Titan International(TWI) - 2022 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) The company achieved significant year-over-year growth in Q2 and H1 2022, with net sales reaching $1.13 billion and net income surging to $93.5 million, driven by strong demand and favorable pricing Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $572,895 | $438,639 | $1,128,892 | $842,157 | | Gross profit | $109,653 | $61,470 | $196,382 | $114,735 | | Income from operations | $69,701 | $23,719 | $114,409 | $37,950 | | Net income attributable to Titan | $67,171 | $(2,773) | $91,093 | $10,801 | | Diluted EPS | $1.06 | $(0.04) | $1.43 | $0.17 | Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $929,381 | $813,304 | | Total assets | $1,289,184 | $1,182,685 | | Total current liabilities | $497,259 | $450,813 | | Total liabilities | $983,514 | $955,513 | | Total equity | $305,670 | $227,172 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by (used for) operating activities | $48,918 | $(17,487) | | Net cash used for investing activities | $(9,874) | $(13,888) | | Net cash (used for) provided by financing activities | $(22,617) | $10,849 | | Net increase (decrease) in cash | $18,595 | $(21,627) | Notes to Condensed Consolidated Financial Statements Key accounting policies and significant events are detailed, including the impact of the Russia-Ukraine conflict, the sale of the Australian wheel business, and $22.5 million in Brazilian tax credit recognition - The company's Russian operations (Voltyre-Prom) represent approximately 9% of consolidated assets and 6% of global sales, with the Russia-Ukraine military conflict not significantly impacting global operations to date[24] - On March 31, 2022, the company sold its Australian wheel business for approximately $17.5 million in proceeds, recognizing a loss of $10.9 million, primarily from the release of a cumulative translation adjustment[25][61] - In Q2 2022, the company recognized $22.5 million in other income after receiving approval from Brazilian tax authorities for indirect tax credits, with an additional $10 million potentially recognized upon future approval for another subsidiary[67][68] Segment Net Sales (in thousands) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Agricultural | $318,585 | $231,504 | $628,184 | $440,263 | | Earthmoving/construction | $210,370 | $176,715 | $411,629 | $341,522 | | Consumer | $43,940 | $30,420 | $89,079 | $60,372 | Segment Income from Operations (in thousands) | Segment | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Agricultural | $44,884 | $20,789 | $75,001 | $36,072 | | Earthmoving/construction | $22,276 | $7,462 | $38,116 | $13,037 | | Consumer | $9,238 | $1,881 | $14,120 | $3,548 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong H1 2022 performance to robust demand and effective cost management, leading to significant gross margin expansion and improved liquidity Overview and Market Outlook Titan International, a global off-highway products manufacturer, anticipates continued strong demand in agricultural and earthmoving/construction markets, despite global recession concerns - Agricultural Market Outlook: Favorable conditions are expected to continue for the remainder of 2022, supported by high commodity prices, improved farmer income, and the need to replace an aging large equipment fleet[118] - Earthmoving/Construction Market Outlook: Momentum is expected to continue due to low equipment inventory levels and increased mining capital budgets, although global recession concerns could impact demand[119] Results of Operations Q2 2022 saw substantial growth, with net sales up 30.6% to $572.9 million and gross profit rising 78.4% to $109.7 million, driven by strong price/product mix and volume Q2 2022 vs Q2 2021 Performance Summary (in thousands) | Metric | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $572,895 | $438,639 | 30.6% | | Gross profit | $109,653 | $61,470 | 78.4% | | Gross profit % | 19.1% | 14.0% | - | | Income from operations | $69,701 | $23,719 | 193.9% | - The increase in net sales was driven by price/product mix and volume across all segments, with pricing actions implemented to counter rising raw material, freight, and energy costs[123][125] - Other income for Q2 2022 was $23.7 million, primarily driven by a $22.5 million gain from indirect tax credits related to Brazilian operations[141] Segment Information All segments performed strongly in Q2 2022, with Agricultural net sales growing 37.6% to $318.6 million and Earthmoving/Construction net sales up 19.0% to $210.4 million Q2 2022 Segment Performance vs Q2 2021 (in thousands) | Segment | Net Sales | % Change | Income from Operations | % Change | | :--- | :--- | :--- | :--- | :--- | | Agricultural | $318,585 | 37.6% | $44,884 | 115.9% | | Earthmoving/Construction | $210,370 | 19.0% | $22,276 | 198.5% | | Consumer | $43,940 | 44.4% | $9,238 | 391.1% | Liquidity and Capital Resources Liquidity strengthened in H1 2022, with cash increasing to $116.7 million and operating cash flow turning positive at $48.9 million, supported by $94.8 million available credit - Cash and cash equivalents increased to $116.7 million at June 30, 2022, from $98.1 million at December 31, 2021[174] - Net cash from operating activities was $48.9 million for the first six months of 2022, a $66.4 million improvement over the same period in 2021, primarily due to higher net income[174][175] - During the first six months of 2022, the company repurchased $25.0 million of its common stock[179] - As of June 30, 2022, the company had $94.8 million available for borrowing under its $125 million revolving credit facility[182] Quantitative and Qualitative Disclosures About Market Risk The company's exposure to market risks, including foreign currency, interest rates, and commodity prices, has not materially changed since year-end 2021 - The company's exposure to market risk, including foreign currency, interest rates, and commodity prices, has not changed materially since December 31, 2021[187] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[188] - No changes in internal control over financial reporting occurred during the second quarter of 2022 that have materially affected, or are reasonably likely to materially affect, the company's internal controls[190] Part II. Other Information Legal Proceedings The company is involved in routine legal proceedings, which management does not expect to have a material effect on its financial condition or operations - The company is involved in routine legal proceedings but does not believe they will have a material effect on its financial position, results of operations, or cash flows[71][195] Risk Factors No material changes to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K have occurred - There have been no material changes from the risk factors disclosed in the company's 2021 Form 10-K[196] Exhibits Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Act and Inline XBRL financial data files - The exhibits filed with the report include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act, along with XBRL data files[199] Signatures The Form 10-Q report was signed and authorized on August 1, 2022, by the Principal Executive Officer and Principal Financial Officer - The report was signed on August 1, 2022, by the company's Principal Executive Officer and Principal Financial Officer[203]