Paul Reitz - President and Chief Executive Officer Jim Froisland - Chief Financial Officer and Chief Information Officer.

Larry De Maria - William Blair Joe Montella - Sidoti & Company.

Ladies and gentlemen, welcome to the Titan International Inc. Second Quarter 2017 Earnings Conference Call. During this session, all lines will be muted until the question-and-answer portion of the call.

[Operator Instructions] As a reminder, certain statements made in the course of this conference call are considered forward-looking statements for the purposes of the Safe Harbor provisions Under the Private Securities Litigation Reform Act of 1995 and reflect the Company’s or management’s intentions hopes, beliefs, expectations, or predictions for the future.

The Company’s actual results may differ materially from the intentions, hopes, beliefs, expectations and predictions contemplated in these forward-looking statements as a result of various factors including those discussed in the Company’s latest Form 10-K and Form 10-Q filed with the Securities and Exchange Commission.

In addition, today’s remarks may refer to non-GAAP financial measures, which are intended to supplement, but not be a substitute for the most directly comparable GAAP measures.

The earnings release which accompanies today’s call contains financial and other quantitative information to be discussed today, as well as the reconciliation of the non-GAAP measures to the most comparable GAAP measures and is available within the Investor Relations section of our website.

Participating from Titan International on today’s call will be Mr. Paul Reitz, Titan’s President and CEO and Mr. Jim Froisland, Titan’s Chief Financial Officer and Chief Information Officer. Please note today’s call is being recorded. At this time, I would like to turn the call over to Mr. Paul Reitz..

Thank you, Austin, appreciated. So, good morning and thanks for joining us. I am going to start off with the highlights from our business this quarter followed by a financial review from our CFO and CIO, Jim Froisland and then we’ll wrap up by taking your questions. Let’s start right at the top with sales.

In the first quarter we reported our first year-over-year increase in sales in 18 quarters, so it’s great to report again that our Q2 revenue is up over 10% from last year. As you know, the duration and severity of this latest downturn was challenging. Therefore, it feels really good for our team to be part ourselves out of it.

When you dive into our $34 million in revenue gains this quarter, it really comes from a good mix across our segments and business units.

For example, this quarter, we had $26 million in gains from our Ag segment, as well as our business units or all up in Ag except for Russia, which was only down slightly due to some market conditions and pricing pressure. That is really something that we are watching the competition closely. They did not respond with price increases.

We did do price increases due to the raw material fluctuations. So we did see a decline in our revenue there. As a reminder, we have the number one market share in that region and so, we certainly believe that we can sustain our market leading position and protecting our margin was the right move in the CIS area.

Our North American Ag had a good Q2, as we saw our tire business report a double-digit gain that was led by gains in aftermarkets. The aftermarket wins we’ve seen through the first half of this year, really have been spearheaded by our efforts that we started back in the mid part of 2016.

So focused on our customer experience and to really position our products properly in the market. So, it’s really good to see the fruits of our labor paying off there. Moving from tires over to wheels in North America, our wheel business posted a strong Q2 after a relatively flattish first quarter. As you know, this business is primarily OEM-driven.

So it’s really good to see a solid quarter of gains coming from our North American wheel business in both volume and pricing. ITM, our undercarriage division, they’ve really continued to report strong sales. They had a gain once again this quarter.

We continue to benefit from our aftermarket strategic plan that we put in place, really going back almost two years ago. During the second quarter, at ITM, we also won a major contract to provide a 100% of the forestry undercarriage to a major OEM and we are also named the preferred supplier of D10 and D11 tracks with a major global mining operator.

We did – I do want to note, we did miss out on a few million in sales in our European region for undercarriage this quarter. We had a brief labor issue in our Italian undercarriage plants. It was settled fairly quickly. The plants have returned to full operation. We are confident that the lost production is only a timing issue.

These sales will be made up in the third quarter. Our North American undercarriage business, it’s a tougher market for us so far this year. It continues to be relatively flat. We did make some changes there in 2017. We added a new General Manager that came to us with extensive sales experience in the industry.

We also responded by opening a new small service center in the heart of the Western U.S. mining sector and really proud to see how it’s taken off for us both with the GM and that service center. We’ve already seen our sales increase in that service center almost three times what they previously were in that region of the U.S.

Moving down south to Latin America, our Brazilian tire business continues to have a strong 2017 campaign as we reported another quarter of solid year-over-year double-digit gains.

