Good morning, everybody. I'm Paul Reitz, the CEO of Titan International. I'll get things kicked off for you. We'll turn it over to Alan. He's our VP of FP&A, and he gets the pleasure of doing investor relations as well. Titan does cool stuff. I'm going to talk to you about it. But you know how I know we do cool stuff is I got a 23-year-old son, and no son, at least generally speaking, is going to be impressed by anything their dad does. But if they make cool products, they might somehow be interested in what you do. So I started handing out Titan hats to my son about four years ago, and I've noticed that he's been handing them out to his friends, and they actually wear them pretty much everywhere they go, including on college campus.
And the reason is because when you Google Titan, or you go into YouTube, even on TikTok, you'll see some pretty damn cool demos of what our products do out in the field because we've built a really strong connection with end users through the years. And so I want to talk to you about the company. Then we'll kind of talk to you about some of that innovation and the products we produce that are pretty cool. I didn't bring any hats to hand out to you. But what we do, though, is we make wheels, tires, and undercarriage that goes off-road. Wheels and tires fit pretty good together. Then undercarriage is going to be the other component that's going to make equipment move. And we do it for applications that, kind of like I was alluding to at the beginning, that are pretty cool.
We get out in the dirt of construction and earth moving. We get out in the fields of agriculture. But through some recent transactions, we've actually moved down into some very attractive spaces that are a little bit different and a lot different than what we used to do. But it's going to be outdoor power equipment. It's going to be turf. It's going to be some ATVs, recreational-type vehicles, and some high-speed trailers. And so we really have a fully diversified base of products that cover the off-road spectrum from, again, small recreational vehicles all the way up to the largest pieces of equipment you're going to find anywhere in the world. And how this company came to be is really interesting. And it kind of leads into that first point you see up there about barriers to entry. So back in the early 1980s, Firestone was manufacturing wheels.
So vertically integrated, they're manufacturing wheels that went into some outdoor equipment, primarily agriculture. They shut that plant down. We started that up in the early 1980s. Then you kind of fast forward through a period of years, and Goodyear had an agriculture plant in Illinois that they decided it's not a really good business for them, and they got out of that. So now we're making tires and wheels in the agriculture space. We've further acquired other plants around the world from companies that are very similar to that type of story. We acquired a plant from Continental. We acquired one from Pirelli.
But the point of the story is that the reason why these companies exited those properties and those businesses is if you look at the passenger tire market, you can pretty much cover the whole spectrum, about 80% of the spectrum of products that go on road with about 10 to 15 SKUs. Our plants on a typical day will produce somewhere from 50 upwards of about 150 different SKUs. So we're going to be low volume, high proliferation of SKUs. And where the high barriers to entry come from, one is obviously manufacturing in that manner is completely different. But really, when you look at the wheel, so going back to what I said when Firestone exited the business, it's a highly specialized piece of equipment.
A tire can be interchangeable from manufacturer to manufacturer, but a wheel, if you're AGCO and you're CNH, your wheels are not going to be just painted different colors. The hub and the axle and the connection between the rim is completely different by manufacturer, and even within different series within the same manufacturer. If you were to go to our wheel plants, we have wheel plants in Europe. We have wheel plants in the U.S. If you were to go to our plants, you would see tooling that's highly specialized, customized, by manufacturer, by series of tractor at our locations. That high barrier to entry comes from multiple angles. It comes from the tooling, which is not just a hunk of metal. It's a lot of engineering, a lot of years, and a lot of resource that went into that.
It comes from the way our products are manufactured, and so with that, we have built a global footprint that you see up there that is, I was going to say impossible, but it's definitely very difficult to replicate. I mean, what we're able to do for our customers, again, across that full spectrum of products from small to large, we're also able to do it around the world, so where their plants are located, we're able to be right there with them. So as we go through the complexities of where today's world is and where it's going regarding logistics and freight concerns, we have the ability to produce different products much closer and meet the needs of our customers more efficiently than our competition, and so what we'll talk about today, though, is some interesting things about our product development.
