Q1 2021 Horizon Global Corp Earnings Call
[music].
Until we reached the question and answer session of the conference call. This call is being recorded at their request a horizon global if anyone has any objections you may disconnect at anytime I would now like to introduce Mister Jeff try cope with Lambert I R Horizon Globals Investor Relations firm. Mr. Treichel you May proceed.
Thank you operator, good morning, and welcome to Horizon Global first quarter 2021 conference call and webcast on the call today or a carry goal horizon Global Chief Executive Officer, and Dennis Richard Bill Horizon, Global Chief Financial Officer.
Earlier. This morning, we announced our first quarter 2021 results released is available on many new sites as well as on the industrial relations section of our website at horizon Global Dot com.
Turning to slide to today's presentation will also include non-GAAP disclosures. These disclosures a reconciled to gap in the appendices to a quarterly press release and presentation, both of which are available on the industrial relations section of our website a horizon global Dot com.
Turning to slide three I'd like to remind you that statements in today's presentation will include our views of on horizon Global future performance, which constitute forward looking statements. These statements are subject to risks and uncertainties that could cause our actual results. The zip on materially from the forward looking statements we've.
Describe these risks and uncertainties in a 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 a security Some exchange Commission.
With that all being said I would like to turn the call over to Horizon Global Chief Executive Officer, a terrible Terry.
Thank you, Jeff and welcome to all of you who are participating in a call today.
On behalf of a complete horizon global team, Dennis and I will proudly present, our first quarter results for 2021.
During the past earnings calls we a themed are progressively described are position with terms like momentum and on track.
Day, while we maintain that these descriptor still apply we are now into the acceleration phase of our plans.
Great teamwork and solid plans, we a implanted the foundation a the lean operational vision.
We had defined for the company in late 2019.
A result, even through the darkest COVID-19 periods, a 2020 highlighted the value and the importance of our operational initiatives.
We drove meaningful improvements across all aspects of our business throughout 2020, a as you heard and our last earnings call. We.
We simply did not accept COVID-19 related shutdowns in volume lost in 2020, as an excuse to take a foot off the gas.
We continue to improve the business each and every day.
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 I T. F. A a customer specific audit results, representing the horizon method and horizon way in which we conduct a airfares.
Always set for the highest common denominator, we're transforming the company to best in class, regardless of the audit condition.
<unk> results demonstrate the improvements we have made they are meaningful and a leading to a new business opportunities and wins across the board as they should.
We accelerated our first a market new application launch performance and successfully solidified ourselves as a market front runner in our space.
This is well led to a 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 for plus months throughout our Europe and Africa operations.
You will hear some of this today in today's update and we look forward to continuing to update you on future earnings calls on this extremely important initiatives.
Market demand for our products remain extremely strong during the quarter.
Accompanying this increasing demand, however, where material availability issues and transportation's constraints as demand levels in our industry and others stress the system during the period.
While we experienced significant period over a period net sales growth. These factors acted to travel even further growth that was possible during the first quarter as order intake and booked order sword, resulting in the re timing 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 a 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 a north American a b L.
A couple a great indicators, a collaboration with incompetence of our financing partners.
Acceleration on all fronts, let's.
Let's take a look at what that meant for Q1, and then we will provide a glimpse of our gross sales results in order volumes for April as a market demand and our position within it remains strong.
Turning to page five.
And do you recall this summary, rempe that represents a high level of actions and key initiatives and our plan for the year.
Focusing your attention to queue to through queue for actions I would like to provide a few highlights of our progress.
As far as frightened logistics demand continues at a heightened levels in port congestion remains extremely high.
This has led to an increase a in transit times for products to reach our distribution centers.
Author 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 shipped direct options to help mitigate a portion of these headwinds.
Production throughput levels are higher than a I've ever been in a Mexico manufacturing facilities as we executed on the capacity improvement initiatives that continued through Q1 with more to come in queue too.
We will continue to increase our capacity for a 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 a support our growth we added over 100, new qualified suppliers to our team and quarter one.
30, a these additions were tied to production material and components, such as resins steel copper and Elektra electronic component tree amongst other purchase parts.
They are represented a cross seven countries in support of our operations across the globe.
The suppliers, we're excited to work with us on to support our best in class product offering.
Note that these are additional there additional not replacements of group a great suppliers. We currently have and have been on board to support the increasing demands we are experiencing as well as a demand that we expect in the future.
Are targeted new business Windsor on track to plan and we're also on track with our footprint rebalancing in manufacturing flexibility strategy in Europe and Africa.
Turning to page six.
How did we perform a Q1 of 2021, a few top headlines the highlight our performance or.
