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Text: Titan definitely had a good quarter as our results exceeded expectations as we posted our strongest third quarter for revenue and profitability since 2013.
We had adjusted EBITDA of $35.1 million this quarter on sales that were up 48% to $450 million.
This quarter's adjusted EBITDA has been exceeded only twice in any quarter since 2014, and one of those occurred just last period when we posted $37 million of adjusted EBITDA.
We are now expecting to see our full year adjusted EBITDA coming in above $130 million, which is our highest annual total since 2013.
Our global team has been working very hard to produce these results and increase production levels to meet growing customer demand as we continue to drive forward to grow our production capabilities further in coming quarters.
So looking at our segments, Titan, again, this quarter experienced strong sales growth in each of our segments, with agriculture leading the way with a 60% increase compared to last year.
Our order books continue to strengthen, especially on the ag side, where commodity prices remained at good levels with corn above $5, soybean above $12 and cotton at record highs, thus ensuring another year of farmer incomes, strong farmer incomes for 2022.
Yes, I realize that commodity prices have dipped from their peak levels earlier this year.
And farmer sentiment has dipped as well.
But let's not get caught in the trees and miss the abundant forest around us.
Farmer incomes are still at high levels again this year.
There is pent-up demand sitting on order decks.
There is an aged large ag fleet.
There's historically low inventory levels at all our dealers, whether it's small ag, large ag or an aftermarket dealer and also throw into that equation that current sales levels in large ag are still well below historical average.
And do not forget that large ag is Titan's long-term sweet spot.
We believe this all adds up to a good tailwind for business that we see continuing throughout 2022.
So moving from Ag over to Earthmoving and Construction.
We have seen demand continue to be above our expectations that we had at the start of the year with sales growth of this quarter of 36% on a year-over-year basis.
Our EMC segment continues to look increasingly promising as we round the corner to next year just like Ag, our order books are strong, but we also see those infrastructure investments coming into place -- coming into many places.
And as we've stated before, we are a global business in our EMC segment and a large part of our business from that segment does come from our undercarriage division, ITM.
ITM is a business that has a good global footprint.
It has a strong OEM and aftermarket channel for distribution.
And then we have a market-leading and almost unique; I think, I'm pretty sure it's unique.
I'm going to use that word today.
A foundry in Spain, and I mean unique for our undercarriage type operations, where we have our own foundry in Spain, that enables us to customize cast products that meet the specific needs of our customers.
Again, just a strong business for us and a large part of where we get our EMC growth and performance from.
David will spend some more time today talking about our financial results, but I do want to offer a couple of thoughts.
First, while our business operates in many different global geographies and produces three primary products, wheel, tires and undercarriage, which end up touching various end markets.
We, again, this quarter, saw growth and improved financial performance in all of our business units; so good, solid, consistent growth.
Second, we have and continue to operate with a disciplined mindset to control our costs in SG&A and within our overall operational structure, and you see that reflected in our results.
Next, we have invested our capex wisely and strategically in recent years to continue driving our innovative products into the marketplace and to increase capacity in our core businesses where the market needs it.
We've also made the necessary investments into safety, environmental and maintenance, and we will continue to ensure that happens in the future.
My point with all that is, while Titan has reduced our capex over the prior few years to ensure we protect our balance sheet, we have invested properly into our company and have not underinvested in recent years.
Lastly, we will continue to make the investments, incur the expenses into expanding our production capabilities and increasing our headcount in areas to meet demand.
We are not simply going to sell our existing production capacity into the market, but rather take advantage of this existing opportunity to get more of our market-leading products into the hands of our customers.
So let me conclude by saying something that we all know.
I mean, this is without a doubt, one of our most dynamic business environments, all of us in business have faced.
Titan, in addition to our solid operation results again this quarter and really for all of 2021 for that matter, Titan has strengthened our financial position this year by refinancing our $400 million bonds.
We've also, this year, further improved our liquidity with our recently announced ABL extension and upsizing.
We believe that Titan is in a position of strength within our industries with our global production footprint that is second to none in our business and our plants that are well suited geographically, excuse me -- for our customers.
We also have an expansive and innovative product portfolio with an arsenal of highly engineered tooling.
These attributes enable us to deliver a strong value proposition to our customers.
And as a result, for Titan to continue to benefit from the current trends that are in today's markets.
With that being said, our order books are strong, as we've seen really in years.
There are continuing positive signs in our end markets, which puts Titan in a good position, as I stated earlier, to post adjusted 2021 adjusted EBITDA of over $130 million.
And on top of that, we see a path to further growth for next year.
Again, Titan is in a good position at this time to capitalize on our reinvigorated strength, which makes me think about a comment this week that I heard from our Audit Committee Chair, who happens to be a leader in the private equity space.
The comment he made during our meeting this week was that Titan has reported strong results throughout 2021.
We have fortified our balance sheet this year.
And has all this positive going on, yet our stock is trading at only around 6.5 times current year adjusted EBITDA.
He's a pretty smart guy, by the way.
So with that, let's jump into the financials.