So the areas I mentioned, it'd be impossible for me to stand up here and tell you there's not some complexities with operating agriculture, construction, earth moving, forestry. And that commonality among all of them is they're highly cyclical. So we do find ourselves in a period right now where farmer income is down, and some of the businesses that we serve are clearly in a cycle that is, roughly speaking, depending on geography, depending on products, is going to be 20%, 25%, 30% down from what would be the norms. And so Alan will walk you through some of our financial performance and how it's much better now than it has been in prior cycles. But let me just tell you real quickly about why. One, we've really streamlined our operations. We've gotten out of some facilities and some parts of the business that weren't profitable.
That's kind of basic business 101. But what really differentiates us and creates that even higher barrier to entry, so we have a high barrier to entry, we're going to keep making it higher is our product development. As I was joking at the beginning about my son and the hats and wearing them, that's actually a true statement. Him and his friends do wear their hats again. It's because we develop really cool products, and the innovation's leading us towards better performance, better connection to our end users, and ultimately better service of our customers. But imagine back about 20 years ago. You got a tire that goes on a construction piece of equipment, let's say a pickup that was used in construction. Tires like here, the wheel is pretty small. Remember kind of those old visions? You almost envision Dukes of Hazzard days back that long ago.
But you think about what you see right now. If you go look at a pickup truck or an SUV, we wouldn't be driving SUVs if you didn't shrink that sidewall. So now you got a tire out there, and the wheel is almost out there almost to the edge of the rim of that tire. So you have very small sidewalls because we manufacture the wheel and the tire. And because in our industry, innovation isn't driven by our customers. John Deere doesn't come to us and say, "I need a better tire." You got to go out there and make it happen. And we're able to make that happen because we can make both the wheel and the tire. But what we did is we took an industry that had seen just envision this. Envision skinny tire here, skinny tire here, and a third one there.
That's how the largest tractors in the world were being operated. That was technology that was invented 50 years ago. So as tractors went from 300 hp to 400 hp, 500 hp, up to 600 hp, all they did is keep adding another skinny tire connected by a piece of metal. And so because we make the wheel and the tire and because of the innovations we've seen on road, we said we can do that same thing. We can shrink the sidewall. We can expand the wheel. And we can now make a tire that's about 5 ft high and it's about 5 ft wide. So the same performance attributes that you get from an SUV that we now all drive. Who doesn't own an SUV at this point in their life, or everybody does for the most part?
But those same attributes of performance have now been brought out to the farm fields. What that means is you think about a farmer. They got a very tight window for planting and harvesting. Let's call it, typically, depending on the regions, you're getting about three to five weeks. With a tire that is wider, you have a better footprint. With a tire with a lower sidewall, you can reduce the PSI down to as low as 10 PSI. So just imagine every car tire is going to be somewhere from 30-40. We can go 10. It's holding a 600 hp tractor. And what it does then is that performance of that tire gets right to the ground. And you get better traction, and you're able to handle side hills, horribly wet conditions.
Whatever you throw at that tire, whatever you throw at that piece of equipment, it will perform better. Not to mention it has a better ride. That's the obvious. But you're going to get better performance. So that window where you have to be in the field planting and harvesting, these products we now produce with the LSWs will meet those needs. And we're the only ones that can do that. On top of it, on top of it, you think about what the most valuable asset of a farmer is, is the land. At 10 PSI, you're just skirting across the ground. So you're getting all that traction, but you're also not digging and rutting into the ground. So you're protecting their most valuable asset, the soil. And then basic physics of a larger wheel is you also get fuel efficiency of 10%-15%.
You win all around. We've taken that connection with the end user with LSW, and we've just now used that to develop more and more products and so Titan has high barriers to entry because of what we manufacture, but we have high barriers of entry because of how we do it. We connect to the end user, and we innovate. We do not stop innovating. Good times, bad times, we continue to innovate. We recently did an acquisition, and I'll turn over here, Alan, in a second to kind of talk about some other parts of our business but that acquisition gets us into other forms of distribution, meaning kind of a distribution warehouse-type model because of the smaller products that this acquisition brought to us so we acquired a company let me backtrack. We acquired a company called Carlstar.
They produce the, as I mentioned earlier, the ATV, the off-road, turf-type high-speed trailer equipment. They distribute that product through aftermarket and through distribution model of primarily through warehouses. So if you take what we do with the large, combine it with their connection through the warehouses, we now can sell through wholesalers. We sell to OEMs. We sell directly through dealers. We sell through equipment dealers. We can sell and touch the marketplace anywhere. Like a U-Haul. You see them all over the road. U-Haul, a boat trailer, anything that tows behind a piece of equipment, we now make the world's leading high-speed trailer tire. So Titan is there in every way across the market.
