Titan Worldwide, Inc. (NYSE:TWI) Q2 2024 Earnings Name August 1, 2024 9:00 AM ET
Firm Members
Alan Snyder – Vice President, Monetary Planning and Investor RelationsPaul Reitz – President and Chief Government OfficerDavid Martin – Senior Vice President and Chief Monetary Officer
Convention Name Members
Steve Ferazani – SidotiTom Kerr – Zacks Small-Cap ResearchKirk Ludtke – Imperial Capital
Operator
Good morning, women and gents and welcome to the Titan Worldwide, Inc. Second Quarter 2024 Earnings Convention Name. [Operator Instructions] It’s now my pleasure to show the ground over to Alan Snyder, Vice President, Monetary Planning and Investor Relations for Titan. Mr. Snyder, the ground is yours.
Alan Snyder
Thanks, Karli. Good morning. I’d wish to welcome everybody to Titan’s second quarter 2024 earnings name. On the decision with me at this time are Paul Reitz, Titan’s President and CEO; and David Martin, Titan’s Senior Vice President and CFO. I’ll start with a reminder that the outcomes we’re about to overview had been offered within the earnings launch issued yesterday, together with our Type 10-Q, which was additionally filed with the Securities and Trade Fee yesterday.
As a reminder, throughout this name, we can be discussing sure forward-looking info, together with the corporate’s plans and projections for the longer term that contain dangers, uncertainties and assumptions that would trigger our precise outcomes to vary materially from the forward-looking info. Extra info regarding elements that both individually or within the combination may trigger precise outcomes to vary materially from these forward-looking statements could be discovered inside the protected harbor assertion included within the earnings launch connected to the corporate’s Type 8-Okay filed earlier in addition to our newest Type 10-Okay and Kinds 10-Q, all of which have been filed with the SEC.
As well as, at this time’s remarks could seek advice from non-GAAP monetary measures, that are meant to complement, however not be an alternative choice to essentially the most straight comparable GAAP measures. The earnings launch, which accompanies at this time’s name comprises monetary and different quantitative info to be mentioned at this time in addition to the reconciliation of the non-GAAP measures to essentially the most comparable GAAP measures. The Q2 earnings launch is obtainable on the corporate’s web site. A replay of this presentation, a duplicate of at this time’s transcript and the corporate’s newest quarterly investor presentation will all be obtainable quickly after the decision on Titan’s web site.
I’d now like to show the decision over to Paul.
Paul Reitz
Thanks, Alan, and good morning. General, Titan had a stable quarter efficiency producing good money circulate. These of you which have been following Titan or the ag business are seemingly effectively conscious that business situations are troublesome. But there are actually a number of key optimistic themes for Titan that I wish to spotlight. First, our administration workforce right here at Titan has a deep reservoir of expertise working a cyclical enterprise. And the actions we’ve got taken over the previous a number of years have the corporate effectively positioned to handle via the cyclical trough and proceed to drive accelerating progress as macro situations enhance. We firmly imagine enhancing situations are a matter of when, not if, because the secular demand drivers for the financial sectors we serve stay very a lot intact.
Second, we’ve got a robust aftermarket enterprise in each shopper and ag, fortified by market-leading one-stop store technique, which we’ve got talked about on prior calls. That technique helps to offset a few of the OEM-centric weak spot within the market, and we anticipate it to be a robust attribute via all phases of the financial cycle. Past the strategic significance of the aftermarket, which was strengthened by our Carlstar Acquisition, I additionally want to say that the combination is progressing fairly effectively.
The final merchandise I’ll contact on is our progressive product portfolio. That’s one thing we’re happy with and a key differentiator right here at Titan with our merchandise corresponding to LSW tire wheel assemblies, which we’ve famous nonetheless have loads of alternative for progress, each in Ag and potential new markets corresponding to Canada, Brazil and the navy. So to offer some context on present market situations, actually the first headwinds could be summarized as rates of interest the place we’re seeing market members await potential fee cuts after which farmer earnings.
