variability out, so now we're putting less material into our gauges of the [kind of] rubber. We're able to spread our fabric better with these sensors and get more out of our fabric than we used to.

So these are incremental things. So it's not one thing that we can sit here and say, yes, this is the holy grail that made it all happen, but there's definitely a lot of initiatives that have kind of added up to the secret sauce that has really gotten us to this year where we saw an improvement in our gross margin percent.

so I think what we will do in 2016 is see those initiatives roll forward, and then continue to build upon them. And so the only thing we've got to do is make sure we keep getting the volume into the plants and absorb as much of the fixed cost as we can.

Well, that's a good point, because the fruits are really going to come when the sales start going up, correct?

You're exactly right.

You can get margins probably above where they've ever been (inaudible)?

The $5.5 million I alluded to in the plant that I was at this week, I mean, those are permanent improvements. They don't go away.

And like I said, it comes from stuff that certainly we have on the table now that did we have it before? I'm not saying we didn't have it before. But really what the last couple years has done is we've gotten the team really pushing more aggressively towards the initiatives that benefit the Company.

And so there's good things that come out of a downturn. It's painful living through it, but there's definitely good things that will benefit us in the long term.

Thank you.

Alex, this is John.

Yes?

I want to make a couple more comments on this. During the course of 2015, we had upwards of 250 projects in play that materialized in our results. And the comment you made, and I made it during kind of my section, was these are accumulative. So these are permanent changes.

And by the way, it's not just cost reduction. It's profit improvement. We've delved into areas like pricing, attacking our invoice programs. We have growth initiatives relative to sales, operating expense, redeployment in terms of driving more value creation.

So there's a lot going on here. And that pipeline continues to be filled and replenished. And so it's just a machine that continues to churn relative to contribution to the results you're seeing.

Thank you very much, John.

[Anish Kamar] from private investor.

Quick question on CapEx. Looking at the guidance, CapEx has been kind of up and down over the last few years. And so I wanted to get a sense of what you think CapEx over the long term should look like on a yearly basis on average.

Well, the first thing is you have what you call a maintenance CapEx, okay. Maintenance CapEx for all the factories worldwide, we probably only have to be real close to about $20 million. That's where you -- all the other stuff you have to keep doing, safety, environmental, whatever.

But then it's like anything else, everybody, as both Paul and John have mentioned, you go to every factory. Every factory, when they do their budget, they'll come up with big CapExes. Hell, lot of them might even think to start building a brand-new plant.

So what the situation is, it's most of our CapEx, a great part of it, we use to either improve our efficiency, reduce our cost, or come out with new product. And what we have, once you cross that $20 million, that's basically being put into mostly reduced cost or new product.

And you're wide open on where the top or the bottom could be in reference to that. But your floor is $20 million, probably anywheres from $16 million to $20 million. Did I answer your question or not?

Anish? We'll take our next question. David Tamberrino from Goldman Sachs.

Thank you for taking my questions. Just want to recap on the LSW shipments portion. How much was that as a percentage of your overall sales for 2015?

I would say I don't know what the percentage of it is. But you're probably between $20 million and $30 million. And then I think it's going to just keep growing.

How does that look compared to 2014's level of sales for LSW tires?

I don't know. I haven't even looked at 2014, so I'd just be making something up for you. I don't know.

David, it's continued to increase. The trend lines look good. In a recent meeting we had with our management team, our ag product manager is extremely confident that the trend line for 2016 will [get] better than what we saw when you look at (inaudible) 2014. So it's moving very positive.

I can tell you right now that the largest farmer in Illinois who farms just soybean and corn has new tractors from [mother of] the green machine. They came with new LSWs. All his combines, I believe he brought, it's either 12 or 14 new combines. And those all have our big 12-50-46 LSWs, both front and steer, the 850s on the back.

And then over in Iowa, a dealer out there has been, he's been running a program where he would switch out and if you got a used tractor, used combine, he'll switch them out and put LSWs on for the farmers. So that's two.

Up in Canada it's moving. Most of the equipment on the big stuff up through there, we're going to be looking at. The big thing about the LSW is because you work at lower inflation pressure, you end up with less compaction.

Number two, you ever see all these combines with duals? Ask yourself, well, why the hell they got duals? They got stalk stompers on those combines and everything. They're running duals because they think that's for flotation and they can get them out [first], be stable on a combine.

Military, for almost 20 years, has gone super singles. Put a big super single on there, you outperform everything. Instead of having four tires, you have two. You get better pull, better fuel, better ride, less compaction.

Well, it's a big country. The next show we have Ride-N-Drive, is in Arizona. Most people don't know, but big farmers down there are dairy farmers.

So We want to keep going just like automotive, went through automotive like barnstorm. Took about six, seven years, though.