I appreciate everyone joining us today.
Well, the third quarter was just another significant step in the right direction for the company, and we were able to deliver a very strong result and build on the momentum that we've started more than a year ago.
Our global management team has managed this concurrent environment very well, and we believe we have solid plans in place to continue to do that moving forward.
Well, let's start with some highlights for the quarter, and then I'll get into more details.
Sales grew at a very nice clip at 48% this quarter.
Again, a very, very strong results for our Q3.
Our growth was led by the Ag segment with a 60% increase from Q3 last year.
And at the same time, the EMC segment was also very strong at a growth of 37%, and our growth in the consumer segment was nothing to sneeze at, with an increase of 32%.
Our gross profit increased by 93% in the quarter, and our margin improved to 13.4% compared to only 10.3% last year.
Adjusted EBITDA for the quarter was $35 million, representing the strongest third quarter performance since 2013 that bears repeating.
On a trailing 12-month basis, our adjusted EBITDA stands at $116 million as of this quarter, and we expect Q4 performance to be strong, improving that run rate to over $130 million for fiscal 2021.
Our cash position remained stable again this quarter at $95 million despite some growth in working capital.
We continue to do a very good job managing our inventory levels as well.
With our improvement in profitability and our strong management of the balance sheet, our debt -- our net debt leverage as of the end of Q3 stands at 3.3 times our trailing 12-month adjusted EBITDA.
This is obviously a dramatic improvement from a year ago.
Now let's get into the more detail for the Q3 performance.
Again, our sales levels for the third quarter were strong, and we saw another sequential increase of 2.5%, notwithstanding the normal seasonal variation from holidays and plant maintenance that reduces our production days.
Sales increased relative to last year by $146 million and $104 million or 30% from the third quarter of 2019, a more normal third quarter period.
Volume was up over 25% with all of our business units, except Australia, seeing significant double-digit percentage growth year-over-year.
Gross profit for Q3 was $60 million versus only $31 million in adjusted gross profit in the third quarter of last year.
Our gross profit margin in the third quarter, again, was very strong at 13.4%.
We believe our visibility is solid in terms of being able to know where our costs are and where we continue to see challenges that we -- in supply, and we intend to manage it in a very strong way, just as we've proven over and over again, and our track record is strong.
Now on to segment performance.
Our Ag segment net sales were $244 million, an increase of $91 million or 60% from third quarter last year, which makes it the strongest quarter for the segment in the last eight years, beating last quarter sales by 5.5%, reflecting strength in North America and Latin America.
Volume in the segment was up 30% -- 36% just like Q2.
Again, this quarter, the principal driver of the volume increases related to the OE sales across the business, while aftermarket sales remained very solid.
Every one of our business units saw increases year-over-year in the Ag segment, and our order decks reflects strength across the globe for the ag demand for the foreseeable future.
Our agricultural segment gross profit in the third quarter was $33 million, up from only $16 million last year, representing a 105% improvement.
Our gross margins in Ag were 13.6%, which is another significant improvement from the margin produced last year of 10.6%.
This is reflective of the increased volume and of the effect on efficiencies across our plants, along with continued strong cost control actions we have taken over the last couple of years.
These are timing -- there are timing impacts related to pricing actions and alignment with our costs as they flow through production, as we know.
Again, we've done a great job at this, a very effective job getting in front of these increases.
And I expect that we can remain in very strong territory overall on our margins in the segment and as a whole.
Our Earthmoving and Construction segment experienced another strong quarter as well.
Overall net sales for the EMC segment grew by $45 million or 37% from last year as well.
The third quarter is traditionally the lowest as we experienced normal summer slowdowns with holidays across Europe and our customer schedules.
This year was no different, and we saw a small sequential drop from Q2.
This is not a statement on the overall demand in the sector, just the normal seasonal cycle that we have.
All of the major geographies experienced year-over-year growth during the quarter with the largest growth coming from ITM, our undercarriage business, which grew 38% from third quarter last year.
ITM's primary growth came from Latin America and Europe.
Gross profit within our Earthmoving and Construction segment for the third quarter was $21 million, which represents an improvement of $9 million or 71% from gross profit last year.
Gross profit margin in the EMC segment was 12.7% versus only 10.1% last year, a very healthy increase.
Again, the largest driver of our increased profitability came from the increase in sales in ITM, while growth occurred across all of our businesses and geographies across the globe year-over-year.
The Consumer segment's Q3 net sales were up 32% or nine million compared to last year.
The volume was up very nicely in the quarter, and currency was also a positive tailwind.
As we discussed, our primary priorities -- production priorities have been with our Ag and the EMC segments and our customers, but we did see healthy increases related to our Latin American utility truck tire business and increased mixed stock rubber sales in the U.S. The segment's gross profit for the third quarter was 5.8%, a very healthy improvement from last year as well.
Gross margins were at 15%, which was an improvement from 9.5% last year, reflecting some positive mix and pricing improvements with our products.
This is the best margin performance in this segment since Q2 2018.