These gains are all driven by Ag, throughout really Latin America, we’ve seen our export business pick up from our manufacturing point in Latin America to other LATAM countries. Not a surprise, we continue to see construction remain weak in Brazil with the economic conditions there.

But really good to see the Titan Brazil after earning the number one position in Brazilian Ag market in 2016 continues to see our team building upon that success with a good start to the first half of 2017. Let me circle back to Russia a minute here. As I stated earlier, our Q2 sales were down slightly due to some market conditions.

Obviously, these days you can’t look at the news without seeing something about Russia. Yesterday was no exception to that. Therefore I really think it’s important, I spend just a minute talking about our management team at Titan Russia. For the past few years, I’ve been continually impressed with our General Manager there.

Since the acquisition we’ve been fortunate to have a stable quality leadership team. Really thanks to the efforts of this particular General Manager. Our Russian GM has repeatedly proven to have a strong grasp of operations, sales, the overall CIS markets where we are looking to go in the future.

And it’s proven consistently to be a good decision maker in challenging times and most importantly have demonstrated the ability to be a good leader of our Titan Russia team.

I’d bring this up just one, compliment our GM, but two to make sure everyone realizes that our Titan Russia business is a well-managed operation despite all the negative political headlines out there.

We are making good progress with our investments to upgrade the Russian plants to make it for more efficient and to really primarily improve the capabilities as we build up the Goodyear European brand.

So, we look forward to what Titan Russia will be doing for us in the future and again, we really do have good leadership and a good management team there for that business.

Now moving away from revenue, our biggest headwind this quarter was yet again the challenges associated with the fluctuations and increases in raw material cost, especially in our North American business.

Last quarter, I discussed the unfortunate what-if scenarios that impacted our Q1 performance with the primary issue being the increases in natural and synthetic rubber prices.

As expected, Q2 was very similar to Q1 in regards to these raw material issues and I want to remind everyone that, in North America, we have contracts with our OEMs that typically reprice only twice a year that based upon the standard market changes in the raw material costs. So it’s index-driven.

With or raw material purchases, we do follow a disciplined approach to our supply chain. It balances forward purchases of varying lights tied to the demand and forecast that we see along with some spot buys in the marketplace. So therefore, it really prevents us from making risky bets in the commodities markets.

The bottom-line result is, when we take a hit, when raw materials go up as fast as they have, and what we saw in the tail end of 2016, and 2017. In Q2, the impacts of North America was an increase in raw material cost. So we had to absorb of approximately $11 million which is fairly consistent with the $9 million we experienced in Q1.

Outside North America, raw material costs relative to pricing were up in some areas and down in others. So we are really only talking about our North American tire business when we talk about the negative hit to operating profit from raw materials.

This hit is obviously painful and it’s been very difficult in the first half of the year to have to experience this, but we believe firmly that it’s never a good idea for our shareholders to have Titan taking chances in gambling with raw material purchases.

In today’s volatile commodity markets, it’s just not a prudent move that and really would introduce a high level of risk into our business.

Our job is to carefully access the markets, understand what’s going on with market pricing, understand the moves being made by the competition and then where possible, respond with agility to take action with appropriate pricing.

I think it’s been pretty clear over the past few months that in North America, the competition has responded with price increases. We have done the same. So, as we move forward, we’ve consistently been out there understanding what’s going on in the market.

We believe we’ve taken appropriate actions and in the back half of this year, we do expect our raw material cost relative to our pricing to be at more of a reasonable neutral level. Moving away from raw materials, and away from the P&L, I want to startle back on something I talked about in the first quarter.

I noted that we had reached a tentative agreement with the USW on our North American tire plants. I do want to state on today’s call, we subsequently announced in May that we have reached a five year agreement.

I want to first say that I personally have a ton of respect for our team at our tire plant what they do day in, day out building quality tires and really enabling Titan to be the market leader that we are in North American Ag tires.

And if you’ve been to our plants, there really been any many facts that converts a raw material to a finished good, you’ll walk away feeling the same way I do. So, the five year agreements we have in place are good, fair agreements.

They have some wage increases along with the introduction of a new provision that incentivizes our USW members with a profit sharing plan. So, again, really good to see a nice five year agreement put in place and cements our relationship there with our tire builders in the USW. We’ve been discussing that for the past few years.

The seeds that we’ve been planting with LSW and when you introduce a revolutionary product into the world of Ag especially, as you know, dealing with farmers and how they make purchasing decisions, we knew that these LSW seed is a worthwhile flowers that would just grow like crazy everywhere they were sprinkled.