Agriculture tools is a major buy for farmers, stating the apparent there and financing prices are an essential a part of that equation. This prospect of charges coming down as quickly as this fall has led many to defer such purchases and OEMs have responded by lowering their manufacturing schedules. Then you definately take a look at the USDA, which forecasts 2024 web farmer earnings to drive 25% from ‘23, following a 16% decline from 2022 to ‘23. That might mark the two largest greenback worth drops in historical past.
That has definitely created some paralysis inside the business, and we’re seeing some ag tire volumes right down to ranges effectively under the final cyclical trough in 2019. And once more, that is primarily on account of these diminished OEM purchases together with a few of that stock destocking that’s going down. As just lately as 2 years in the past, after we had been seeing record-setting gross sales, I don’t assume many people would have predicted volumes falling to date this rapidly. Besides as we glance again on these durations, the Titan has used that sturdy money circulate in ‘21, ‘22 after which once more this yr to quickly delever our steadiness sheet, figuring out that doing so would create important strategic and monetary flexibility for the longer term.
So when you look previous to buying Carlstar, our leverage was right down to 1x. From there, we had been at greater than 10x as just lately as 2020.After which at this time, even after the Carlstar Acquisition, we’re nonetheless at a really affordable 1.8x. And naturally, David will develop additional on our steadiness sheet and our capital allocation. However the level is, and I actually wish to emphasize that in contrast with prior cyclical troughs, Titan is in a considerably higher place via this a part of the cycle than the previous. Over the previous few years, we’ve additionally devoted important assets to optimizing our operations. By this constant effort to drive course of effectivity and also you’ve seen it end in a greater margin profile that we’re seeing in each good instances and dangerous.
As we work via the trough portion of the cycle, that improved margin profile is driving our potential to proceed to generate optimistic free money circulate. So turning to the secular demand drivers for the sectors we serve, we actually see no motive to assume something has modified for the long-term and that these optimistic attributes are nonetheless there. World inhabitants continues to extend. That’s going to drive demand for meals. Whereas, AI is the speak of the city and it’s inflicting modifications in some industries, farming nonetheless requires placing seeds within the floor and nurturing vegetation via to reap.
Doing so requires capital tools corresponding to tractors, sprayers, combines, farmers proceed to work their fields to feed the world and use the tools that in flip continues to age. That drives demand for alternative tires and slowly however absolutely creates pent-up demand for brand new tools over time. And our LSWs make each new and older mannequin tools carry out higher.
The second theme I famous on the outset of my feedback was that our aftermarket enterprise is among the positives serving to to offset a few of the OEM weak spot we face. Stating the apparent, one of many good issues in regards to the tire enterprise is that they must be changed over time. In each our shopper and Ag segments, folks could also be deferring purchases of recent equipment, once more, corresponding to tractors, lawnmowers, ATVs, however they’re nonetheless utilizing their tools. And as these tires on these previous machines put on out, they want changing. Titan is effectively positioned as a result of we’ve got constructed a robust international aftermarket presence, and our current acquisition provides to that energy with a one-stop store technique that has solely expanded our aftermarket providing additional.
We’re seeing our shopper aftermarket maintain up fairly effectively at this level, which is a testomony to our sellers and wholesalers on this section and the resilience of our aftermarket enterprise even when OE market situations are challenged. Utilizing that to offer you an replace on the Carlstar integration, I’m more than happy to see that it continues to go very effectively as our groups are working collectively to create extra worth for our clients and shareholders. It is very important be aware that Carlstar’s aftermarket clients, particularly wholesalers and distributors are primarily complementary to Titan’s sellers. This creates an awesome alternative to cross-sell Titan merchandise inside Carlstar’s community. And the opposite facet of the coin is we’d promote Carlstar merchandise inside Titan sellers.