Our SG&A and R&D expenses for the third quarter were $34.6 million, down about $0.5 million sequentially from the second quarter.
Most importantly, SG&A and R&D expense was 7.7% of third quarter sales, a very nice improvement from a year ago.
Third quarter SG&A and R&D increased from the prior year by about four million.
As a reminder, we've taken strong spending control measures over the last few years.
This year's expenses included some variable spending and compensation levels, reflecting the increase in sales and our profitability during the period.
During the third quarter, we recorded tax expense of $5.3 million, somewhat higher than in the quarter than originally expected, but reflective of increased profitability in certain high tax jurisdictions for Titan, including Latin America, Turkey, Germany and parts of Asia.
Obviously, this is higher than what we stated in our guidance earlier in the year.
And again, this is entirely due to increased profitability expected for the full year.
I now expect taxes on the income to be about approximately $15 million for the year.
And again, this approximates our expected cash tax payments for the year as well.
Now let's move over to cash flow.
Our overall cash balances remained solid in the quarter at $95 million.
Again, this is despite the sequential growth in sales and necessary continued investments in inventory to support and sustain our sales levels moving forward.
Our operating cash flow for the quarter was positive at $15 million, and we generated positive free cash flow of over $5 million in the quarter.
With strong growth in sales throughout 2021, we remain in slightly negative territory on cash flow overall.
But when you look at all of our key metrics, including cash conversion cycle and working capital, as a percent of sales, we've made healthy improvements from a year ago through focus and control.
During the third quarter, inventory grew by approximately $28 million sequentially from Q2.
Much like the rest of the year, almost half of this increase came on higher raw material costs and the other coming from volume, mix and other currency changes.
As a percentage of the most recent quarterly sales, inventory stands at 20.7%.
This compares favorably to 23% -- over 23% from a year ago at this time.
Again, this is, again, a very strong focus across the business from our management team.
Our overall DSOs in the business improved sequentially from Q2 by two days and now stands at 53 days compared to 55 in Q2 and 58 from this very time last year.
I continue to believe that we will maintain and improve our cash flow and working capital metrics as we head toward year-end.
Traditionally, this is the time of the year where we build cash, particularly in the back half of Q4.
We will not likely get back to breakeven free cash flow for the full year.
I do expect Q4 to be in positive territory like Q3, which brings us much closer to that goal.
And our teams are very focused on driving a strong balance between production efficiency and working capital management.
capex for the quarter was up sequentially at $9.6 million as expected.
We have been making strategic decisions as to the investments to increase capacity, reduce costs and improve plant efficiency, along with putting tooling in place to drive production related to new product innovations.
As of the first nine months, we -- capex stands at $24 million.
Based on our latest forecast, I expect full year 2021 capital investments of around $35 million at the low end of the previous estimate for the year.
As Paul discussed earlier, we are targeted and measured in the investments we're making in the business for the long term.
As we disclosed last Thursday, we took another positive step for the business in renewing our domestic ABL credit line.
The credit facility was increased to $125 million and is extended until October of 2026.
It still has the option to expand by another $50 million through -- in an accordion provision.
The amended agreement is substantially similar to the previous agreement, while we attained improved terms surrounding pricing and other enhancements to improve the availability within the borrowing base.
I'm very pleased to be able to get this in place for the next five years and to provide stability for our liquidity on top of our healthy cash position across the globe.
Our overall debt level at quarter end decreased by five million from June.
All of the decrease came on paydowns on the international borrowings.
Our borrowings on the ABL stands at $30 million, roughly in line with last quarter.
I continue to expect there won't be any significant cash requirements related to debt in the near term, and it remains substantially at our discretion to pay down.
Overall, net debt decreased in the quarter about -- to $387 million, down $4 million from last quarter.
Again, I expect to trim that number over time as cash flow increases, and we are able to pay down on the revolving credit loans.
I stated it earlier, but it bears repeating that our debt leverage at the end of September based on 12 -- trailing 12 months adjusted EBITDA has decreased to 3.3 times, which is right in the target range that we have been discussing.
Our balance sheet is in solid position now, which allows us much more flexibility to manage the business for growth.
Now let me wrap up with a few thoughts on the remainder of the year and some concluding remarks.
As everyone should know, the fourth quarter of our year brings with it a number of normal disruptions due to holidays and year-end maintenance in order to be prepared for the first quarter, which is expected to be strong.
Our fourth quarter performance is expected to be at a continued high level and steady with what we've been experiencing so far in 2021 in terms of customer demand.
We've come a long way in the last year with the business.
And because of the effective decisions we made during tougher times and our ability to improve our liquidity, our situation has normalized and strengthened.
Even in the dynamic environment that we are in, we continue to fight hard every day, and it is making a difference in the trajectory for our business performance.
The future is bright for us.
And we are, as a leadership team, remain highly focused on managing the opportunities in front of us.
That's our story for now.

user
compname reports strongest third quarter results since 2013 with net sales up 48 percent yoy.
full-year adjusted ebitda is estimated to finish over $130 million.

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