Horizon Global Corporation Common Shares

Good morning, everyone, and welcome to Horizon Global's second quarter 2021 conference call. My name is Nick, and I'll be your operator for today's call. All participants will be in 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 ejects, you may disconnect at any time. I'd now like to introduce Mr. Jeff Stryka with Lambert IR, Horizon Global's investor relations firm. Mr. Traiga, you may now proceed.

Thank you, Operator. Good morning, and welcome to Horizon Global's second quarter 2021 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 second 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 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. 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 all that being said, I'd 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 today's call. On behalf of the complete Horizon Global team, Dennis and I will proudly present our second quarter results for 2021. To our shareholders, we sincerely appreciate your support of the company and management as we remain laser focused on sustainable growth and long-term value creation. To the many Horizon Global employees joining the call today, my message to you is a simple one. Be extremely proud of the results being presented today and take great pride that these achievements and those yet to come are only possible through your hard work and dedication. We are extremely proud of our team. For those who have been following the earnings calls conducted by this management team over the past six quarters, you will recognize that we always apply a theme to the quarter and to the state of the business as we see it. As we look at the business in terms of the task completed, results achieved, and trajectory for the future, there is no better theme to describe our position today than stepping up. During the second quarter and throughout this year, this team has stepped up and continues to do so. This quarter, again, was not short of challenges to overcome, drastically increasing commodity pricing, restricted material availability as demand outpaced supply, freight constraints due to congestion on the seas, in the ports, and on rail, weather-driven typhoons and flooding around the world, and the continued overarching risk of COVID-19 and its new emerging variants. There were many opportunities to slip. We didn't. The Horizon team stepped up and met the challenges regardless of what they were. We continue to strengthen our governance structure with the addition of Donna Costello to our board. Donna brings her tremendous financial and operational experience and is already making a huge impact. We are very fortunate to welcome her to our team. We also continue to advance our ESG initiatives with improvements in our CO2 emissions, energy consumption, and social-related metrics. Our results reflect a growing business generating significantly higher margins as we continue to execute our operational improvement initiatives defined in late 2019 and 2020. Our team has stepped up and it shows. Turning to page five. Our second quarter trailing 12-month adjusted EBITDA of $54.1 million reached its highest level in years. As you will see on the following page, this metric has continued to accelerate since we emerged from the COVID impacted periods of 2020. As you recall, we defined early on that we would launch our improvement initiatives in phases. While multiple important global initiatives were implemented, we initially concentrated our operational improvement activities in our America's manufacturing and distribution operations during the first year of our plan. We are pleased to continue to report that these initiatives are on track and are generating solid results. A few metrics to consider relative to North America performance improvements are the number of units produced during the first six months of 2021 at our two ReNOSA manufacturing plants surpassed the total full year units produced in 2019, which represents the most recent normalized non-COVID impacted period for comparables. 100-plus production rate in gain in production. The transformation of our Americas operations has been extraordinary, and it shows not only in the units produced, but also in many other supportive metrics, a few of which are a 53% improvement in our employee safety metric of total case incident rate throughout our North American sites, a 65% improvement in units produced per square foot, as we continue to optimize our workflows and production methods. A 14% reduction in scrap per part produced as we optimize our production processes and product designs. Our customer measure of defect rate, or PPMs, improved 95% from 2019. A 31% reduction in cost per earned hour at our Renault submetals facility. And we achieved certification for all audits completed this year for ISO 16949 quality systems, ISO 14001 environmental systems, ISO 45001 phase one health and safety systems, and for our customer VDA audits for manufacturing controls. These results highlight the foundational robustness of the systems and processes we have deployed. Based upon the strength and the effectiveness of these initiatives, we are moving forward beyond fixing to capitalizing on our achievements to generate further margin improvement. It's absolutely great work by this team. Turning to page six. As referenced already, our 2021 quarter two trailing 12-month EBITDA was $54.1 million. On this chart, you can see the rate of change and the history of this metric over the past seven quarters. Our team was substantially put in place at the start of the first quarter of 2020 and immediately went to work. The team acted effectively and aggressively to lead us through the COVID-19 shutdown high impact periods while continuing to drive meaningful change in terms of continuous improvement across all aspects of our business. These actions continue to be executed and are building upon one another to generate significant period over period performance improvements in trailing 12 month adjusted EBITDA as well as adjusted EBITDA margins. A great trajectory. This chart not only reflects the team stepping up, but the actual results stepping up as well. Turning to slide seven and eight. Slide seven is presented as a reminder of the work completed in 2020, our first full year of the turnaround and the fundamental actions that have led to the results you are seeing today. We won't review these in detail, as we have presented them in the past, but believe it was important to include this for your reference. As we move to the roadmap for 2021 and beyond on page number eight, here we are highlighting some of the key initiatives underway or planned, and a few points are as follows. We remain with a multi-year plan. Significant actions have been completed year to date as the velocity of our improvement initiatives continues to increase. We continue to increase capacity in our American facilities and are now doing the same across our Europe and Africa facilities. We continued streamlining our operations in alignment with our strategy and the divestiture of our Brazilian operations during the quarter. We successfully and strategically increased our supply base to solidify material and component availability, to