Horizon Global Corporation Common Shares

good morning and welcome to the horizon global first quarter 2022 earnings results conference call all participants will be in listen only mode should you need assistance please signal a conference specialist by pressing the star key followed by zero after today's presentation there will be an opportunity to ask questions to ask a question please press star then one on your telephone keypad to withdraw your question please press star then two please note this event is being recorded I would now like to turn the conference over to Jeff Trika of Investor Relations. Please go ahead.

Thank you, Operator. Good morning and welcome to Horizon Global's first quarter 2022 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 first quarter 2022 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 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 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 will include our views about Verizon 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 describe 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 Gohl. Terry?

Thank you, Jeff, and welcome to all of you who are participating in the call today as we review our first quarter results for 2022. Today, we will focus on our Q1 2022 results and the challenges impacting our performance. We will also look ahead and provide an overview of the opportunities and challenges presented in our business today. As far as the quarter, we are extremely disappointed in our results and performance during the quarter. There were many factors influencing our performance, some we couldn't control, and some we should have controlled better. Our team is focused on improving performance going forward. Our business model was challenged by step changes in inflation and volume, and we haven't managed it effectively or aggressively enough. This will improve. OEM production levels during the quarter were negatively impacted by supply chain issues tied to the continued global semiconductor shortages across both Europe, Africa, and North America, and for Europe, sudden and severe supply disruptions resulting from the Russia-Ukraine war. Operations were flexed, but the impact was unavoidable. Currently, we are seeing recovery in assembly plant operating schedules across Europe and increased production forecasts for the remainder of the year in North America. IHS full-year production forecasts for North America are projecting a 13% year-over-year improvement, overcoming the Q1 negative performance of 1.8%. Of note, Horizon did not impact production levels at any OEM throughout the period. During the quarter, there was also a significant shift in ordering patterns in higher-margin non-OE channels in North America from those seen in both 2020 and 2021. In Q1 2022, these markets radically shifted back to historical seasonality patterns. We didn't identify it early enough, and we are taking steps to improve systems and procedures to correct that. We planned for and positioned ourselves for 2020 and 2021 conditions that did not materialize. While we took action to flex our operations, re-time purchases where possible, long lead items in transit continued to flow in at initial planning volumes. Leading indicators continue to support overarching market demand, albeit seasonally adjusted, including record levels of RV sales, trailer production, and the aforementioned increasing OEM forecast, to name a few. On a positive note, our inventory is positioned to support seasonal needs and will optimize working capital throughout the second half of the year. Material cost recovery actions, while predominantly in place with our customers, continue to lag in recognition tied to the base implementation timing, coupled with the impact of lower volumes. We expect the benefit of our pricing actions to be fully recognized throughout 2022. This recovery, together with expected favorability in volume and softening in steel and average freight cost inflation, should positively impact our performance in 2022. Now let's turn to page five. Key metrics on our quarter. Sales were down as compared to Q1 2021 by $18.3 million. This was driven by volume mix resulting from non-OEM channels, primarily in the Americas, returning to seasonal patterns and lower global OEM volumes due to the continued supply chain constraints, including semiconductor shortages in Europe and Africa, part shortages coming out of Ukraine. Adjusted EBITDA was down 19.3 million as compared to Q1 in 2021. Gross profit and adjusted EBITDA were negatively impacted by delayed or missed sales due to the aftermarket seasonal shift, OEM production volumes, critical component shortages, which delayed timing for completion of roughly $20 million in booked orders, and the lag in pricing recognition described earlier. Inventory growth in the Americas of 41.7 million compared to quarter one 2021. was driven primarily by $28 million of increased material costs and retimed the lost sales due to supply chain constraints and or customer interruptions. As mentioned earlier, our inventory levels position us to meet seasonal demand. This inventory will be reduced and monetized throughout the remainder of the year. Again, while we flex where