Our gross sales and engineering groups have been working extensively on this effort, however we actually solely scratched the floor since we’re solely 6 months in at this level. There are additionally vast open alternatives to promote Carlstar merchandise in Europe and Latin America, the place Titan presently has restricted shopper presence. And on the similar time, Carlstar can profit from present Titan distribution there. These are simply a few examples of economic alternatives offered from the acquisition, and David will contact additional on price synergies, which I’ll not less than be aware presently, are progressing properly as effectively.
The ultimate theme I mentioned in the beginning of the decision is we additionally proceed to prioritize investments in R&D as our innovation pipeline is a key distinction right here in Titan and within the area with our finish customers. In our press launch, I detailed how our LSW tires present numerous tangible advantages for farmers starting from direct price financial savings on gas, cut back soil compaction and to a extra snug trip in each the sector and on the street. We expect we nonetheless have loads of room to extend LSW penetration within the Ag market. And I’m trying ahead to a possibility to fulfill with a number of key Canadian farmers that additionally occur to be key influencers within the farming neighborhood.
Creating enthusiasm with finish customers is what acquired us right here with LSW and is essential for us because it continues to create shopping for with the sellers that serve these farmers and in flip the OEMs. The massive farmers I’ll be visiting in Canada have a variety of affect amongst their friends and folks do take note of what they’re saying. I exploit this chance in Canada is simply an instance how Titan concede a seamless progress path forward for LSW to extend penetration there and overseas in Brazil whereas additionally persevering with to develop our base within the U.S.
Past LSW, there are different important areas of innovation occurring right here at Titan. We proceed to work on these extensively throughout our portfolio in wheel tires and undercarriage utilizing the energy of our Titan Carlstar and ITM manufacturers, and I actually sit up for sharing extra of that with all of you sooner or later and extra particularly with our clients and finish customers that use our merchandise. Earlier than I hand the decision off to David, I wish to spend a number of extra minutes increasing our market situations in our key geographic areas.
Within the U.S., I already famous how rates of interest and farmer earnings proceed to be a major headwind. Talking about situations within the EMC section. I imply, purchases of building tools are impacted by a few of those self same macro points as ag tools. However conversely, that finish market demand for EMC tools additionally has optimistic variations tied to infrastructure spending and demand for minerals. And presently, we’re seeing that section maintain up higher for us. Outdoors the U.S., European pharma sentiment, it continues to be weaker as a result of ongoing geopolitical considerations, notably the potential enhance of some safety as commerce coverage in that area.
In South America, lots of you’re conscious of the numerous flooding that occurred in Brazil from late April into Might. It hit Brazil, Southernmost state Rio Grande to Seoul. That occurs to be house to a major manufacturing of agriculture economies come out of those, excuse me, and could have a destructive affect on the present yr demand in what was already a down market. So actually taking that full circle in abstract, macroeconomic situations proceed to be troublesome, however actually due to the very good efforts of everybody on the Titan workforce, what we’ve constructed right here via current years. The connection we’ve got with our clients and our finish customers, we’re persevering with to supply stable outcomes. We’re effectively positioned for progress as cyclical situations approve, and we firmly imagine they may.
With that, I’d now like to show the decision over to David.
David Martin
Thanks, Paul, and good morning, and it’s good to meet up with everybody on Titan once more this quarter. We’ve been intensely centered on defending our margins and money circulate as we work via the more and more difficult market situations Paul mentioned. I’ll begin with a short overview of the important thing objects within the second quarter after which present extra element on our margin and money circulate methods.
Revenues within the second quarter had been $532 million with adjusted EBITDA of $49 million and free money circulate of $53 million. We’re notably happy to have considerably exceeded our free money circulate steerage for the quarter. We’ve been very centered on our aftermarket enterprise and that has been central to our M&A and funding methods.
The outcomes that we’re seeing validate the selections we’ve got been making and that can be much more impactful within the long-term. Our adjusted gross margin for Q2 was 16.5% in comparison with 17.9% a yr in the past, reflecting decrease gross sales. With a view to facilitate an apples-to-apples comparability, second quarter 2024 gross margin was adjusted to exclude amortization of stepped-up stock values that rolled via Q2 from the acquisition. On a section foundation, Ag section adjusted gross margin was 15.5%. Client adjusted gross margin was 21.8% and EMC. Adjusted gross margin was 13%.