For a company that's right around $2 billion, to be able to touch the marketplace in all those ways, to sell to every OEM that exists pretty much in the world, but also be able to connect to the end users through the dealer network we have, through the warehouses, we're able to sell to all the primary tire distributors you see in the U.S. And so we have a connection that, again, the barrier to entry just can't be replicated. You can come in there and do a little bit of what we do. Nobody can do everything that we do. And so, again, we are in highly cyclical markets. We're experiencing that cycle right now. But over the long run, we've built a really good, strong armor around what we do and who we are.
So with that, Alan, why don't you talk a little bit more about the business?
All right. Thank you, Paul. That was a great overview. Really moving on to this slide here, the main point I want to get across is that we are doing much better as a company today than we were five years ago in pre-COVID times. And that's as a result of strategic actions taken by management, Paul, as well as our CFO, David Martin. From a standpoint of Adjusted EBITDA, gross margin %, free cash flow, balance sheet, across all those metrics, we're doing better financially than we had previously. And this is despite being in currently a cyclical downturn. Just to spend a little bit of time on these actions, Paul did touch on our focus on the core. Our chairman and founder, Morry Taylor , is an entrepreneur and a risk taker.
Titan wouldn't be who we are without all the acquisitions that he's done over the years. With that being said, some of them have not necessarily panned out, and it's taken some years to kind of unwind some of those unsuccessful acquisitions. An example is a wheel mining business in Australia that was first turned around and then sold. Another example is our Bryan, Ohio factory, which was focused on giant mining tires, which we have since turned around to really focus on core large ag tires, including some of the world's largest LSW tires that Paul had talked about. Beyond the focus on the core and operational excellence, we underwent an initiative for an 80/20 SKU optimization process.
The biggest part there is we used to pride ourselves in producing every possible wheel and tire across agriculture, earth moving, and construction, paring down that portfolio to focus on plant efficiency, and also inventory management has made a big improvement on our margins over time. Product innovation, Paul certainly touched on that as well. It's continued focus to bring value-added products to our customers. And it's also something that is improving our margins as a company in that we can command a higher premium on the product, but also at the same time, when we redesign SKUs, we can take costs out of the SKU, which the customer likes that as well because it's a lighter product and helps their efficiency on their equipment. With all that being said, we believe we can be a $250-$300 million Adjusted EBITDA company when things return to the mid-cycle.
This is not a pie-in-the-sky number. This is a proven number. If you look back at Titan in 2023, we were $200 million. In 2022, we were $250 million, and that was prior to the Carls tar acquisition, and Carls tar, in a peak year, makes $70 million, so this is a number we can get back to, and frankly, hopefully, we can exceed that. Moving on, just a quick visual of some of the financials. Clearly, gross margin is a highlight here. Even in a year that's down like 2024, gross margin is a 15.5% compared to our last trough in 2019 and 2020 when we were sub 10% gross margin. Adjusted EBITDA, similar story there, $157 million in 2024, and free cash flow is really, I'd say that's probably really the bright spot.
2022 and 2023 generated over $100 million in free cash flow and already at $100 million this year. So just certainly, all of this is a direct result of the actions that we've taken over these years. On product innovation, Paul certainly touched on this as well, but really, this is a continual focus. One of the key things for Titan is that we are a purely off-the-road wheel and tire manufacturer. So if you look at some of our competitors, whether it's Michelin, Firestone, Bridgestone, they are companies that focus on passenger tires and then do 10% of their volume in off-the-road tires. We are 100% off-the-road wheels, tires, and undercarriages. So we continue to innovate in the space. We continue to grow our product portfolio, bring the customers things that they need to add value to their equipment.
On the Low Sidewall, I won't spend too much more time on this because Paul did touch on this, but what I will say is it is one of our flagship products, and it's something that gives an ROI to the farmer. First of all, compared to rubber tracks, which is a major competitor, they're a lot cheaper. But even compared to standard tires, there's an ROI in that they have less soil compaction and also can create lower fuel usage for the farmer. There's also a lot of momentum in this product. So it's really grown substantially in the large ag, but there's a lot of room for growth in small ag, mid-size ag, and even into military applications. So this is a flagship product, something we're going to continue to support, and a lot of runway for growth on it still.