30 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, a $15 2 million represented a $1 3 million dollar improvement or 840 basis point improvement over the prior year comparable period.
A 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 his part of his presentation.
Turning to page seven.
And this slide we continue to present, our sales performance in terms of units sold for a core manufactured products in North America.
Pitches 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 a hitches combined OE and aftermarket were 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.
<unk> 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 increase 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.
For 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 presented on our previous calls we remain focused on increasing our performance in terms of sales efficiency with our metric a 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 metrics from a.
A $19.17 average sales dollar per unit shipped in January.
Two a 21.7 $9 per unit sold in March.
When we compare the impact of our actions in their entirety, along with a 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 a top contributors being for.
Further deployment of a 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 experienced 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% for $9 8 million.
Repeating it we had a 22% improvement on our sales yielding a 331, 7% adjusted EBITDA improvement.
A great spread and it's a great improvement.
Period over period performance GAAP 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 a significant improvement levels and positive trends, we are generating a month over month throughout the quarter in absolute terms and in percentages, there as compared to 2020 performance levels.
But for 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, a 2021, we had monthly booked orders yet to be filled well above prior year levels.
Booked order balance has increased each month throughout the quarter from a $56 million at the end of January 2021 for <unk>.
$60 3 million at the end of the quarter and 2021.
Or a 169, 6% better than the end of Q1 2020.
This even with a 41, 8% higher gross sales in March 2021 over March 2020.
Great momentum and great acceleration.
As I mentioned earlier and even with the exceptional sales performance for the quarter more was possible.
Other incremental sales were re time 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 on.
I will turn it over to Dennis for the financial section before returning with some closing comments and providing some preliminary April highlights.
Thank you Terry good morning, everyone and thank you for joining us.
To Echo <unk> comments, we are pleased with a first quarter results and we continue to work diligently to maintain a momentum heading into the traditional selling season focused on earnings growth liquidity and working capital management.
Please turn to slide 11 for a review of the company's consolidated results for the first quarter a 2021.
Consolidated net sales for the first quarter, a 2021 for one.
$199 $2 million, an increase of $35 $9 million or 22% compared to the first quarter a 2020.
The net sales increase was primarily attributable.
Higher sales volumes in both the Americas, and Europe Africa operating segments, driven by strong customer demand.
With the initial impact of COVID-19, beginning late in the first quarter a 2020.
Gross profit increased to $40 6 million, an improvement of $14 $3 million compared to the first quarter a 2020 a.
A higher gross profit was a result of the higher net sales coupled with manufacturing and operating efficiencies across the business.
We reported operating profit of $6 $8 million, an improvement of $13 $5 million or on the first quarter, a 2020 driven by the improved gross profit.
Net loss from continuing operations was $15 $2 million, an improvement of $1 $3 million over the first quarter. A 2020. Despite a one time, a 11 $7 million loss on debt extinguishment recorded in the first quarter a 2021.
Related to our February term loans refinancing.
We reported adjusted EBITDA of $12 $7 million, an increase of $9 $8 million over the first quarter a 2020.
Improved adjusted EBITDA was primarily due to the increased gross profit.
And business performance previously mentioned.
Consolidated adjusted EBITDA margin increased to six 4% as compared to one 8% for the first quarter a 2020.
Let's turn to slide 12 to review the segment performance for the quarter.
Net sales in the Americas.
For $109 8 million $17 4 million or 18, 8% higher than the first quarter a 2020.
Net sales increase was primarily driven by a combined increase of $9 $8 million on the automotive OEM and Oes sales channels, coupled with a $4 9 million dollar increase in the aftermarket sales channel.
We reported operating profit of $11 8 million in the Americas segment.
Compared to an operating profit of $2 7 million for the first quarter a 2020.
The increase in operating profit was primarily driven by higher gross profit attributable for the increased sales volumes and operational performance improvements.
Realized across the segment during the first quarter a 2021.
Partially offset by higher outbound freight cost attributable in a large part to increased sales volumes.
Adjusted EBITDA for the segment increased to $12 $9 million.
As compared to $6 $1 million for the first quarter, a 2020 due to strong operational results previously discussed.
Adjusted EBITDA margin was 11, 7% as compared to six 6% for the first quarter a 2020.
Driven by the strong quarterly operating performance.
Transitioning to our Europe Africa operating segment.
Net sales were $89 $4 million, an increase of $18 $5 million or 26, 1% over the first quarter a 2020.
The net sales increase was primarily due to a combined increase of $10 $8 million.
In the automotive OEM and Oes sales channels.