Our SG&A bills for the second quarter had been $52 million or 9.7% of gross sales in comparison with 35% within the prior yr or 7.2% of gross sales. Once more, with the acquisition, SG&A elevated. With out that, the bills associated to Carlstar, SG&A would have been down 1% year-over-year. R&D bills had been $4.2 million within the second quarter in comparison with $3.2 million a yr in the past. I’ll simply reiterate right here that our potential to proceed to fund R&D is among the many advantages that comply with from our potential to proceed to drive free money circulate, and we’re persevering with to deal with these investments that may drive market innovation for years to return.
Our working earnings was $22.3 million for the quarter and working money circulate was $71 million. Working capital administration has been a core energy of our workforce over the past variety of years. This was demonstrated within the second quarter with $44 million in optimistic contribution to working money circulate. Second quarter CapEx totaled $17.6 million in comparison with $15.9 million through the prior yr interval. This included $4.5 million associated to CapEx with the acquisition. As we famous within the earnings launch, we intend to cut back the tempo of CapEx investments within the second half in response to the weaker demand atmosphere, and we’ll proceed to prioritize a versatile posture as we navigate the present atmosphere like we usually do.
We additionally used money to fund our share repurchase program, shopping for again 775,000 shares for a complete of $6.4 million through the quarter, and we’ve got roughly $9.6 million of accessible capability remaining on our share repurchase program. We are going to proceed to be energetic with share repurchases within the third quarter. Web debt at quarter finish was $326 million or 1.8x leverage, in comparison with $370 million on March 31, a really wholesome enchancment quarter-over-quarter.
Our priorities proceed to be the pay down of debt we took on associated to the acquisition, and we’ll tempo that primarily based on our money circulate. Past that, we are going to proceed the sturdy deal with our investments in R&D and strategic progress, together with opportunistic share repurchases. It is going to be a balanced method. The second quarter included a major enhance in our efficient tax fee which was 81.9% on a reported foundation and 65% on an adjusted foundation. This was as a result of affect of the place our completely different geographic entities produce income and losses. With the discount in our U.S. operations profitability anticipated in 2024, we’re now confronted with extra non-deductible curiosity expense. We even have some short-term destructive impacts of the tax construction of the acquisition, which we’re actively managing via this yr.
In 2024, we’re seeing more difficult situations on our tax fee, and it will likely be greater than regular. Money taxes proceed to be considerably decrease, although than the reported earnings tax expense. For the primary 6 months of 2024, our money taxes had been $12 million, and I anticipate the complete yr money taxes can be within the vary of $20 million to $25 million. Now looking forward to the third quarter and the rest of the yr, we’re cautiously optimistic that a few of the macro headwinds will begin to abate, however we’re managing the enterprise as if it received’t. When and if the Fed will minimize rates of interest appear to shift with every spherical of financial information, so we’re specializing in the issues inside our management. Meaning aggressively managing our labor and our manufacturing schedules, and we’ve got sturdy plans surrounding sourcing of uncooked supplies and different enter prices.
We’re additionally pushing laborious to comprehend the varied acquisition synergies we outlined final quarter. Rapid focus – areas of focus embody redundant back-office areas, uncooked supplies, procurement, amongst different issues. Concerning the latter, numerous inputs will see contract sundown shifting ahead. And as that happens, we anticipate finding extra financial savings as market costs have come down. In the course of the second quarter, we realized $2 million in price financial savings and different acquisition-related synergies on our early wins. With our aftermarket enterprise faring higher than the OEM facet, given the varied dynamics we’ve been discussing that higher-margin gross sales combine additionally provides a optimistic bias to our margins that may offset a few of the weak spot elsewhere.
