Horizon Global Corporation Common Shares

Good morning everyone and welcome to the Horizon Global third quarter 2020 earnings conference call. My name is Jamie and I will be your operator for today's call. All participants will be in a listen only mode until we reach the question and answer session of the conference call. This call is being recorded at the request of Horizon Global. If anyone has any objections, you may disconnect at this time. I would now like to introduce Mr. Jeff Trika with Lambert IR, Horizon Global's investor relations firm. Mr. Trika, you may proceed.

Thank you, operator. Good morning, and welcome to Horizon Global's third quarter 2020 conference call and webcast. On the call today are Terry Gohl, Horizon Global's chief executive officer, and Dennis Richardville, Horizon Global's chief financial officer. Earlier this morning, we announced our third quarter 2020 results. The release is available on many news sites as well as the investor relations section of our website at horizonglobal.com. Turning to slide two, today's presentation includes non-GAAP disclosures. These disclosures are reconciled to GAAP in the appendices to our quarterly press release and presentation, both of which are available in the investor relations section of our website at horizonglobal.com. Turning to slide three, I'd like to remind you that statements in today's presentation include we'll include our views about Horizon Global's future performance, which constitute forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. We've described these risks and uncertainties in our risk factors and other disclosures in the company's most recent annual report on Form 10-K, quarterly reports on Form 10-Q, and other filings with the Securities and Exchange Commission. With all that being said, I'd like to turn the call over to Horizon Global's Chief Executive Officer, Terry Goll. Terry?

Thank you, Jeff, and welcome to all of you who have joined our earnings call this morning. Today, on behalf of the complete Horizon Global team, I proudly present our third quarter 2020 results. Our theme today can be summed up in a single word, momentum. Momentum, it's palpable throughout this company. We have regained it, we have it, and we're going to continue to grow on it. We've come a long way in a short amount of time, but with the tailwinds of improvements achieved, coupled with growing market awareness of the company's transformation, we will build on the momentum gained to achieve the long-term objectives we have set for this company. Today's call represents the fifth of my tenure here at Horizon Global. The first being shortly after I joined the company in September of last year. First full year in and what a year it's been. A year not only filled with the successful implementation of significant operational and administrative improvements, but a year in which we were all hit with unprecedented challenges thrust upon us by the COVID-19 pandemic. A lot to take in and a lot to manage through. For us, the message during this time was to stay the course, to be aggressive but steady, to never waver from the task at hand, the task of continuing to implement the recovery plan developed by the company roughly one year ago, all while ensuring that we were doing everything possible to protect the health and well-being of our great employees. Many of our employees called into this this morning, as they do each quarter. To each of you and to all the employees of the company, let me say thank you. Thank you for your professionalism. Thank you for your commitment that you display each and every day. I want to acknowledge that the incredible results reflected in today's update are directly tied to how each of you applied your individual talents to continuously improve this company. Great job. The same recognition and gratitude goes out to our supply community and to our customers across the globe. It has been through your unwavering support that we've been able to capitalize on our internal improvements to realize the increased sales and performance metrics which we will present today. In sports, the term sudden change is used to prepare a team to face unexpected challenges that could happen at any time. Good teams plan for it, and great teams are unfazed by sudden changes as they occur. We've had plenty this year. Our team of employees has demonstrated throughout 2020 that we are a great team, that we do step up, that we don't shy away from challenges, and we stay the course to deliver on our commitments to our customer suppliers and to drive improved value to our shareholders. We went from strong volumes early in the year to mandated shutdowns across Europe and pandemic restrictions through the second quarter, to dramatic increases in demand in the third quarter. Rapid, sudden changes for sure. Changes and challenges that were met by an unphased team, all of you, great job and many thanks. Exiting the second quarter, we reset our third quarter objectives to reflect the changing market conditions we were experiencing and that they were projecting. First, to do our absolute best to protect our employees health and safety relative to the covid 19 pandemic and to continue providing opportunities to support them during this trying time as it should go without saying our employees are our most important asset second to leverage the operational improvements we implemented to increase customer satisfaction and to generate increased sales backlog and most importantly profitability Breaking through the shutdown period in July, we knew that the third quarter was our time to convert. The much referred to V economic recovery was true for Horizon, and the impact of those sales needed to be converted into profitability and positive cash flow performance. And third, to continue to execute the transformational improvement plans we had in place. Our market remains strong, and you will see our order book remains close to all-time highs as we exited the third quarter, and even through today. We have a great