We knew our efforts with LSW and the seeds we planted were- they were more like a tree and it would take some time from to grow. But once they did, they would form a good solid long-term foundation for Titan and in 2017, just like last year, our LSW sales continue to grow successfully at a rate well into the double-digits.

We also had some really good news this past quarter with LSW in particular and it’s built upon what we did last year. Thanks to the efforts of Mark Stallings from Delta Equipment in a farmer in Central Missouri. We got our LSW tractor set up approved in the New Holland book. The test that we ran last year was with Mr.

Stallings and I just say it’s not we ran the test at March and economist rand was ran last year at his farm and it verified that LSW improves farmers’ yields. And so, it’s really through his efforts that we now get this opportunity to have this CR tractor set up in the New Holland book and I believe this will lead to other opportunities with OEMs.

Please keep in mind that we have other LSW combined set ups approved with other major OEMs. But really at this particular set up that I am referencing is the first tractor set up that’s been put into the OEM product book. So, again a good accomplishment that just further validates our efforts that we’ve had with LSW.

In June, we had our Annual Shareholder Meeting up in Calgary Alberta with our Board of Directors meeting that it also included the group traveling up to Fort McMurray to Titan’s mining group operation up there and TTRC. This really gave the Board a chance to see upfront our operation up close and also to meet our TTRC partners.

I did get a number of comments. They are impressed with what they saw in that operation up there. We do have signed contracts with the major operators in the oil sands and really we are looking to leverage the relationships we have at TTRC, to sell additional products that we offer and continue to grow our business up there in that region.

So let me kind of wrap everything up for this part of the call. We saw again this quarter with our revenue gains, the success of our balanced approach over the past few years. During the downturn of investing in crucial areas such as sales and marketing and product development, while also focusing on the efficiencies in our plants.

We made some pretty good cost reductions through our biz framework and we’ve done this all while applying the guiding principles of our One Titan umbrella. We definitely know we got some work ahead of us.

But I really think that what you’ve seen through the first half of the year with the gains we’ve seen in revenue, we’ve done a good job of getting us through the downturn and getting us to the point now where we are.

We are looking forward to taking the next steps with this company and bringing to the next level and seeing some of that flow through the bottom-line. So, with that, I’d like to now turn the call over to Jim. .

Thanks Paul. I will begin with a reminder that the results we are about to review were presented in our news release issued this morning and will be discussed in more detail in our Form 10-Q, which was filed this morning. Let's start with the income statement. Net sales for the second quarter of 2017 came in at just over $364 million.

This was up more than 10% or just over $34 million from a year ago. This is the second consecutive year-over-year increase we have seen after 18 quarters of declines adjusted for acquisitions. Sequentially, net sales grew almost $7 million or over 2% from first quarter FY 2017.

In terms of what this looked like in terms of our segments, both Agricultural and Earthmoving Construction segment, net sales were higher when compared to the same quarter last year.

These increases in net sales were largely driven by 7% higher overall volumes in the agricultural and Earthmoving Construction segments, as well as overall favorable price mix and currency. Agricultural saw the biggest improvement in net sales of just over $26 million or 18%.

Moving on to gross profit and margin, gross profit for the second quarter was $43.6 million, versus the $43.7 million in the prior year period. Overall, gross margin performance for the quarter was impacted by approximately $11 million of increased raw materials that could not be passed on to the customers.

Titan, along with other manufacturers in the industry recently announced price increases to help offset this sharp uptick that everybody realized in raw material prices during the first half of the year. Despite these circumstances, we increased gross margin 84 basis points for the first quarter. Now taking a closer look at our segments.

Our Agricultural segment net sales for the second quarter were $172.9 million, up $26.2 million or almost 18% over the comparable prior year period. The North American region grew 21% over the second quarter 2016 as we continued to benefit from our move in the aftermarket.

Latin American net sales continued to rebound in the second quarter with a 45% increase over the same period a year ago. We believe our market share in this region continues to be strong and we are seeing the results from this region.

Our Agricultural segment gross margin declined 240 basis points in the second quarter to 13.2% in net sales with most geographical regions showing reductions over the same period a year ago. North America was down the most primarily due to the increased, significant increase in raw materials as we mentioned earlier.

Moving on to Earthmoving and Construction segment. This segment's net sales for the quarter of 2017 were $151 million, and an increase of $9.9 million or 7% over the prior year ago. All regions improved over the prior year quarter and overall volume gains driven by the increase.