That's helpful. And then, Paul, thanks for the comments on the trend line. I mean, is there anything that you guys or the ag manager's seeing from an order book in terms of an inflection or is it just a steady increase from here?

Yes, I think what we're seeing is a steady increase, David. The inflection point comes from many different sources. I think what Maury talked about earlier, some of his comments with the test farms that we have, as that population base grows and the acceptance, and I read a few of the comments from those reports which are just a small subset of the positive comments we get, the inflection point comes when that population base just continues to spread the word.

And so I think our job is pretty simple from the standpoint that we have a great product that makes equipment perform better, we just got to continue to get it out there in the market, build good products, and develop new products to continue to fill out the product portfolio.

So I think we probably [made it] more complicated than we needed to at the beginning. We approached it more of a disruptive technology that is tougher to sell. I think we really just got to look at it as it's a sustaining technology taking wheels and tires that already exist in the marketplace and just making them better.

And so I think we really got the team focused. We got a good group of test farms. Like Maury said, we got equipment dealers that are pushing the product hard. We're in the OEM books. The market recognition of the LSW is strong, as I mentioned, 23 points higher than IF and VF.

So all the trend lines are good and positive. Is there an inflection point? I believe there's one coming, but I don't think there's anything that we can sit here and point to specifically right now.

Okay. Thank you. That's very helpful. And then, on the working capital side with the launch TTRC and the build-out of the Goodyear business in Europe, what are you guys thinking or what does it look like for the full year in terms of working cap? Because I think that was a pretty meaningful contributor to free cash flow being positive for the year in 2015. I'd just like to get your thoughts on what that's going to look like for 2016.

Well, I don't think what's happened up in the oil sands has basically been spent. And we've already bought the molds and everything for Goodyear. So what you have is a factory. It goes through -- you're just putting it in. The biggest expense is, which you already have the bodies, the engineering. In fact, our Russian plant just added in the curing side, they added another shift because of their orders.

So that's what it is. You're not talking -- this is no big money for a big launch yet, okay.

There's no additional inventory build for the pipeline of orders in your upcoming Goodyear-branded farm tires?

I can make a couple comments there. In terms of the tire reclamation, we don't build anything. So we're recycling tires. So there really shouldn't be much of effect on working capital there.

And in terms of tires, the initial tires that we sell into Europe are being sourced from North America, and I don't see that having a material impact on inventory or working capital as well.

And then just within your expectations to be free cash flow positive for 2016, what's embedded in your working capital assumptions?

Working capital, we fully expect to improve, as I said during my section. Initially with the EVA framework there is a lot of emphasis on productivity and profitable growth. In fact, the BIF, or the Business Improvement Framework that was mentioned, 75% of those initiatives I talked about, 250-some-odd that flowed through 2015, were related to the plants and productivity improvement. So that's where our focus has been.

In 2016, we have an acute focus on working capital improvement. So I expect working capital to contribute to cash generation in 2016.

Thank you. That's helpful. And then just lastly, for the quarter, SG&A cost controls looks pretty strong. I think in total with R&D and royalties, about $36 million, that was down sequentially from around $40 million in the third quarter. Is that, that $36 million, is that a sustainable level? Can we annualize that for the full year in 2016, or should there be any reason for SG&A to move upward from there?

Well, yes. I mean, with SG&A, you had some currency impact and some one-time items. So, no, I wouldn't think that level would be sustainable.

But with that being said, we have continued to reduce operating expenses. And I've said on previous calls that, relatively speaking, when we're in 2013, certainly higher level of sales, our operating expenses is fairly lean. And what we've done, even though we have reduced it, we have also looked for opportunities to redeploy it from lower-value opportunities to higher-value.

So we'll continue to do that. I mean, at the end of the day, it's about profit dollars at the end of that P&L statement. And sometimes we're going to have to invest to produce more profit. And so we'll continue to look for those opportunities.

All right. Thank you very much for taking my questions.

And our last question for today is Tom O'Shea from Castle Hill.

I don't know if you already said it. But could you tell us what the EBITDA was in Q4 and for full year 2015 EBITDA?

You got that there, don't you, John?

Yes, I have it. So adjusted EBITDA for Q4 was $3.2 million, full-year adjusted EBITDA was $54 million.

And do you have the year ago's?

Yes. For 12 months, the year ago was $89 million. And I don't have Q4 of last year at my fingertips. I believe it was roughly about $8 million or $9 million.

Thanks very much. And you said $20 million minimum CapEx. And then, do you have an idea what your extra spend might be for 2016, to get to your free cash flow positive number?

Yes. We're looking at, I think we put out between $30 million and $35 million, in that range.

Thanks very much.

You're welcome. And thanks to everybody, whoever stayed on. You have a good weekend.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.