deal to present, so let's get into it. Turning to page five. You'll recognize this slide as what we presented in our fourth quarter 2019 earnings deck, our top level action plan. At that time, we clearly stated our targeted objectives of returning the company to double digit margins through a series of actions defined in our roadmap. In each of our prior quarterly earnings decks, we kept you up to date on the progress made on specific initiatives and some of the performance metric improvements that resulted from the actions as they were implemented. Referencing the chart, we have stayed on track as evidenced by the completed items marked with check marks. Great focus and achievements made by this team. While this reflects only the high-level, broad objectives, please accept, as you've seen in previous earnings decks, There are many actions that support the achievement of these objectives. We set big objectives for big improvements, all intended to lead to the operational and financial recovery of the business to double-digit margins. This remains our goal. Bottom line message here, the team executed to this plan. We are beginning to see the financial benefit of our hard work during this initial phase of our turnaround. Turning to slide number six. How did we perform in the third quarter? As we look at the margin performance during the period, you will see a dramatic year-over-year improvements as our actions, some of those depicted on the prior page, have taken hold. Net income shifted to a positive position for the quarter at $1.6 million, reflecting a $39.1 million turnaround in performance from Q3 2019. This marks a transition point for this metric moving us into the black for the first time since 2017. Operating profit for the company jumped to $8.6 million for the quarter, reflecting a $21.3 million year-over-year improvement. This reflects a 1,140 basis point improvement in this metric. This improvement was driven in part by significant operational improvements throughout the business as fundamental operational excellence measures continue to be implemented by the team. Adjusted EBITDA for the quarter was $16.1 million, representing a $19.1 million improvement over prior year Q3 year-to-date measure. Adjusted EBITDA margin for the quarter increased to 8%, representing a 970 basis point improvement over prior year and an 800 basis point improvement over Q2 2020. August adjusted EBITDA performance at 11.4% of sales highlights the company's ability to convert on volume to double digit adjusted EBITDA level margins. From a year-to-date perspective, We have generated $19.1 million in adjusted EBITDA, representing a $10.9 million year-over-year improvement, in spite of our sales being down $62.8 million, due in large part to the impact of the COVID-19 pandemic on our global operations in late quarter one and throughout quarter two. Recall that we were down over $100 million in targeted net sales during that time, yet we still performed at a positive adjusted EBITDA level in spite of it. Through the first three quarters of 2020, we generated positive $24.2 million of cash through operations. This reflected a massive $90 million improvement from the prior year. Yes, a $90 million improvement. As a highlight, $19.3 million of the $24.2 million cash from operations was generated in the third quarter alone. Again, representing strengthening momentum. A major driver of this performance was our continued focus on effective trade working capital and inventory efficiency management. These, coupled with our improved profits, reflected solid performance, even with the heightened demands of supporting escalated sales throughout the third quarter. In Q3, net sales increased 13.3%, or $23.7 million over the prior year, with the Americas leading the way as evidenced by the 23.8% sales increase seen year-over-year for the region. We recognize the $45.1 million improvement in working capital compared to Q3 2019 marked by significant improvements in both inventories and accounts receivable. Overall, we improved our cash and availability to $78 million at the quarter end Q3. This represents a $17.1 million year-over-year improvement and a $32.5 million, or 71%, improvement from our second quarter 2020 results. Again, this achievement was during a period of serious growth in sales, which traditionally negatively impacts working capital. I trust you would agree that the team performed extremely well during this quarter. Moving to operational highlights, please turn to page seven. As you recall in the Q2 earnings deck, we highlighted specific actions that were completed relative to continuous improvements implemented across the operation and administrative levels. Continuing with that theme, let's take a look at some of the metrics impacted by those improvements seen on this and the following slide. One of those highlights is centered around the improvements implemented at our Reynosa, Mexico metals facility relative to hitches. The throughput improvements implemented placed us in favorable position with our customers, allowing us to better address and increase market demand and grow unit sales products at lower costs. In the left bar chart, you can see the monthly comparative units sold compared to 2019. This is total hitches sold year-to-date for the Americas region, including both OEM and aftermarket segments. The green bars, these represent positive performance months compared to 2019. With the exception of the OEM COVID-19 related shutdown period of March through May, we are significantly outperforming 2019. Year to date, we are up over 10%, even with the impact of COVID-19 pandemic and trending to a significantly higher levels beyond 2019 as we progress through the third quarter. The third quarter unit sales are up 34%, and October's preliminary view of unit sales being 64% better than prior year. As you know, our business distribution in North America is heavily weighted to the aftermarket sales channel. You can see this with the chart on the right, highlighting the aftermarket