improve quality, and to manage costs. And we initiated select vertical integration opportunities as a result of increased manufacturing capabilities throughout our global operations. As we look forward to the remainder of the year and beyond, logistics and supply chain solutions will remain a primary focus for further optimization and innovation. We will be globalizing certain elements of our regional portfolio where creative in terms of customer offerings and value. We will be deploying state-of-the-art business systems inclusive of enterprise resource planning ERP systems with integrated warehouse management systems as well. We will also advance our e-commerce platform as we move forward through 2022 and 2023. A significant amount of planning and development and testing has already occurred on these initiatives in 2021 as we work to plan for 100% success. We will assess and execute where beneficial acquisitions, alliances, or partnerships to advance our strategic objectives and to accelerate the creation of long-term shareholder value. We have demonstrated the ability to manage complex and multifaceted business transformation initiatives at all levels. And based upon that success, we are highly confident in executing all of the new initiatives scheduled for 2021 and beyond. Turn to page nine. In the chart at the left, we present a historical comparison of second quarter net sales and adjusted EBITDA over the last three years. Our second quarter 2021 net sales $222.1 million and corresponding adjusted EBITDA of $18 million reflects the best performance for these measures over the last three years. Adjusted EBITDA margin increased to 8.1% for the quarter despite material, supply chain, and logistics headwinds. The team did a great job navigating a challenging environment to generate this result. On the chart to the left, you can see the same three-year comparison. Only on this chart, we look at the first half, January through June, as a comparison period. Comparing this view against the second quarter comparisons, we show an even more dramatic improvements against prior periods for both net sales and associated adjusted EBITDA levels when looking at it first half to first half. Our adjusted EBITDA in the first half of 2021 of $30.7 million surpassed the entire year performance of 2020 and improved a whopping 174.1% over the comparable period in 2019. We have demonstrated good progress in trajectory on both net sales and adjusted EBITDA margin as the second quarter margin performance increased to 8.1% versus the year-to-date at 7.3%. The second quarter outperformed the first. An excellent quarter-to-quarter trajectory here as well. Turning to page 10. We are presenting the distribution of our net sales by channel for the first half of 2021. During the first half of 2021, we experienced gains in e-commerce and aftermarket over the same period in 2019, partially offset by a decline in the retail channel as a percentage of the total during that same period. Please recall that last year we worked with our retail customers to exit the cargo tie-down portion of our portfolio, which we viewed as non-core and underperforming. This was strategic, intentional, and beneficial to the company. Our net sales in each channel increased in absolute dollar value during the first half of 2021 versus the comparable period in 2020 and, with the exception of retail, versus the comparable period in 2019. With the exception of retail, we continued to gain market share. This was supported by the successful addition of 66 new North American customers from the fourth quarter of 2020 through the second quarter of 2021. Positive trajectory for our core products in each of our sales channels. Turning to page 11. On this chart, we continue to illustrate the impact of our focus on distribution efficiency. Our June 2021 gross sales per unit of $23.68 represented a 60.8% year-over-year improvement out of our Edgerton Central Distribution Center in the Americas. A multitude of actions have contributed to the steady improvement in this metric, with some of them listed on the box to the right. We have generated a favorable mix with increased production capacities of our higher-value products, which has been supported by increased sales for these products. Renosa plants are producing more, and we're selling more. We continue to optimize our contracts relative to minimum order quantities and freight programs. We continue to drive optimization through skew rationalization. And sales dollars per unit was positively impacted by our pricing initiatives beginning in late 2020 and during the first half of 2021. Please note that an incremental pricing initiative in North America has been implemented with the impact to be realized in the third quarter of this year. This in response to commodity price increases being seen across the market. Turning to page 12. Sales remain extremely strong with our customers for hitches and brake controllers in North America. Our operational improvements are yielding more product and enabling higher sales for both product lines. On the chart to the left, you'll see our hitch units sold versus prior year comparable periods. As an example, the second quarter in 2021, unit sales were up 77.7 percent from the comparable period in 2020. While we would expect improvements from the COVID-impacted 2020 period, this is not a one-time occurrence. For example, when comparing the fourth quarter of 2020 to the comparable period in 2019, we had a dramatic increase as well. There, it was 58.6 percent. So, you can see we are continuing to build sales period over period and year over year. This has been a great story, and we will continue to refine and add capacity for these product lines to support the strong market demand for our products. It is important to note that we are deploying the same roadmap for operational improvement in Europe and Africa as we target growth in the aftermarket channels there as well. To the right, a very similar story is presented for our North American brake controller units. When comparing second quarter 2021 to the comparable period in 2020, unit sales were up a dramatic 102.3%. This was bolstered by incremental OEM content compared to shutdown periods experienced in 2020, and even with the impact of chip shortages impact on production volumes experienced during the quarter in 2021. Similarly, the increase here is not isolated to the COVID impacted periods. Fourth quarter 2020 brake controller unit sales increased 43.6 percent over the comparable period in 2019. Turning to page 13. The North American market remains strong as evidenced by the company holding 70.2 million in booked orders exiting June. This represents a 77.5 percent increase over the end of June 2020. This figure is impressive considering that gross sales for June 2021 are up 32% over June 2020 and second quarter 2021 gross sales are up 21.8 million or 18.5% over the first quarter of 2021. So while we are selling more, our order book continues to hold at record levels. Our market and our position in it remains strong. I'll now turn it over to Dennis for the financial update before returning to walk you through some of our go-forward initiatives and objectives. Dennis, take it away.