The investment decisions we’ve made in our ITM aftermarket business has also shown positive returns for the past three quarters.

Similar to my comments about our Agricultural segment, we experienced a 163 basis point reduction in gross margin within Earthmoving and Construction with North America taking the largest hit while Europe was flat and other regions experienced gains in the second quarter as compared to the prior year period.

Once again, the decline in North America was a result of the previously mentioned increase in raw materials primarily rubber. Now, to our Consumer segment. This segment’s second quarter net sales were $40.5 million a decrease of $2 million, or 5% when compared to the prior year.

Net sales in North America improved while all other regions were lower during the quarter compared to the prior year. We were able to achieve 16.5% gross margin. Let’s take a look at operating expenses.

Selling, general and administrative and R&D expenses for the second quarter of 2017 came in at $37.1 million, this was down $1.9 million when compared to the prior year period. The decrease was in line with our focus on what I term property – it’s in our plans that we talked about last quarter to reduce our costs.

We are encouraged by our early results, which is picking speed. We have more work to do naturally. But, we are taking a hard look at both fixed and variable costs, returning over every – we are often looking at every expense and we are really encouraged by that and that will continue throughout the rest of the year and forward.

Finishing up on the second quarter operating statement, income from operations for the second quarter of 2017 were $4 million, compared to income of $2.6 million for the comparable prior year period, an improvement of 53%. Royalty expenses of $2.5 million was up $0.4 million or 20% due to higher sales when compared to the prior year period.

Interest expense of $7.3 million was down $0.7 million or 8%. Let me talk about foreign exchange loss of $5.3 million which was worse by $7.4 million when compared to $2.2 million gain in the prior year.

I want to point out that this $5.3 million really relates to our inter-company accounts and primarily most of this $5.3 million therefore is non-cash. We are taking a close look at this and looking at our opportunities there also. I wanted to point that out. Overall, FX loss for the six months ended June 30, 2017 was $0.8 million.

So the loss this quarter reversed all the gains we experienced in the first quarter. Other income of $2.2 million was down 28%. This resulted in a loss before taxes of $6.4 million for the second quarter of 2017 versus a $0.2 million loss in the prior year period.

Turning to tax expense, it was $0.1 million versus $3.6 million expense in the prior year. This tax expense I’ll point out, was due to losses in the U.S. and certain foreign jurisdictions where the tax benefit could not be recorded due to a valuation allowance and into non-deductible expenses and income adjustments.

The net cash, cash tax payment for the second quarter was $2.6 million, compared to $2.2 million in the comparable prior year period.

Take this all into consideration, this led to a net loss of $6.5 million for the quarter equal to $0.17 loss per basic and diluted share versus last year’s net loss of $3.8 million which is equal to $0.10 loss per basic and diluted share.

For the quarter, 2017 earnings before interest, taxes, depreciation and amortization, EBITDA was $15.9 million versus $23.2 million a year ago. This is a decrease of 31%.

However, if you look at EBITDA on an adjusted basis, in other words, subtracting of FX impact, we are at $21.2 million for the current quarter versus $21 million for the second quarter a year ago. We use EBITDA as a means to measure the company's performance.

We have a full reconciliation of EBITDA, a non-GAAP measure to net income in our press release issued earlier today. Now I'd like to move on to our financial conditions and highlight a few key balance sheet, liquidity and capital items. Our cash balance and short-term certificate of deposits balance came in at $153 million, as of June 30, 2017.

This was $45 million below December 31, 2016. Now, this decrease was primarily attributable to our increasing working capital needed to support higher sales in both the first and second quarter of this year. We ended the quarter with inventory and accounts receivable balances at higher levels when compared to the prior year.

However, accounts receivable days sales outstanding was 55 days at both June 30 of 2017 and the prior comparable period. Days sales and inventory was 96 days in the second quarter compared to 93 days at the end of the second quarter in the prior year. Days payable outstanding increased 6 days from the prior year to 56 days.

The key thing here is this resulted in a three day improvement in the cash conversion cycle from 98 to 95 days. So therefore, you can see that we continue to be diligent in managing our working capital as our net sales increase.

Let’s turn to our debt, our combined current long-term debt totaled $451 million, which represents a decrease of $55 million from December. This reflects the previously announced conversion of our convertible debt in January, which also served to reduce interest expense during the quarter.

Capital expenditures for the six months ended June 30, 2017 were $15.2 million versus $18.1 million for the same period in 2016. I’d like to point out that the capital expenditures for the remainder of 2017 to be in the range of $15 million to $20 million.