hitch unit sales comparison to prior year. This is a subset of the chart on the left. First, focusing on the red bar seen for March through April, you can see that while the impact of COVID-19 pandemic, while significant, it was less severe and for a lower duration of time than the overall segment performance. Our units sold into the aftermarket sales channels were up 45% for the third quarter over prior year. This better-than-prior-year performance continued to progress to even more impressive 93% improvement over the prior year with October's preliminary sales results. More on this later. New order intake remains strong for hitches, which is keeping our backlog at an impressive level. I'll return to that later in the slides. Turning to page 8. Here we are highlighting the progress being made on another very important aspect of our business improvement plan. Through a combined product and commercial strategy, we targeted and achieved significant improvement in our sales value per unit sold in North America. Through skew optimization efforts and standard pack initiatives, we've been able to shift our sales dollars per unit metric significantly higher this year. Short of the impact of the COVID-19 pandemic, we have been positive to prior year on this metric with June through October period reflecting a 42% improvement over the prior year. The shifting of value of products sold has led to improved efficiency at our distribution centers and increased utilization at our manufacturing sites. Tightened availability of high-value products produced at our Mexico sites has been instrumental in this transition. Turning to page 9, the health and well-being of our employees is paramount to us here at Horizon Global. Through a strong collaborative effort, we have implemented what we believe are aggressive and effective protocols throughout our operations to mitigate or minimize the impact of the COVID-19 pandemic on our employees. While we cannot control the virus, we have taken prudent steps to limit exposure and potential transmission within the walls of our operations. Remote site work options and, in some cases, mandates have been put into place where possible. Robust PPE availability and utilization and work rules are in place and are being followed by all of our employees. Contact tracing protocols are being followed with self quarantine requirements in place to protect not only potentially impacted employees, but all of the employees they may be coming in contact with. We consistently promote personal responsibility and how that plays out for our employees outside of the workplace in their social settings. Our results have been good so far. An example of this is shown on the charts below on this slide. You can see the chronology of the virus and its impact on our employees at both of our ReNOSA locations. The gray line represents cases confirmed through testing, while the yellow line represents the total cases inclusive of confirmed infections, those with symptoms, and those on leave due to contact tracing quarantining. There has been a dramatic reduction seen since July in confirmed cases. We currently have sustained zero confirmed case levels for quite some time now at both of our facilities. At the peak with 50 confirmed cases, we never surpassed 3.3% infection rate at those facilities, and that for only a short period of time. This was better than the general regional rates for the community. We are seeing that comparison up to now for all of our locations globally, which is a testament to our employees. Overall, we have 11 confirmed cases throughout our global operations, or roughly a 0.2% infection rate. We have also taken steps to support our employees and their families during these challenging times. Our mental and emotional health services have been increased and communicated to every employee. We have conducted and had tremendous participation on overall wellness seminars. In listening to our employees and the challenges they are facing with balancing work and home life with many children of our employees on remote learning restrictions, we initiated an online tutoring program. Great participation and a great response. We are continuing to deploy innovative solutions in support of our employees. Relative to the virus, we will continue to evolve with the knowledge of experts as to the best practices to be deployed throughout our operations. Moving to slide 10. On this slide, you can see the progression of sales and adjusted EBITDA month over month for the year and also compared to the 2019 levels. Our net Q3 sales increased by 13.3% over the prior year as we recovered from the impact of the COVID-19 pandemic seen during the first half of 2020. Embedded in the year-over-year comparison is the elimination of historical end-of-quarter sales push discounts as seen in 2019. We are not sacrificing bottom line performance for top line sales headlines. Good numbers, good trends relative to sales. Throughout the quarter, with sales being substantially up, we also maintain a very strong backlog driven by increased new order intake across our channels. More to come on this in my closing comments later, but the momentum for the company continued to escalate through October. Relative to adjusted EBITDA performance, as stated earlier, our performance improved $19.1 million, or 970 basis points for the third quarter, as compared to Q3 2019. Further emphasizing this momentum, in September 2020, the company's adjusted EBITDA improved by $7.3 million, or an impressive 1,080 basis points over September 2019. Through the strength of our September 2020 results, we realized positive trailing 12-month adjusted EBITDA performance being positive as of September 30th, 2020. This also drove positive net income for the third quarter, which again, is the first time we've been in the black on this metric since 2017. I'll come back later for a look at October sales and some closing comments. But for now, I'll turn it over to Dennis for the financial section. Dennis, take it away.