Moving on, I do want to spend a little more time on Carlstar. This is another area which is a key driver of growth for Titan. First of all, growth on the bottom line through synergies. There's cost savings from SG&A as well as material sourcing, but there's a lot of opportunity on the revenue growth side of things as well. Just a couple of examples would be moving Carlstar products. Again, these are the small tires on outdoor power equipment, lawn mowers, ATVs, UTVs. There's very little presence in Latin America, Europe, and a lot of opportunity to grow in new geographies. I'd say the other side of that is that we have ability to carry Carlstar products in some of our existing distribution networks within our North American aftermarket. So a lot of opportunities here.
We really value ourselves on the one-stop shop mentality, which is carrying every off-the-road tire that an end user can need in one location. The last thing I'll say on this, the manufacturing, having the manufacturing footprint in China is a big advantage, obviously, from a cost perspective. Carls tar is unique in that they also have a strong distribution center presence in the United States as well as Canada, meaning the customers of Carls tar can really deal with a U.S. supplier and not have to worry about it being a Chinese manufacturer because we hold that inventory for them locally at the distribution centers. So a lot of opportunity on Carls tar and certainly see a lot of growth going forward for Titan as well. Now, Paul, any closing comments before we turn it over to Q&A?
For Q&A?
All right. We can open it up for Q&A.
Can you talk more about the cyclicality? You're talking about, you described past troughs and it was pretty substantial EBITDA recovery, about $250 million-$350 million EBITDA mid-cycle. Can you talk about the cyclicality and what mid-cycle means and where we are currently at?
We're below mid-cycle right now, and that's defined as kind of the historical perspective, usually looking over about 20-30 years of equipment sales, and we generally look at farm. Obviously, with other parts of our business, again, we're just talking about Carlstar, the consumer. There's not an easy way to define the mid-cycle for that, but what our business looks for and why we call this a down cycle is farm income and interest rates have a big impact on consumer purchases and farm income. We've gone a little bit, but it's got a lower bottom. So take that thought. Let me make one positive comment about it. I didn't say too many negatives altogether. We do believe over the longer term, farmer income, it's a barometer for the short term, and everybody looks at farmer sentiment as a correlation, but that doesn't really drive sales.
Over the long term, Europe, North America, and South America are going to protect farmers, and so we believe farmer income will rebound, but more importantly, land values and farmer balance sheets are really strong, so we are in a downturn, but we're not in a market crash situation. People like to correlate. The reason why I bring it up is people like to correlate a downturn to the world is ending because, as we've seen, the farmer is nowhere near that. This will rebound, and over the long run, protein consumption is going to drive a strong farmer income base, so for us, being below mid-cycle, what that impacts us is obviously the efficiency of our plants and absorption. But what's going on at Titan is kind of a combination of different things that Alan talked about. We have really improved the operations of our plants.
We've always been focused on what we do, but like Alan had mentioned earlier, our chairman founded the company. We went on an aggressive spree of acquisitions, created some inefficiencies in our operations, and it actually reached a point where, to be candid with the audience, we invested about $400 million kind of from a period of 2000, what's called 2007 to 2012, back in 2014. It was a $40 million deal, so a company our size, to invest $400 and lose $40, we had to take some pretty strong actions, and so as you look back at our historical results, you have a lot of noise that's in there from inefficiencies in our operations and some money-losing businesses that we've executed, so it's a combination of that with what we keep talking about, product development.
As the world continues to look for other sources of manufacturing, we have found ways to continue to innovate, bring new products to the marketplace that others can't. And along those lines with what we're doing with Carlstar acquisition, and we've talked about it, we are the complete one-stop shop. So we're now working with more joint venture partners and third-party providers to fill in any cracks we may have because we have the brand, we have the distribution, and we have the service team that can stand behind the products. So if you're a low-cost manufacturing company, doing that on your own is going to be difficult. Partnering with us is going to make it a lot better to have. And so we're working to fill in those gaps where between our manufacturing, joint ventures, and third-party sourcing, we're servicing all the needs of our customers.