The extra we will maintain margins on account of these methods, the higher place we’re to generate optimistic money circulate, and that’s exactly our focus. Within the second half, we’ll handle working capital very diligently as typical. In discussing the CapEx earlier, I famous that we’d intend to throttle again on a few of that spend within the third quarter with a purpose to protect as a lot money circulate as attainable. Additionally, as we famous within the earnings launch and our commentary, our leverage ratio could be very manageable, so curiosity expense isn’t almost the burden than it was over the last business downturn. All these items will assist us to construct energy via the cycle.
Transferring on to our monetary steerage, with situations remaining in a state of uncertainty, we’ve got chosen to proceed with quarterly steerage once more this quarter. Our steerage ranges for the third quarter are revenues of $450 million to $500 million, adjusted EBITDA of $25 million to $30 million, free money circulate of $20 million to $30 million and CapEx of $10 million to $15 million.
Thanks to your time this morning and your consideration to what issues for Titan. We now like to show the decision again over to Karli, our operator for the Q&A session.
Query-and-Reply Session
Operator
Thanks. [Operator Instructions] Our first query comes from Steve Ferazani of Sidoti. Steve, your line is now open.
Steve Ferazani
Thanks. Good morning, Paul. Admire all of the element on the decision. I feel I requested about this the final quarter, however I’m going to ask once more as a result of the numbers that appear odd truthful within the EMC section, which all you famous is holding up lots higher due to infrastructure and mining, gross sales had been down solely 5%, however gross sales had been down, what, about $9 million. Your gross revenue got here down $8 million. Your section earnings got here down $7.5 million. Provided that’s not – you’re not seeing a collapse in that market, these decremental margins appear actually excessive. Is there one thing else occurring there?
David Martin
No. It’s a little bit of a mixture of the quantity that we’ve got going via the section. We had some challenges inside our wheel and tire enterprise, notably right here within the U.S. through the quarter. ITM itself is performing effectively. It had 1 / 4 the place it carried out just about on par with the place we anticipated them to be and really higher than the primary quarter. So it’s actually fully across the mixture of the merchandise that we promote greater than something. We do have – metal costs have come down. We don’t have as a lot leverage on that this quarter both. So these are actually the important thing components.
Paul Reitz
I imply that doesn’t cowl why gross revenue down virtually the identical quantity of gross sales.
David Martin
Sure. I’m simply saying that the combo of the merchandise the place we had the upper margin merchandise are those that we misplaced this quarter, and we had challenges in our manufacturing with quantity on the wheel and tire a part of the enterprise.
Steve Ferazani
Do you anticipate any sort of margin enchancment in what could be seasonally slower second half?
David Martin
I’d anticipate margins to be fairly stable for the second half of the yr, notably for IT.
Steve Ferazani
Okay, thanks for that. And I do know you might not wish to say this, however are you able to inform me how Carlstar is performing year-over-year?
Paul Reitz
Qualitatively, completely. I imply I’d say that as we famous in our feedback, I imply, Carlstar is performing very effectively, and there’s stable causes behind it. I imply, the enterprise they’re in with their one-stop technique, they do an distinctive job. And with the aftermarket focus they’ve within the shopper section, it’s simply – they’re doing an distinctive job and the market that they’re in by way of the section they’re in by way of the aftermarket, as we famous, is holding up very well. So I feel on each efficiency and integration after which sort of throw of their synergies that David talked about 6 months in. I imply we’re very proud of the place we’re at or not even 6 months, I’m overstating that.
Steve Ferazani
Are you able to speak in regards to the drivers of restoration? This supplied you just a little bit extra diversification. Clearly, with that, you pointed to rates of interest and farmer earnings. What’s the restoration? What’s the catalyst for a restoration in a few of these shopper markets for Carlstar and is it differentiated considerably from Ag?
Paul Reitz
Sure. I’ll reply that two methods. First, I feel the important thing factor to level out is how Titan is rebuilding itself and diversifying our portfolio as an organization. And this acquisition was an awesome springboard for that, gave us publicity into complementary merchandise. It gave us good publicity into the aftermarket. Now these are issues that every one legacy Titan was constructing on. I imply we’ve got an distinctive aftermarket enterprise for tires in North America and South America. However this simply actually brings us to that subsequent degree. It opens up cross-selling alternatives, as I famous. And so I’d say, let’s take a look at the diversification of Titan going ahead, together with the truth that we will take that one-stop store, our unbelievable international portfolio we will develop inside it.