Cash payments for interest are currently forecasted to be around $16 million for the remainder of 2017 based upon June 30, 2017 debt balances. We believe we have sufficient funds for our operational working capital needs for the near future.

Therefore in summary, I would like to say, there are positives within our results for the second quarter of 2017. During the quarter, we increased our net sales by 10%, reduced SG&A expenses by $1.9 million or 5%, and improved operating income. We experienced triple-digit growth in LSW net sales while also improving our LSW gross margin.

We gained new business with valued global customers in our undercarriage business. With net sales improving with two consecutive quarters, these results continue to demonstrate early signs of recovery and provide optimism moving forward.

I'll be glad to answer any questions you may have on these or other financial matters and in the meantime, I'd like to turn the call back to the operator for questions. Thank you..

[Operator Instructions] And our first question comes from Larry De Maria with William Blair. Please go ahead..

Hi, thank you. Good morning. Obviously, on the raw materials issue a bit more, first half $20 million headwind where you had price increases and OEM contracts in place and I think this is neutral in the second half.

Therefore, are we going to recoup those costs or all or a portion of those costs or are we just trying to get back to where overall neutral?.

Yes, I mean, the first half the year, Larry, the OEM contracts – so take that part of the business aside, the OEM contracts don’t give us any flexibility. So, on July 1, with most of our OEM relationships will see a price adjustment that will reflect the raw material index prices. So, at a minimum, you are going to be obviously neutral with the OEMs.

What we’ve been doing throughout the first half of the year is watching what the competition does and also assessing our own situation and really almost going product class by product class determining where and how much you can change prices. So we came out with that in April 1.

There is a little bit of a lag, existing orders that got repriced and so, in the back half of the second quarter but really leading into Q3, you get the benefit of that price increase. And then, we are also taking a look at other products where we can adjust pricing.

Just this week alone, we’ve seen two of our competitors come out with price increase announcements and so, it’s still very fluid.

Our comments, that Jim and I made on the call basically reflect that we believe based upon everything that’s in place today, with existing price increases along with where we see the forecast of raw materials for Q3 and hopefully staying relatively stable this year that will be neutral.

Now, in a perfect worlds, we will be able to recoup some of what we lost in the first half of the year, but I am not sure at this point, we can cement that we will be able to start recouping, but we feel that we are – leaves at a comfortable mutual level as we go to the back half. .

Okay, thanks.

And maybe another way to look at this, how do we think about at this point, overall levels of gross margin in the second half? What should be thinking about for a model then?.

Well, I think the simple way to look at it is, we locked in raw dollars for raw materials $20 million.

So you got the 9 and the 11 and so, if you were to look at modeling or looking at historically Q1 and Q2, I would say that, the basis for the model in the back half of the year is that, you can say, look our gross margin was definitely impacted by costs that were higher relative to pricing by $20 million in the first half of the year.

So I would use that as a basis for going into the second half of the year. For the model, now, the second half of the year, you do have at this quarter, you got the seasonality impacts or some of the shutdowns that always take place in July. You have the European August month that has additional vacation time.

And so, I don’t think you can just take – excuse me, the first half of the year and say that’s going to be an exact replication of the second half of the year.

But, so I think if you look at historical 2016 back half of the year, add back in the 9 and the 11 in first half of the year that we lost on raw materials and I think that gives you a good foundation for the back half of the year and obviously, we’ve experienced really good revenue growth in the first half of this year and we think those trends do have continuation into the back half.

.

Okay, thanks. And then, just one other question.

Can you, maybe discern between the OEM replacement demand in your business? How the growth rates have bolt-on – both of those please?.

Yes, I mean, what we are seeing is, it’s a different moving pieces to that. I wish there is an easy way we could just point to one indicator and so you had this is going to drive these particular movements. I mean, what we are seeing.

I’ll start with the tire replacement business, we are seeing a very positive double-digit gains through the first half of the year.

And I do believe that, the market conditions with the replacement business had improved, but we’ve also put a tremendous amount of effort and made significant changes over the last 12 months to get ourselves in a better position for growth in the market.

So, the replacement business, you think about it with all the new equipment that came into the market, 11, 12, 13-ish, from a tire side, you are going to start getting the replacement cycle with a lot of those tires.

But, it’s really a combination of – we’ve done a lot to reposition from a customer experience, from our product positioning standpoints, the opportunity for us in the replacement business in the tires and so, we’ve seen very good double-digit gains in the first half of this year. Now, the OEM tire business, it’s kind of a mix bag, Larry.

