Horizon Global Corporation Common Shares

Good morning everyone and welcome to Horizon Global's fourth quarter 2020 conference call. My name is Andrea 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 any 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 fourth quarter and full year 2020 conference call and webcast. On the call today are Terry Gold, Horizon Global's chief executive officer, and Dennis Richardville, Horizon Global's chief financial officer. Earlier this morning, we announced our fourth quarter 2020 results. The release is available on many news sites as well as in the investor relations section of our website at horizonglobal.com. Turning to slide two, today's presentation also 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 on the investor relations section of our website at horizonglobal.com. During your slide three, I'd like to remind you that statements in today's presentation will 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 10Q, and other filings with the Securities and Exchange Commission. With all that being said, I would like to turn the call over to Horizon Global's Chief Executive Officer, Terry Gold. Terry?

Thank you, Jeff, and welcome to all of you who are participating in our call today. First, on behalf of the complete Horizon Global team, I will proudly present our fourth quarter and full year 2020 results. In last quarter's earning call, we described the momentum that we were experiencing as the company as we sprang back from the second quarter impact of the global COVID-19 pandemic. As we reflect on our performance in the fourth quarter and full year 2020, our theme can be best summed up in these two words, on track. 2020, as you all know, was a challenging one. It's hard to believe that it's been a full year since the global pandemic enveloped us all and we were all faced with many new challenges that were brought from it. Challenges without the clarity of historical countermeasures or roadmaps to follow to lead us through it. Across the spectrum from our customers to our suppliers and to our incredible workforce, we should take pause and reflect on the incredible achievements and advancements we all have made in our industry while being on the forefront of the development and implementation of COVID specific operational protocols that protect our employees as well as those in the communities we serve while allowing us to continue to advance our businesses. Hats off to all of you. We at Horizon adapted. We defined our plan and we are extremely pleased to say that we remained on track. On track with our rate of change plans tied to addressing our company's weaknesses and on track with our objectives tied to ensuring Verizon Global's position as the number one supplier of choice for our customers, the number one customer of choice for our great suppliers, and the number one employee of choice for our outstanding employees around the globe. What we will present today will reinforce that, and we are excited to provide an in-depth look at our 2020 performance, as well as providing an early look at several indicators that reflect continued momentum in 2021. Turning to page five. During our third quarter call, we present significant rate of change improvements for our financial and operational metrics across the board. In today's presentation, we are presenting similar rate of change improvements resulting from the tremendous effort and focus of our team. Keeping with the theme today, we want to ensure that you understand that these results represent what we had planned for and that they reflect only the initial step in a multi-year turnaround plan we developed for the company at the tail end of 2019. These numbers, while representing outstanding rate of improvement from the year prior, simply reflect the impact of the initial steps we have taken throughout the company. Actions including, but not limited to, organizational structure, talent enhancements and optimization, to best-in-class business process deployments across several targeted areas, to operational excellence and continuous improvement methods and actions deployed across the board. In 2020, we set the foundation for the company that we expected to achieve. Simply put, we remained on track. Looking forward on this page, you will see the breadth of actions we set for the company to achieve in 2020. The green checks reflect action complete status, showing that we were not deterred from our objectives in spite of the COVID-19 pandemic and the multitude of unprecedented challenges that came along with it during 2020. I won't go into all these items line by line. They are there for your review, but please recognize that behind every one of these headlined actions are hundreds of sub-actions that make up the work plan for each macro objective. Please recognize that we focused on eliminating waste throughout our company, with the principal focus being on our operational performance both on manufacturing and distribution. Our initial focus when it came to these improvements was addressing the state of the business in North America. We chose to go big and to execute a plan that would position Horizon not only as an acceptable supplier to our combined channels, but to transform our business to present us as the top tier supplier against the most stringent standards. Those standards assigned by our OEM customers. Mission accomplished as we continuously improved our ratings, and now have plans that we would stack up against anyone. Recent customer IATF audit results have been excellent and position us for further business opportunities as we move forward. Simply put, we achieved our planned actions and then some. We remained on track. Turning to page six, how did we perform in the fourth quarter in the full year 2020? As we look at the margin performance during the period, you will see As you did in the third quarter, dramatic year-over-year improvements as we recognize the value of improvement actions taken throughout the course of the year. Net sales for the fourth quarter at $175.9 million represented a 23.6% improvement from the prior year. Net sales for both regions were up for the quarter with America's leading the way with an increase of 34.3% and Europe-Africa up 12.6%. Dennis will provide further details of this in his comments to follow. Our adjusted EBITDA performance of 7.3 million for the fourth quarter was 23.8 million, or 1,580 basis points better than the fourth quarter of 2019. Again, this was bolstered by positive sales volumes and the impact of continuous improvement actions across all aspects of our business. Our 2020 full year adjusted EBITDA of 26.4 million also represents significant improvement from the prior year with this key financial metric being up 34.7 million or 520 basis points better than 2019. Please note that this was accomplished despite full year lower sales of 29.3 million with the most severe sales decline concentrated at the end of the first quarter and continuing through the second quarter of 2020 due to the COVID impacted production schedules. Fourth quarter operating loss of $800,000 was significantly better than 2019. For this measure, 2,320 basis points better. Yes, 2,320 basis points better. The full year operating loss of 6.9 million, while significantly better than the prior year by 50.3 million, represents the heavy impact of the COVID reduced volumes experienced earlier in the year. When it came to cash flow and liquidity, the team continued to perform extremely well. The company generated 39.1 million of cash from operations for the year, an improvement of a staggering 107.6 million from 2019. Our culture and methods changed under this management team during 2020. We are focused on cash generation and operate accordingly. We have improved our working capital metrics all while ensuring