Sorry, long-winded answer, but the down cycle, we're probably 20%-25%-ish below the mid-cycle. We have plants, to be honest with you, we have plants that are operating, or some of our ag plants are operating at the lowest level we've been in 25 years. So if you go back to Alan's slide yet earlier, we're still producing strong cash flow. EBITDA is still good. Balance sheet is so strong. And so the point we're trying to make is looking at our historical financials and looking today are two different things, but the down cycle is as bad as some of the historical.
20 years before Donald Trump, there was Maurice Taylor. He was kind of the original Republican populist, I would say, anyways. How is he doing and how is he involved today?
He just wrote a book saying he was Trump before Trump.
Did he really?
Yeah. It came out about before the election, came out about a month ago. It's a short read. It's interesting, but you're exactly right. He's doing well. He's got a passion for this business, which is great. It's been really, it's an honor for me to work with somebody that loves the business the way he does. But like Alan said, sometimes when you love the business, you make some mistakes. You can be blinded by that love, and I think through the years, we've undone some of those and took the base and the core that he built and really made the company stronger. But he loves being part of it still as chairman. He's really proud of what the management team has done and interacted on that. He hasn't been involved day-to-day with the company.
Probably been seven or eight years since he's really been involved day-to-day, but he does love to just see kind of where we're going in the direction we're going and stuff like that, so that passion never dies.
Farmer income is down. What crops are driving that decline? There's some crops in storage, actually. It could be a while before farmer income comes back up. You still have that crop in storage, and then you have the crop in the ground. Could you elaborate on your expectations for when farmer income might rebound and what will drive that?
I'll start with that one. So yeah, really, in our case, corn and soy are what are driving that for the most part. Corn had been below $4. I think it's in more like $4.25 range now, and soy had been below $10, and it's back above $10 now. As far as a significant rebound, I think it's challenging to say when that will be. From a supply side, crop yields have been very good in recent years, both in the U.S. and in Brazil. So it's hard to say on the supply side unless there's any unexpected shocks. On the demand side, Paul talked about continual increased demand for high-protein diets. Obviously, you continue to have global population growth. That'll be an incremental improvement on the demand side, but hard to see any major shocks on the demand side either.
What I think could change is actually the input cost for the farmers. You tend to see in times, there tends to be a bit of an equilibrium point where input cost will adjust to help support the farmer. So when I talk about input cost, I mean things like fertilizers, seeds, so other costs to the farmers. If the farmer is not planting and harvesting crops, then those companies are not making money at all. So they need to kind of self-adjust and self-regulate to a point where the farmer does make money. And there's been historically, we've seen that in past down cycles.
I totally disagree with you, and I disagree with you. I see the farmers in Europe protesting with their tractors in the streets because of the way governments are treating them. I came to this meeting expecting to hear something said about the potential change for Robert F. Kennedy Jr. to come in with our food supply. I think we have a huge potential for individual foods provided for people on going back to the small farms, and I would think that Joe would have a huge potential sales factor there in selling to the small farmer with all of the attributes that the big farmer has, but downsize it to a small farmer, a 50-acre farm where small farmers are a whole lot of work.
We actually had a slide. We had a North America team meeting. On your point yesterday, then our VP of sales, our recent dealer council, put up a slide, and it showed a farmer has 340 different types that they could be using on a typical U.S. farm. And Titan, with our recent acquisition, can do every single one. And so to your point, what we need to do, and one of the things I talked about actually in our last, we need to take some of the technology that we're using with 650 hp tractors for 10,000+ ac farms and bring that down to the local farmer. Because the local farmer, there's way more of them than many of us realize. And we need to take that benefit to the farmer. Like Alan was saying, reduce their costs. There's ways we can help reduce their costs.
We have innovations that we need to get down to that level as well.
I think you have a huge marketing opportunity.
We do. We do. And that is, yeah, to be honest with you, it's something we just talked about. We see it as actually one of our guys yesterday suggested a small farm, we should almost certify them with some sort of recognition to say, "You're a certified type of farmer." If we can meet all their needs, we should give them some sort of praise for doing it. And we need to get creative with that. And you're right, we do have the opportunity to. The European farmers, to your point, European farmers are all smaller. They tend to protest more because they feel like they're not being heard because they're all.
The government's treating them differently as well.
