Horizon Global Corporation Common Shares

Good morning, everyone, and welcome to Horizon Global's first quarter 2021 conference call. My name is Matt, 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 Troika with Lambert IR, Horizon Global's investor relations firm. Mr. Troika, you may proceed.

Thank you, Operator. Good morning and welcome to Verizon Global's first quarter 2021 conference call-in webcast. On the call today are Terry Gohl, Verizon Global's Chief Executive Officer, and Dennis Richardville, Verizon Global's Chief Financial Officer. Earlier this morning, we announced our first quarter 2021 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 will also include 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. Turning to 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 10-Q, and other filings with the Securities and Exchange Commission. With that all 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. On behalf of the complete Horizon Global team, Dennis and I will proudly present our first quarter results for 2021. During the past earnings calls, we have themed our progress and described our position with terms like momentum and on track. Today, while we maintain that these descriptors still apply, We are now into the acceleration phase of our plans. Through great teamwork and solid plans, we have implemented the foundation of the lean operational vision we had defined for the company in late 2019. Our results, even through the darkest COVID periods of 2020, highlighted the value and the importance of our operational initiatives. We drove meaningful improvements across all aspects of our business throughout 2020, as you heard in our last earnings call. We simply did not accept COVID related shutdowns and volume loss in 2020 as an excuse to take our foot off the gas. We continue to improve the business each and every day. Our plans to turn around the business never wavered from stabilization to foundation and standardization to now acceleration. We are now in that acceleration phase as we deploy the best-in-class method successfully implemented at our North American facilities to our facilities in Europe and Africa. We also defined and deployed targeted improvement initiatives across our global administrative business functions, which drove significant improvements in our processes and procedures and simplified the way we do business. 2021, this year, marks the stage of our plan for rapid acceleration and the deployment of our proven process enhancements in support of our safety, quality, productivity, delivery, and growth expectations. I take great pride in saying that never before has this company been as unified in purpose or aligned in plans as we are today as we work to achieve the objectives we set for ourselves. As you will hear in today's presentation, we are definitely in that acceleration mode. Acceleration is represented both on our sales volume performance and by the significant increase in new order intake around the globe. Acceleration in the advancement of the production throughput improvements our team is generating throughout our manufacturing facilities worldwide. Acceleration in terms of efficiency and optimization throughout our distribution centers. Acceleration of the collaboration with our core suppliers as we support the growth of the company worldwide. as well as onboarding a significant number of new qualified suppliers to augment supply where necessary. Acceleration of our operational excellence initiatives to meet and exceed customer and industry standards, as evidenced by our IATF and customer-specific audit results, representing the horizon method and horizon way in which we conduct our affairs. Always set to the highest common denominator, we are transforming the company to best in class, regardless of the audit conditions. Our audit results demonstrate the improvements we have made. They are meaningful and are leading to new business opportunities and wins across the board as they should. We accelerated our first to market new application launch performance and successfully solidified ourselves as a market front runner in our space. This as well led to new business wins and setting up us for the future. As planned in 2021, we have been rapidly transitioning our operational excellence deployment and implementation of principles from North America to Europe and Africa. Acceleration is an understatement as we reflect on the work of the operations team over the past four-plus months throughout our Europe and Africa operations. You will hear some of this in today's update, and we look forward to continuing to update you on future earnings calls on this extremely important initiative. Market demand for our products remained extremely strong during the quarter. Accompanying this increasing demand, however, were material availability issues and transportation constraints as demand levels in our industry and others stressed the system during the period. While we experienced significant period-over-period net sales growth, these factors acted to throttle even further growth that was possible during the first quarter as order intake and booked orders soared, resulting in the retiming of a significantly improved order book into the second quarter and beyond. Our team has done an excellent job in securing materials, components, and freight lanes during the period as we worked our plans while continuously adjusting to sudden changes the market presented to us. Dennis and I will get more into the details of this as we go through our update. We also continued to focus on the company's debt and liquidity structure. We refinanced our debt as previously announced, and also expanded maximum borrowing capacity on our North American ABL. A couple of great indicators of collaboration with and confidence of our financing partners. Acceleration on all fronts. Let's take a look at what that meant for Q1, and then we will provide a glimpse of our gross sales results and order volumes for April, as the market demand and our position within it remains strong. Turning to page five. As you recall, this summary represents a high-level actions and key initiatives in our plan for the year. Focusing your attention to Q2 through Q4 actions, I would like to provide a few highlights of our progress. As far as freight and logistics, demand continues at a heightened level and port congestion remains extremely high. This has led to an increase of in-transit times for products to reach our distribution centers. Offs are up. but we have worked internally and collaboratively with our customers to create new alternative shipping efficiencies, inclusive of lane optimization, transitions to full truckload requirements, and ship direct options to help mitigate a portion of these headwinds. Production throughput levels are higher than they have ever been in our Mexico manufacturing facilities as we executed on the capacity improvement initiatives that continued through Q1 with more to come in Q2. we will continue to increase our capacities for our core products. This has been the backbone of our plan all along, and we are executing to that plan exceptionally well. In terms of material supply and capacities to support our growth, we added over 100 new qualified suppliers to our team in quarter one. 30 of these additions were tied to production material