We glance to develop the manufacturers that we’ve got by way of manufacturing alternatives that we’ve got with companions and joint ventures. And so I take a look at the longer term is sort of sort of like this countless image that we’re beginning to fill in as we – each time we get collectively and discuss it right here at Titan. However to reply your query in regards to the drivers inside that, rates of interest are massive. There’s little doubt about it. I feel the information that we’re beginning to see with rates of interest trying like they’re going to crack right here is certainly a optimistic. And with rates of interest shifting, I feel these deferred purchases will get just a little shot within the arm that may profit it. However once more, I feel we acquired to look right here at Titan in direction of the long term. I imply the long run and in the long term, I feel we’re in a very good place for lots of progress alternatives that may come out of the newly mixed firm.
Steve Ferazani
Because the markets – and also you’ve been via these cycles many instances, Paul, because the markets begin to recuperate, how rapidly will channels must restock, how briskly can that come? Or can we nonetheless must work? Will we have to work via some stock first?
Paul Reitz
I’d – I’m going to depend on historical past to reply that query and to say that our enterprise doesn’t go up or down 5%. When it goes down, it goes down greater than that, and a part of that’s as a result of they bleed the stock out of it. And we’ve got seen OEMs be very aggressive throughout this cycle to get stock out of the equation, each their very own and inside their seller networks. Usually, what then which means is when the catalysts kick into gear, you get that extra enhance as a result of stock ranges are usually not the place they must be. Sellers panic about shedding gross sales. OEMs, panic that their sellers don’t have the product on their lot when folks demand it. And so that you see the order uptick transfer quickly. And in order that’s the place I feel our expertise is actually essential at Titan. I can say on behalf of your entire workforce, we’re taking the actions wanted rapidly, successfully now the place we don’t must get collectively in a room and battle with one another, methods to do it. We all know what we have to do. But in addition, what I’ve instructed my workforce to be ready for is that if when the market comes again, we higher be ready to serve our clients. They’re relying on us. They anticipate it from us. We have now the most important and broadest portfolio within the business. And so when that uptick occurs, Steve, that you’re speaking about, I anticipate my workforce and I anticipate our firm to be there for our clients as effectively. So, it’s a nice line. It’s an artwork, not a science of how we handle via this cycle. However I do anticipate when that catalyst kick into gear that there can be some stock restocking that takes place. That’s traditionally what we’ve got seen.
Steve Ferazani
Nice. Thanks Paul. Thanks David.
Paul Reitz
Thanks Steve.
Operator
Our subsequent query comes from Tom Kerr of Zacks Small-Cap Analysis. Tom, your line is now open.
Tom Kerr
Good morning guys. A follow-up on that final reply, you’re speaking in regards to the growing old agriculture tools, it must be changed. We all know the catalysts are, however is there any manner little bit of timeframe on the quantity on there? Are we speaking six months, 2 years, 10 years, how can we take a look at that?
Paul Reitz
I’d say with farmer earnings, we acquired to look at that first, okay. So, let’s begin there. This yr’s crops look stable. We talked about Brazil with what’s occurring with the flooding, nevertheless it appears like there’s loads of shares in place that I feel we sort of undergo this yr being what it’s and not using a important quantity of change. However then I do assume in ‘25, you take a look at farmer earnings first. You take a look at rates of interest. Then you definately begin trying on the age of the fleet, up to date tools is sweet for farmers. Up to date expertise and what we provide at wheels and tires is sweet for farmers. They’ll earn more money by way of each. So, after we discuss LSWs, it’s an earnings enhance to our clients. It’s not simply one thing that’s good to have. And in order you look to subsequent yr, then, I feel when these catalysts kick in, you then see that stock restocking happen. So, it’s not 10 years away. I’d say at this level, I don’t see a lot occurring for the remainder of this yr. However as we transfer the calendar into subsequent yr, I feel if you begin taking a look at these indicators and people forecasts intently to offer you a greater indication in ‘25 to see when issues uptick. So, I feel proper now, it’s just a little early to foretell actual timeframe on when it ticks. But it surely’s – I don’t assume this can be a deep, lengthy, extended downturn. However I’d say for the remainder of this yr, there’s not going to be a lot catalyst to drive change.