But I think with our governments getting more aligned now, eventually, if you're going to be aligned, and I don't care if we went red or blue when I make this comment, when a government's aligned, you're going to protect construction and farming, right? Think about the unrest that would happen if the farmers decided just to stop producing crops in Europe. You know food inflation's bad now. If you can't produce your own.
That's flat out.
Yeah. If you can't produce your own crops, then where does it go? You want to be reliant on importing crops from Argentina every year? And Alan made this comment earlier. We've had perfect weather for the last few years. Think how dry it was this year in the U.S. other than parts of North Dakota, it's perfectly dry. That's not going to continue. So you haven't had to dry the crop. You haven't had all these additional costs. And so I met with a. I'm going to kind of go back to what you said. The thought in our head is on what the supply-demand equation has to get balanced out. I have a high school friend who's a cardiologist. You know anybody in healthcare right now? He's been a cardiologist for 25 years.
He said he cannot believe the shit that's going on right now because it's being run like a corporation and the money's going to. He works for Ascension. I'll go ahead and get names. The money's going to the top. Think about your food. I mean, there's things that I go to the grocery store and buy that were $4 pre-pandemic that are now close to $7. All the crap prices are there. Where's that money going? I think eventually, to Alan's point, the supply-demand equation can't go to the big corporations. It's got to go back to you and I that are buying the food, and it's got to go back to the farmers that are producing it.
But I have to have the opportunity. For example, I grew up on Jersey milk. And I would do anything to go back to buying that rich Jersey milk again, unpasteurized, raw milk. It's hard to do. My vegetables, I would give anything to be able to buy my vegetables on a fresher basis than the grocery stores that I have to go to. And I could go on and on and on, but your product will enable those farmers to bring that produce and those milk and beef products to me.
Yeah. And that's where we see an opportunity. We built our products around, and this acquisition really opened our eyes. Keep in mind, this is just a place that we uncovered. It's opened our eyes because our mentality was bigger is better where we needed it. So everything I kind of illustrated with LSW was 600-hp tractors, large combines. As we did the due diligence on the acquisition, which took us about a year and a half, we realized that there's a lot of value in other places. And it's midsize tractors. It's different products. And if we can be the one company that can provide all of that, there's a definite advantage in that. It was probably a little bit of ignorance of us through the years thinking we had to always go larger. And you're right, there's a lot of small farmers out there.
We need to, now that we have the product base, like I said, this slide is great that our VP of sales created. It shows we can do everything a farmer needs. We need to go larger.
Have it in your next presentation.
Yeah. You know what I'm talking about? We just got our hands on it. We were right. There's a huge opportunity out there for us.
Thank you.
I have a question on the sales channels and the mix between OEM and the, I guess, the replacement market, if you will. And just trying to figure out that sales mix and then also the element that's non-discretionary. And I'm coming in as an outsider. I don't know your business too well or the ag sector, but I imagine there's a point where you have to replace a tire because it's gone beyond its useful life. So maybe if you could touch on those points.
Sure. Yeah. I'll start on that, so first of all, as a whole, roughly 45% of Titan's revenue is aftermarket versus 55% OE, and that's something vastly different than 10, 15 years ago where we were 80% OE. Aftermarket is a channel with better margins, and it's less cyclical, and it's something we've been aggressively going after. Carlstar is a big part of that. Carlstar is over 60% aftermarket, so that's something we're really focusing on improving, and I think it's been going well.
Our innovation. You too point, the tire's got to be replaced. Undercarriage, we make undercarriage as well. Those components got to be replaced. It's that connection to the end user of the innovation that allows us to be the leader in the aftermarket as well. That's something we work on. If you have a better solution in the aftermarket, sometimes in the aftermarket, you get an opportunity to sell in ways you can't to an OEM. OEMs are not always great at innovation. So if you have an innovative product, you can go to the aftermarket and say, "Why buy the standard run-of-the-mill if you buy something?" To your question, it can make your product perform better. OEMs have changed. I've been here wrapping up my 14th year. OEMs used to have engineers. They used to have operational people that were directing decisions in our space.
Now it's all supply chains, centralized supply chain. There's no engineers. There's no marketing. There's no operators. And so we've had to really revolutionize how we go to market through the aftermarket. Goodyear's much more stable business for us, but it's how we drive innovation. Is that the buzzer that's?
I think that's it.
All right.
Appreciate it. Thank you guys for coming out.
Thank you. Thank you, everybody.