and components such as resins, steel, copper, and electronic componentry amongst other purchased parts. They are represented across seven countries in support of our operations across the globe. These suppliers were excited to work with us and to support our best-in-class product offering. Note that these are additional, they're additional, not replacements of the great suppliers we currently have and have been onboarded to support the increasing demands we are experiencing, as well as the demand that we expect in the future. Our targeted new business wins are on track to plan, We were also on track with our footprint rebalancing and manufacturing flexibility strategy in Europe and Africa. Turning to page six. How did we perform in Q1 of 2021? A few top headlines to highlight our performance are net sales of $199.2 million represented a 22% growth from Q1 of 2020. Both operating segments were up in terms of sales. Relative to margin performance, our results continue to show strong period over period improvements. Our adjusted EBITDA performance for the first quarter of 2021 improved $9.8 million to $12.7 million over the prior year. This represents an adjusted EBITDA margin improvement of 460 basis points over the prior year. An even more impactful way of looking at this is that the improvement in adjusted EBITDA absolute values of $2.9 million for 2020 quarter one to the $12.7 million result in Q1 2021 represents a 331.7% improvement in this metric. A great rate of change for sure. This was bolstered by positive sales volumes and as we have stated in previous earnings releases, the impact of our continued improvement actions across all aspects of our business. Please note that these phenomenal results are despite a quarter that was challenged with material economics, rate constraints, and ever-changing production schedules at our OEMs. A truly great job by our team. Our gross profit and operating profit performance also substantially improved during the first quarter of 2021. Q1 2021 gross profit of $40.6 million for the quarter reflected an improvement of $14.3 million over Q1 in 2020. This resulted in a 430 basis point improvement in gross profit margin. Q1 2021 operating profit improved by $13.5 million to $6.8 million, reflecting a 201.5% improvement over the prior period. Quarter one 2021 net loss from continuing operations of 15.2 million, represented a $1.3 million improvement or 840 basis point improvement over the prior year comparable period. Of special note, this was inclusive of a one-time $11.7 million loss on debt extinguishment related to the February term refinancing. We added to this favorable debt refinancing and an ABL expansion during the quarter. Again, Dennis will highlight this in this part of his presentation. Turning to page seven. On this slide, we continue to present our sales performance in terms of units sold for our core manufactured products in North America, hitches and brake controllers. Consistent with the improvement levels seen previously, you can see increases in sales performance as compared to Q1 month-over-month 2020 levels. For hitches, combined OE and aftermarket, we are up 41% for the quarter, culminating with an 87% year-over-year increase in March 2021 versus March 2020 in terms of unit sales levels. Similarly, for brake controllers, our unit sales on a Q1 2021 versus a Q1 2020 basis are up 53%. But even more impressive is that this increased to a substantial 123% increase as we compare March 2021 versus March 2020. We added capacity to support the demand for our core products as it represented a large opportunity for us. Through the tremendous efforts of our team and the support of our customers, we've been able to capitalize on that opportunity. The market fundamentals remain strong for our portfolio with all sales channels showing growth. Turning to page eight. Again, as we've presented in our previous calls, we remain focused on increasing our performance in terms of sales efficiency. with our metric of dollars per unit shipped out of our central distribution center in North America. We continued on a positive trajectory throughout the first quarter, improving this metric from a $19.17 average sales dollar per unit shipped in January to a $21.79 per unit sold in March. When we compare the impact of our actions in their entirety, Along with the market demands, we have improved our efficiency compared to 2021 versus March 2020, this by over 52% in terms of sales dollars per unit shipped, a truly great result. This was achieved through a multitude of actions, with the top contributors being further deployment of minimum order quantities to our sales offerings, strengthening mix supported by the additional production throughput from our Mexican operations, and the result of our pricing initiatives. We experience favorable mix for certain products, and we continue to drive mix optimization through improved production-level performance. We remain on track and are accelerating further efficiency actions throughout our distribution centers worldwide. More to come on this as we go through to quarter two. Turning to page nine. When we graphically depict our monthly net sales performance, it presents a solid trend. With sales up 22% in quarter one 2021 versus quarter one 2020, our adjusted EBITDA under the same period improved by an impressive 331.7%, or 9.8 million, repeating that. We had a 22% improvement in our sales, yielding a 331.7% adjusted EBITDA improvement. This is a great spread, and it's a great improvement. The period over period performance gap continues to expand with this trend continuing through March of 2021. Net sales increased by 57.3% March over March, and we generated significant adjusted EBITDA improvement from prior year. We are pleased with the significant improvement levels and positive trends we are generating month over month throughout the quarter in absolute terms and in percentages as compared to 2020 performance levels. To further this point, please turn to page 10. On this chart, we depict our gross sales versus booked order levels that were in place at the end of each month in North America as compared to 2020. As you can see, during the first quarter of 2021, we had monthly booked orders yet to be filled well above prior year levels. Booked order balances increased each month throughout the quarter from $56 million at the end of January 2021 to $60.3 million at the end of the quarter in 2021, or 169.6% better than the end of Q1 2020. This, even with a 41.8% higher growth sales in March 2021 over March 2020. Great momentum and great accelerations. As I mentioned earlier, and even with the exceptional sales performance for the quarter, more was possible. Further incremental sales were retimed due to constraints experienced in supply and logistics. These booked orders have been held and will be processed through the second quarter as we continue to increase capacities to expand their supply base. These year-over-year comparisons represent significant improvements in order book velocity driven by the strength of our market and the response of our customers to what we are accomplishing here at Horizon Global. Consistent good signs across the board. I'll now turn it over to Dennis for the financial section before returning with some closing comments and providing some preliminary April highlights.