As everything as with Ag these days, we got certain parts of the business where certain customers, certain parts of their business that we are seeing good indicators of growth and you have other customers that are still dealing with a little bit of inventory.

So, I would point to our North American wheel business where we really - we had a good second quarter and that’s all OEM. We see the order book for Q3 with our wheel business in North America remain fairly strong. So it gives us optimism as we move into Q4, which is really when you’ll start to get the – signed for how the OEMs feel about 2018.

I just spent a lot of time yesterday with my team talking about that. I think it’s a little early to start predicting 2018, but we had a good Q2. We had a good order book already in place for Q3 probably another 30 to 45 days it will start to tell us more about 2018.

So there is definitely a sense of optimism from our North American wheel business which again is that business we are talking 90% OEM that there is some good trends there that hopefully will lead us well into 2018. .

Okay, thank you. .

You bet. Thanks, Larry..

[Operator Instructions] Our next question comes from Joe Montella with Sidoti & Company. Please go ahead..

Hi, guys, good morning. .

Good morning..

Good morning, Joe..

Just wanted to ask you about the SG&A situation. So, it seems like the quarter trended very positively here with SG&A being down a little bit.

Just wondering how much and what have you sort of cut right now and if you can quantify that? As well as, what you anticipate going forward as opportunities further?.

Yes, Joe, this is Jim. As you saw real dollars $2 million this quarter and that was really looking at it.

We started in the first quarter, but we really gained traction in the second quarter here and I am not going to – I would just say this that we are happy with the $2 million, but there is more to realize as I mentioned last time, really the one thing that I had a good chance of looking at as well as policies and procedures and when you do deep dives on that stuff, you start turning over rocks.

So, but the real money relies on the – we are looking at a new ERP system and we started that process in the – beginning in the second quarter.

So, we are ending the first phase on that and we are in negotiation phases right now, but there is huge dollars, I can’t quote them right now, but trust me, there is a nice ROI on that and we are talking large dollars.

The other profit leads me that’s just looking at contracts, that’s looking at everything going through and adjusting our policies to make sure that we’ve always got two or three bids et cetera to maintain ourselves as competitive. But, I hope that helps. .

And so, Jim, the $2 million, that was actual absolute dollars that would cut in the second quarter.

So we are looking at maybe a $8 million runrate that we’ve cut at the beginning in the second quarter, that was fully realized?.

Well, it’s $2 million in the second quarter. I would – time will tell, but I hate to – I’d rather deliver results and we delivered $2 million real dollars. So, I feel confident that we are going to do better than that as we go down. As I said, we are entering into a bit of an unknown.

The big dollars are helpingly automate our processes and streamline it and actually have better information around the business and give power to the people. So that they can do their job in a more efficient manner. And we really are – off a better number on that after we get through this really total ROI study. .

Great, okay, and is most of that you saw in the second quarter, at least variable or was some of that fixed?.

That was both. As I said, we are looking at both variable and stable..

Okay..

I will point out, we did go down in SG&A as our revenue went up. So, we have taken a hard look at fixed as well as variable..

Okay.

On the pricing side of things, just wondering, because if I recall, you implemented a new sort of system on pricing at the beginning of this year, I don’t think we touched on that much in the first quarter conference call, but I am just wondering how that’s been playing a role in more efficiency on the gross margin standpoint and pricing of your products?.

We have, Joe, what we’ve done is just really improve our market intelligence in utilizing a lot of information before we make pricing decisions and so we’ve become more effective at our pricing and definitely we’ve got more efficient as well as you mentioned, but that process is really ongoing. That has become part of our culture.

I think before, if I kind of look back in time, we had a tendency to get too focused on cost plus and now the way we price is in tune with the markets. So we are constantly looking at any deviations in our volumes. We are confidently looking at decisions being made by the competition and we are able to react very swiftly to it.

And so, it’s really become – again, as I said part of our culture, and I think that’s what’s really paid off or as I don’t believe there is anybody in North America right now that can move as quickly as we do when it comes to setting prices and going to the depth of product classes and products to figure it out what that price level is or where the price level should be.

So, you are looking at the deal with what’s going on in the market and sometimes react, sometimes you don’t. But I think, I am very comfortable with the decision-making process we have now with our pricing process in North America and we definitely seen the improvements in our business this – the first part of this year.