Tom Kerr
Sounds good. That helps. And on the buyer section, is there a approach to tell us what the legacy enterprise income decline would have been with out Carlstar? Do you’ve gotten a form of the same-store gross sales decline within the shopper legacy enterprise?
David Martin
I definitely don’t imagine it was – I don’t have that quantity off the highest of my head, nevertheless it was – it’s not as deep a trough as we’re seeing in agriculture. As you noticed, not as a lot a deep affect on EMC both. So, I don’t have this exact determine for you, nevertheless it’s down considerably, in all probability just like…
Tom Kerr
Okay. It sounds good. Two extra fast ones, any extra shade on the destructive impacts of the tax construction of Carlstar. And if that’s an in depth reply we will try this offline. However simply any additional shade on that?
David Martin
I can provide you additional shade. I imply it’s – this greater fee enhance this yr might be a 3rd of the affect, on the greater fee than what we’re saying. The remainder of it’s actually pertains to the non-deductible curiosity and different explanation why the U.S. tax fee is actually excessive due to that and amongst a few different issues.
Tom Kerr
Okay. Alright. After which lastly, I feel final quarter, you gave a framework of what a standard yr would appear to be. I feel it was EBITDA of $250 million, $300 million money circulate – free money circulate of $125 million, is it – are you continue to considering of that guideline for a traditional yr outlook?
David Martin
Sure, completely. Once more, that’s a normalized yr. There’s a variety of issues which are variables which are going down available in the market proper now that may forestall us from getting there. However regular gross sales degree, together with the operations that we’ve got arrange. It’s all there for the taking. And it doesn’t even embody the numerous synergies we see from the acquisition.
Tom Kerr
It sounds good. Alright. That’s all I’ve for now. Thanks.
David Martin
Okay. Thanks Tom.
Operator
Our subsequent query comes from Kirk Ludtke of Imperial Capital. Kirk, your line is now open.
Kirk Ludtke
Thanks. Paul, David and Alan, thanks for the decision. I observed the steerage and that’s very useful. I respect it. Is there something extra – are there any extra money necessities we ought to be fascinated with, fascinated with perhaps money restructuring prices, debt amortization? After which any ideas you’ve gotten on working capital within the second half could be very useful.
David Martin
Effectively, you’ll be aware from the steerage that we gave for the third quarter, clearly, quantity being down fairly considerably, that impacts margins. However we’re capable of affect working capital to the extent and drive optimistic free money circulate within the third quarter, just like the extent of EBITDA. So, that’s actually it. So far as issues which are uncommon requiring money, no, there actually isn’t.
Kirk Ludtke
Okay. Thanks. With respect to the third quarter steerage, is that – is the steerage per the underlying market exercise, or are we nonetheless seeing some destocking of seller and OE inventories in that quantity?
Paul Reitz
Sure. I feel there’s an affect of destocking nonetheless in that quantity. As they’ve lowered their manufacturing schedules, we do imagine that there’s some destocking that’s nonetheless going down and inflicting some extra decreases to our Q3 output. As we talked about, although, in earlier questions, I feel that destocking now will in all probability lead us down a path that creates some restocking when the catalyst kick into gear. And so I feel the reply is sure, ‘24 will proceed to be impacted by destocking, however we’re additionally ready for that restocking occasion to happen. I envision someday subsequent yr.
Kirk Ludtke
Received it. Thanks. After which additionally, you talked about some working points within the second quarter. Do these proceed into the third quarter?