As well as a $6 $7 million increase in the aftermarket sales channel.
We reported an operating profit for the segment of $1 5 million <unk>.
Compared to an operating loss of $2 $5 million for the first quarter a 2020.
The improvement was driven by.
A $4 $7 million increase in gross profit primarily attributable to higher net sales combined with favorable manufacturing cost.
Adjusted EBITDA for the segment increased to $5 $4 million as compared to $2 3 million for the first quarter a 2020.
Adjusted EBITDA margin increased two 6% as compared to three 2% for the first quarter a 2020.
Now moving on to our working capital liquidity and free cash flow position on slide 13.
Trade working capital was $81 $8 million for the first quarter, a 2021, which represented an increase of $26 $2 million.
<unk> to the end of the fourth quarter of 2020.
Specifically receivables increased $24 $5 million a 111.
$7 9 million compared.
Compared to the end of the fourth quarter of 2020.
A change in receivables was driven by higher net sales in the first quarter, a 2021 compared to the fourth quarter a 2020.
Day sales outstanding was 51, an increase of five days from the fourth quarter of 2020.
Inventory increased $19 million.
For $134 4 million compared to the end of the fourth quarter a 2020.
Days on hand.
Inventory was 76 days, an increase of two days from the fourth quarter a 2020.
The higher inventory represents a strategic build to position ourselves to meet significant booked order levels and customer demand in anticipation of our traditional peak selling season.
This includes an increase in in transit inventory related to international shipments of $2 $6 million compared to the fourth quarter, a 2020 and $10 9 million hours compared to the first quarter a 2020.
Accounts payable increased $14 4 million, a $113 $9 million compared to the fourth quarter a 2020.
Days payable on hand for 65 days, an increase a one day from the fourth quarter a 2020.
Cash and availability on our liquidity totaled $63 4 million for the first quarter of 2021.
Which is comprised of $38 $8 million of availability under our credit facilities and cash on hand of $24 6 million.
This reflects a $20 million a reduction from the fourth quarter a 2020.
Free cash flow was a use of $21 6 million at the end of the first quarter a 2021.
Which is $23 $3 million lower than the prior year driven by the higher working capital, which is primarily the result of higher inventory levels.
Weighted to our strategic build previously mentioned.
Turning to slide 14 for a review of our debt and capital structure.
Total gross debt increased by $14 3 million to $284 million compared.
Compared to $266 1 million at the end of the fourth quarter.
2020.
Primarily.
Reflecting proceeds from the term loans refinancing completed during the first quarter a 2021.
Moving on to debt maturities on slide 15.
A February 2021 refinancing allowed the company to address its.
Near term maturities on a cost effective manner and.
In addition.
With the ABL Amendment.
We did in April of 2021 on.
A maximum available credit under our ABL facility increased $10 million to $85 million.
We believe these recent improvements to our capital structure provides a company with a financial flexibility and extended runway to execute on its long term strategic plans.
With that I will turn it back to Terry for his closing comments.
Thanks, Dennis and complements again to you on your team for continuing to drive the process improvements that we've seen throughout the financial organization and the company as a whole thanks as well for your outstanding leadership on the refinancing and the ABL expansion actions completed during the quarter once again great job.
Turning to page 16.
Here on this page we are providing a preliminary view of our April gross sales for the company.
As you can see we a dramatic increases for both operating segments on a year over year basis 2021 versus 2020.
The Americas segment is positive, 39% with Europe, and Africa being up 55, 5%.
Specifically when looking at gross sales on in April 2021 versus April 2020 basis, we are up year over year in the Americas by 202%, while Europe and Africa led the way with year over year, a improvements of 359, 1%.
Our booked order levels also increased in North America significantly as you will see when we flip to the next page, let's turn to page 17.
North America order intake in our sales level performance continued to improve throughout April.
Gross sales for April 2021, we're up 201, 6% for North America over April of 2020.
While our booked orders increased to $74 $2 million at the end of April 2021.
The year over year, ending book orders for April 2021 reflected an increase of 222, 6%.
Again, presenting evidence of the strength of a market and the incredible demand for our brands and our products.
This improvement was built off incremental organically driven sales growth supported by significant operational improvements.
On a page 18.
I will summarize the key hot topic that circle, our segment and highlight our focused response for the issues we face.
Commodity prices are up and demand is stressing the market.
He's a matrix.
For the quarter as compared to Q1 2020.
Net sales are up 22 per cent a.
Adjusted EBITDA is at 9.8 million or a 331.7 per cent.
Cash in liquidity is a 12 $46 million gross profit as a $14.3 million for.