So, as you see the – as you see the markets start to increase their prices and kind of gain back what we lost or at least get back to neutral and hopefully gain back what we lost in raw material pricing in the first half of the year, I am very optimistic that we’ll position our products at the right price to either gain volume or gain margin or do both.

So, it’s really definitely paid off. But it’s some we started back in 2016, putting all the processes in place to be able to do this and get the benefits we’ve seen in 2017. .

Okay. And then, in regard to revenue growth, specifically at the Agriculture segment, so you saw 18% revenue growth in the first half of the year. And you said that the trends you’ll expect will continue, but I think the comps – correct me if I am wrong, might have been a little easier in the first half of the year.

So, just wondering, if you can sort of provide anymore color on what kind of sort of trend or revenue growth at the Agriculture segment you are looking at in the back half of the year? Do you think it still will be double-digit kind of – type of growth? Any sort of visibility or color on that that would be helpful?.

I’ll add some color and I’ll let Jim talk about the numbers a word, he is comfortable.

I don’t think we’ve really put out forecast down to segment level, but from a color standpoint, you do have some different comparisons in the back half of the year as you mentioned, Latin America has some comparisons that are a little bit different than what we saw in the first half of the year.

So, some of the sales – the relative sales levels will continue on the same trend. But, again, some of those comparisons may change the percent differences that you are looking at. But I think we are still very optimistic of what’s going on in Latin America on the tire side. We certainly believe that North America has got some good potential there.

We saw a good first half of the year. I think the key for North America is going to be what happens with the OEMs and where that goes into 2018. And we are watching the headlines carefully on what they are forecasting.

So, that’s the part of the business where I am going to kind of point to the headlines out there that tell you where the OEMs are going. And I think we are optimistic that things will – we definitely feel that they will hit the bottom and we are optimistic that it will keep pushing itself off that floor.

So, I think as we move into the back half of the year, for Agriculture, there is parts of Agriculture business, sugarcane in Brazil was down a little bit. So, we’ve seen actually that start to improve a little bit on our undercarriage business already in the back half of the year. So, there is just blinking answers to anything these days.

You got to look at individual pieces and I think what we’ve done, that is a blinking answer I think we’ve positioned ourselves very well for growth opportunities on the replacement business of Agriculture and then the key will be is kind of what OEMs do.

And that’s just, again, I am going to kind of point to the headlines, so you see from the large OEMs versus try to give you a granular prediction on what that means at the Titan level. I think, again, we position ourselves so well for growth. And definitely optimistic that things are going to keep pushing off the bottom. .

All right. Great. I have a few more questions, but I’ll hop in queue for now. Thanks. .

All right. Thanks, Joe..

[Operator Instructions] Our next question is a follow-up from Mr. Joe Montella with Sidoti & Company. Please go ahead, sir. .

All right, so I guess I’ll continue then. So, I missed your update on TTRC. I was wondering if you could go over that again in terms of how the operations are going and sort of where we are at in terms of dealing with that asset..

Yes, we had the entire Board up there, which was a great experience for them and for us to get them on sites. The business is – all the reactors are operational. It’s definitely a learning process in getting something like that up and running and we continue to move through those phases.

The comments I got from the Board were very positive of what they saw. We do have our work ahead of us to keep getting the business more efficient, more effective. I mean, there is lot of fine tuning that still needs to take place to get that business as again as effective as we possibly can.

As far as, what to do with that asset, because we brought the Board up there for a reason. I am going to have to defer to the Board of Directors on that one, that’s their decision to make. My role and my team’s role is to get that business operate as effective as we can. I think, from a partner perspective, we positioned that business very well.

I mean, we have some partners who are extremely invested and passionate, but everything I just mentioned about getting that business operating effectively.

And so, I think that’s another part which the Board is very impressed to see is that, we – Maurice and the Board and what we’ve done as a team is to just get the right partners in place is really I think a critical part to the success of that business in the future.

But, again, as far as, the Board’s positioning and their thoughts on what to do with that asset, that’s ultimately be their decision. I certainly have my thoughts on it and we will be sharing those with the Board as we move forward.

But our goal right now is to keeping that business operating as effectively as we can and again the Board like what they saw as far as the business and the potential it has..

So, it seems like, six to nine months ago we were maybe actually potentially trying to get operations up to a point where we can sell or buy maybe early 2018.

At this point in time, it is sort of a wait and see or do you not want a sort of timetable on it anymore or just trying to understand, given what you’ve said in the past sort of what the thinking is?.

Yes, what we did late last year is, Jim and I have – we certainly did approached the market with getting their feelings on what the value of that asset would be and I would say, Jim and I were impressed with those meetings and the response we got.