David Martin
Effectively, perhaps it’s misconstrued on working points. It’s simply the quantity ranges are so low in sure features of our vegetation that it creates a fairly robust absorption. And in order that’s why it actually what was mirrored within the margin. It’s not likely points.
Kirk Ludtke
Slightly below absorption.
David Martin
Sure.
Kirk Ludtke
Received it. That’s useful. Thanks. How a lot visibility do you’ve gotten at this level into the fourth quarter?
Paul Reitz
I’d say at this level, might be not the way in which it has been in historic durations. We’re clearly working in a unique atmosphere if you hearken to the feedback popping out of the – our sector, the massive clients inside our sector. A part of it’s simply a variety of the uncertainty on the earth. I do assume there are some hopeful catalysts that happen later this yr, whether or not it’s rate of interest visibility. You noticed the Financial institution of England transfer at this time, trying like our Fed wheel, the election I feel that’s essential to get some concepts of the place we’re occurring tariff insurance policies. And I feel you get these occasions behind you, you begin shifting into subsequent yr, we are going to get again to extra of a standard visibility outlook that we will present and that we are going to get from our clients. However I’d say proper now, we’re in a unique atmosphere due to all of the uncertainty for that – to reply your query, that visibility going into This autumn is simply not traditionally what we’d usually see. So, I feel what David supplied with steerage is an effective outlook. I feel we’re seeing our enterprise maintain up effectively, as David talked about repeatedly in his feedback, let’s generate money circulate, let’s handle that steadiness sheet. Let’s take a look at working capital, ensure we’re investing for the longer term, ready to handle our clients. I feel these are the important thing issues we’re going to be centered on. And the place I take a look at it’s we’ve got an exceptionally sturdy workforce. Our finance workforce works effectively with our companies. And so we all know the place our working capital is, we all know what these drivers of how we will proceed to generate money circulate are for us. And so maybe we’re taking a look at it just a little bit in another way. Like David mentioned, some elements of our enterprise, the absorption ranges are horrible. So, when you take a look at margins, when you’re beneath absorbing, it’s not an excellent indicator of efficiency. And like David already mentioned, these aren’t operational points. These are simply basic math. So, let’s hint, let’s comply with the money, ensure we’re producing a lot money circulate as we will for the enterprise for our buyers, our shareholders, and let’s put together for the longer term. And I feel we acquired an awesome workforce that may do all of that. And so once more, it’s a unique outlook since you don’t have visibility, you’ve gotten under-absorption occurring, however that doesn’t imply we will’t achieve success in doing what we have to do now the perfect we will and placing ourselves in a rattling good place for the longer term.
Kirk Ludtke
Received it. I respect it. Thanks. After which final query on seasonality. I do know the previous – the legacy enterprise was seasonally weakest. I feel the December quarter, if I’m not mistaken. Is it extra seasonal now with Carlstar?
David Martin
I wouldn’t say it’s extra seasonal. I feel we’re going to see the everyday seasonality within the second half and just a little additional exacerbated by the OEMs taking a variety of manufacturing out. However for Carlstar, they’ve extra, I’d say, even keeled quarterly seasonality, perhaps just a little bit in This autumn simply due to simply the top of the yr in holidays and issues like that. However Q3 is similar to Q2 in that regard.
Kirk Ludtke
It is perhaps much less seasonal with Carlstar?
David Martin
Sure, I feel when you add all the pieces up, sure, I feel you may make that, you may make that conclusion.
Kirk Ludtke
Improbable. I respect it. Thanks.
Operator
This concludes our question-and-answer session. I want to flip the convention again over to Mr. Reitz for any closing remarks.
Paul Reitz
I wish to thank everyone for his or her attendance on our name this morning and your participation. I actually respect your involvement with Titan. Thanks. Have an awesome remainder of the week. We are going to speak to you in Q3.
Operator
This concludes at this time’s name. Thanks everybody for becoming a member of. Chances are you’ll now disconnect your strains.