that we continue to invest in our operations and in new business. Overall, while the rate of change for the quarter and for the year was impressive, it was basically on track to our one-year plan regardless of COVID. Performance in the back half of the year highlights the impact of our continuous improvement actions and increased market demand and our increase in market share. Please turn to page seven. On this slide, we'll continue to highlight two fundamentals of our American sales. In this case, we are reflecting the year-over-year unit sales increases seen for our core backbone products in North America, our aftermarket hitches and our brake controller portfolio. As you can see, we have capitalized on the operational improvements implemented throughout 2020 to support accelerating market demand, and to secure conquest volume from our competitors. Relative to our aftermarket hitch portfolio, we increased unit sale performance by 59% in the fourth quarter compared to prior year. Even more impressive was a 93% increase in December 2020 compared to December 2019. An exceptional result, but there is more to follow, as you will see, in our order intake as we exit it with substantial booked orders to be filled in 2021. This product line carries significant opportunities for us, and we are in the process of implementing manufacturing investments to increase capacity even further. A second but equally important core product is our brake controller line. Investments made and operational improvements implemented throughout 2020 are continuing to pay off for us in terms of unit sales. Q4 sales were up 44% from 2019, including a 51% year-over-year improvement in December 2020 versus December 2019. This product line was impacted more heavily during COVID shutdown period due to its high concentration of OEM volume at that time. We have and will continue to expand this product line and add capacity during quarter one and quarter two of 2021. While these two product lines are highlighted, please note that we are increasing our production capacity for many other fabricated products made in North America. As you should see, we are going on the offensive relative to capitalizing on our transformation across our entire product line. We expect to maximize our capacities of our plants to meet market demand and to ensure product availability for our branded products. Market fundamentals for these products remain positive for both aftermarket and OEM channels, increasing towing and cargo management accessories into their portfolio. While the RV business is booming, OE and general consumer demand continues to rise. Lifestyle accessorizing to support travel and leisure continues at a torrid pace as outdoor activities and recreational activities continue to drive demand. Sales of bikes, ATVs, watercrafts, along with camping accessory sales, are all leading to increased demand for our products. This is not showing any signs of slowing down soon. The OEM production plans continue to be focused on pickups and SUVs, and this remains a strong indicator of towing and accessory demand for the future. Favorability for our products and greater leveling of demand away from historical sensitivities impacted in seasonality of RV sector will certainly result. Infrastructure and construction remains strong and has the potential to accelerate with potential federal investments. This will be supportive of OEM vehicle demand and the individual business owners supporting these infrastructure initiatives, just to drive continuation of accessorizing with our products. Turning to page eight. On this page, we continue with the theme of operational efficiency. We introduced this site last quarter as it represented a significant focus for us in terms of sales velocity improvement tied to a multitude of actions taken. Consider the unit sales increase for hitches and brake controllers represented on the prior slide, as well as our portfolio management optimization actions described in prior releases. And you can see that through these actions, we are increasing our efficiency throughout our distribution sites in North America. We've improved our sales value per unit sold by 45% for June through December 2020 versus prior year. This includes an 85% improvement for December 2020 versus December 2019. While we don't control market demand or mix, we do control what products we bring to the market and the volumes of those products that we present to the marketplace. This strategy continues to yield positive results for the companies. Turning to page nine, here we are presenting an alternative view of performance on a year-over-year comparative basis. Putting that into perspective, post-COVID shutdown periods of July through December 2020, we increased our sales by 17.9% over the same period in 2019. While converting on those sales with a 220% increase in our adjusted EBITDA performance compared to the same period in 2019. The market continues to respond favorably to the company and our actions with demonstrated confidence via increased order intake volume across both the Americas and the Europe and Africa regions, including both the aftermarket and the OEM sales channels in both regions. Note that the Americas, our pursuit of breaking through the double digit margin performance was achieved in the fourth quarter, despite the seasonality of the business. This is a good start. Further to this point, please turn to page 10. On this chart, we depict our gross sales versus open orders that were in place at the end of each month ending in December 2020 in North America as compared to 2019. As you can see, during the fourth quarter, we had monthly secured orders not yet to be filled, well above prior year levels. balances increased each month throughout the quarter from $30 million to $50 million in December. December was 79% better than the prior year for this measure. Our customers continue to exhibit confidence in our company and our brands with increasing orders and equally important, sustainability of those orders. As noted earlier, we have taken measures to increase our capacity and will continue with new capacity increase measures in support of our customers and the furtherance of our strategic plan. Take a look at the $50 million balance at the end of December and the actual sales in January of 2020. Significant indication of the strength of the market and the outlook for demand going into 2021. Again, good signs across the board. On page 11, we highlight the recent action taken relative to successfully refinancing our debt We exited 2020 with positive tailwinds in performance, so with that backdrop, we decided to opportunistically investigate our debt refinancing options. Following a competitive process, our new financing partner, Atlantic Park, came out on top with attractive terms that addressed our existing term loan and provided committed financing to address our convertible notes. We were able to secure a $225 million facility with favorable conditions and rates. $100 million was applied to address our term loan, with $125 million being retained under a delayed draw facility to address our converts in the future. A nominal 25 basis point ticking fee applied to the committed delayed draw funds. We secured a rate of LIBOR plus 750 with a covenant-like structure that provides operational flexibility as we continue to execute our strategic plan. As part of the agreement, With Atlantic Park, the company issued 3.9 million warrants at an exercise price of $9. This as well highlights significant confidence in our company. We thank Matt Bonanno and the entire Atlantic team for their investment. We appreciate your confidence and support. I'll now turn it over to Dennis for the financial section before returning with some closing comments and early indicators for 2021. Thank you, Terry.