possible, we can and we will do better. Now let's move to page six. On this page, we present Q1 2019 through Q1 2022 net sales and adjusted EBITDA results, as we feel it is important to also present to you a view of our business today versus pre-pandemic and macroeconomic impacted periods. Net sales increased from Q1 2019 by approximately 3.2 million or 1.8%, while the comparison to Q1 2021 reflected a decline of 18.3 million or negative 9.2%. The drivers of our adjusted EBITDA performance deterioration were attributable to approximately 14 million of reduced volume and mix, as well as approximately 5 million of adjusted EBITDA impact due to the lag in pricing recovery recognition. Three factors contributing to this decline were, one, the return to seasonal ordering patterns for our non-OEM channels, Two, the continued supply chain constraints and material costs that we recognized. And three, sudden OEM customer interruptions as described earlier. We'll hit each of these points and their associated impact on the corridor later in this call. Now we'll turn to page seven. The corridor was significantly impacted by customer assembly plant disruptions, primarily in our Europe-Africa operating segments. These disruptions are a larger industry issue. They were initially tied to the semiconductor shortage and accelerated throughout the quarter due to the Russia-Ukraine war exacerbating supply chain constraints. Throughout this period, OE customer disruption was not caused by Horizon. As you can see, in March, we experienced some level of disruption at 17 customer assembly plants that we supply in Europe. a significant impact to our business. While we are down from the peak disruption levels today, these customer interruptions negatively impacted our Q1 2022 performance in net sales by approximately $9 million and an adjusted EBITDA by approximately $3 million. This adjusted EBITDA impact was largely attributable to operational performance. As discussed in the last call, we took immediate actions, primarily in Europe and Africa, to flex production as much as possible, including shutdowns, furloughs, and delaying purchases where possible. A majority of our customer assembly plants are back online, with OEM production forecast to increase throughout the remainder of 2022. Moving to page 8. As mentioned on our last call, we expected to see steel costs soften in Q1 2022 from second half 2021 peaks. A couple of important points here. The impact of our operational performance relative to steel costs is generally recognized in a one to two-quarter lag. We fully implemented pricing recovery actions across our non-OEM business and are in the process of recovering material costs from our OE customers. While our pricing actions have been largely successful, full run rate recognition will not occur until later in the year. We expect steel costs in North America to be stabilized at a cost below the second half peak level values. Moving to page nine. Similar to trends in the steel market, we expect to and began to see softening in freight rates in North America. Our average container cost in Q1 2022 are down below second half 2021 peak rates. We expect recognition of this positive performance in Q2 2022, generally reflecting the one quarter lag we discussed in the past. We continued execution of our port rebalancing strategy, and it has already led to reduced container costs and transit times, as well as significant decrease in costly diversions. We will continue to execute our rebalancing strategy throughout 2022 as we optimize freight costs, transit times, and ultimately delivery of our products to our customers. We expect favorability during 2022 in average freight costs and transit times versus the second half of 2021, which included the peaks. Moving to page 10. Our increased inventory was driven by a number of factors. As previously mentioned, we have seen our industry has shifted back to seasonal ordering patterns. We expect to see increased order intake as the season progresses and the corresponding depletion of our inventory levels. This tapering of our inventory will be accelerated as we throttle purchasing levels for the remainder of the year and leverage inventory already in place. We are in a strong position to support seasonal demand. which would positively impact working capital in the second half of 2022. Additionally, commodity and other input costs remain significantly elevated as compared to Q1 2021 levels. This has resulted in additional inventory costs on our balance sheet that will be recovered through our pricing actions as we progress through 2022. On the right side of the page, you see our net sales comparison by segment from Q1 2021 through Q1 2022. As previously mentioned, net sales for the quarter were negatively impacted by material availability, customer disruptions, and the return to seasonal ordering patterns for our higher margin non-OE product. Q1 2022 net sales levels were also unfavorably impacted by a lag in recognition of price recovery actions. As discussed, we expect the full run rate benefit to occur during 2022. Now, I'll turn it over to Dennis for the financial review, and I'll return in a few minutes to provide some final comments. Dennis?