At this point though, I do have to say, look what the Board make that decision, I think the business - we put all the investments into the business. So, there is a lot of opportunities that also come from having that operation up there as far as the relationships we are building with the partners in the oil sands.

And potential sales that drives into our three core products, wheels, tires and undercarriage. So the decision really becomes the Board as far as this investment that you believe is going to provide ROI. From an operational perspective, and the additional sales that it can drive or is this asset better positioned in the market to sell.

And I think that’s the debate and the discussion that needs to take place with the Board and that’s where – that’s not the question, I am going to try to answer today. I think, as you said, we do need to have that discussion because we have talked about what we see this asset having a – asset has a market value.

And again, Jim and I did go out there and do that and we feel that the asset does has value based upon the feedback we got. But, right now, again I am going to let the Board make that decision when the time comes. Our focus is going to be on the operational side of it. The investment has been made.

It generated positive EBITDA for us in the second quarter. And so, let’s just keep getting that, let’s keep driving that EBITDA higher and getting the business more effective, again when the Board makes the decision on what to do with the asset, that time will come. .

Okay. Good enough. I did want to return to gross margins, I think that was the biggest downfall here in the quarter. It starts up 20% here right now.

With what you’ve done with the prices, and with the OEMs as well as the aftermarket products I imagine going into – especially going into the fourth quarter when comps get a little easier and then first half should be a lot better.

In addition to the leverage that you see with revenue that gross margin should see some pretty good expansion at least starting in the fourth quarter.

Would you agree with that process?.

I definitely agree with it.

Jim, I don’t know if you want to add some thoughts?.

I think, Joe, as you said comparable to the prior year, if – I think your question was, we have the 10% uptick in revenue and I think your question is, do we – nobody has got a crystal ball, okay. But you are saying, as we look out in the future, is that 10% double-digit is going to continue. And I guess, if I had to guess today, hopefully, yes.

So, I mean, as we talk about in this call, what we are seeing is green shoots and if it continues to grow, we will be harvesting. But, if not, we will be farming next year. .

And if rubber prices stay consistent where they were July 1 or whenever you made the contracts with the OEMs, given where your pricing situation was a year ago, you should have really good comps on pricing situation and then the leverage of revenue and the trend that you are seeing should leverage even more.

So the gross margin should see some nice expansion. I just want to make sure I am not missing anything..

Yes, right. If you do look at the rubber prices, they have come down, I mean, it was a huge spike in the first and second quarter, it caught everybody by surprise. Now, Paul mentioned that we have in place – we do dollar day averaging for a certain portion of it and we do some forward buying. This is just good purchasing.

So we take a look at what we control, but we don’t control a lot of things. So, we are doing the best we can on the raw material side, but the good news is, that we see rubber prices have really dropped – quite frankly about as quick as they went up. But, who knows, there could be monsoons again for the rubber trees. We consume a lot of synthetic.

So, but we are hopeful. I’ll just say that. .

Okay. I also wanted to ask you about the redemption – that the non-cash redemption value that hit the income statement.

I believe that’s related to Austin, related to the joint venture partner for the Russian assets and I believe that comes up in less than a year, July of 2018 and I am just wondering what your anticipation? When that does expire? What happens with that whole scenario?.

Yes, Joe, you are right. It is on our radar and we are currently looking at that and we will have discussions internally and then we will share the different options naturally with the Board, get their approval and implement the plan, but it is on our radar. .

Okay. And then, last one from me. The taxes – the tax reserve been all over the place I am actually a little surprised that you’ve been paying so much taxes in the first half of the year relative to your financials.

Just wondering why that is and is there any way you can provide anymore guidance relative to taxes, maybe in the back half of the year or going forward?.

Well, taxes are a funny area. We all have to pay them. But we are in so many different countries and with this valuation allowance that explained in my note, I know what appears really funny and FX is another thing that bounces around. I will say this that, one of the initiatives I got unlikely front burner is coming together our tax professionals.

We are taking a look at all our legal entities, our balance sheet, it’s all at a time. So, actually that – we are meeting next week. So, that is clearly on the table, as well as what you just mentioned the put options et cetera. So, we are looking at that growth soon here. .

Okay. All right. I appreciate it. That’s all for me. Thanks a lot. .

Thanks, Joe. .

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

Well, I just want to appreciate everybody’s time and participation this morning and look forward to you talking again with you on the third quarter conference call. Thanks, have a good day. .

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