Gross profit margin is up for 130 basis points production.
[noise] capacity. It then on all time high for the company with more to come.
Booked order strength in North America continues to grow even with a significant your over your sales increases being realized.
Booked orders at the end of 212021 was 169.6 per cent better than at the end of 212020 and.
And increasing to 222.6% at the end of April 2021 for.
Versus the same period it in 2020.
Even considering a staggering overall gross sales increase globally for a month of April at 247.6%.
Our debt has been favorably restructured in R. A b L. A facility has been improved we lost a significant level a new products during the quarter, we generate a an impressive and successful results with a audits perform throughout the quarter.
We are a recognized and some great new business wins tied to our customers recognizing the improvements our team has implemented.
We are truly in our acceleration mode and look forward to review on a Q2 performance when we get back together later this summer.
Thank you and I'll I'll turn it back to the operator for any questions.
We will now be getting a question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speaker phone. Please pick up your handset before pressing the keys if it anytime you a question that's been addressing we'd like to withdraw your question. Please press Star then too.
At this time, we will pass momentarily to assemble a roster.
Our first question comes from Matt Corona with Roth Capital. Please go ahead.
Hi, guys. Thanks, so much for taking my questions. Just wanted to start on slide 17, very helpful. A monthly kittens for North America.
I was just curious if you could speak a little bit more about the gross sales cadence into April it looks like typically it should be picking up sequentially seasonal a there is a it looks kind of flattish in April obviously, the order book looks very strong.
One seven was also relatively helpful. Just going through the cadence of a pitch unit sales and brake controller sales a thought came to mind when I was looking at that though and I'm wondering if you could maybe speak to where do you think your market share is in each of those categories are you a wedding market share in North America does.
<unk> with a growth that you've highlighted in Q1.
Yeah, and and again, our our Oh, a business has that as a grown tremendously you know we have a b.
<unk> for a truck business that has really pressed the right controller content up on the <unk>, but.
But we with the additional capacity that we've generated from new products that we launched our after my business and and break controllers is also significantly up.
And we are Conquesting business.
We are conquesting business, and a north American a hitch sex.
I'll I'll leave it at that but we are growing our physician.
In a growing Martin.
Okay, Great to hear last one for me and then I'll I'll jump back and cute, but on on the price increase from so you mentioned announced price increases your honoring the old order book until you know sort of you start a delivery on on product lay.
This year, just curious how you're thinking about raw material inflation, especially as a a chance a steel and resins and how you may consider taking a price for the remainder of the year just like to get your thinking of how that plays out for for the rest of apply a 21.
Yeah can I put it in put it in perspective, Matt any D. B on Fridays corner, one two quarter when you're on a year at 41 per cent.
So it's not it's not a small a shift and and raw material prices.
We have added again, we've gone out to do everything we possibly can to mitigate those those expensive. So we don't pass on a relative pricing alright. So we've added multiple steel suppliers component suppliers that converts deal for a steel products for us to gain additional.
Capacity, but also to drive a pricing options where possible but.
We don't see that mitigating itself a tension alright, so the the steel as it is a an issue in the marketplace. It's gonna be there it's gonna be there for a while.
Copper Uhm again, as we look at the Houston in our electronic components, a copper prices are up 60 per cent year over here.
So these either a real real tangible changes.
What we did is we did a an increase last year and a latter part of the year and then given this shift in in material pricing uhm and working with our customers as well I mean, we we adopted a new pricing a <unk>.
Is we announced it early right early in the quarter and we made it effective April 1st for any for new orders that came it.
So there was a a minor new orders that came in during the period I think on pricing amount, it's about 2.4 million a during a quarter. That's it right. So it was very limited impact in the first quarter Uhm.
So the expectation and what we're looking at a bed and other flow through a that is is that can be seen a quarters too true quarters for.
Uhm, but we have to be flexible and we will be <unk>. It is our last last course, a event to raise prices and.
And we are working very diligently with our customers for alternate to mitigate costs on all fronts, just not on a materials to avoid a price increases, but if we if we have to do that we will but we'll do it in conjunction with a a good strong communication link with our customers.
Okay makes sense. Thanks for taking the question for guys.
Yeah, one one thing just a follow up on <unk>, we put in a 11, new steel suppliers during the court.
But it's not it's not like we're we're we're just tiptoeing into this to to find alternatives for being very aggressive for being smart, but we're we're being very aggressive.
We are showing no more questions I would like to turn the conference back over to Terry go for any closing remarks.
Well I Wanna, Thank everyone for joining a call I didn't get a roster yet, but I will and and I know we have a significant amount a follow up calls over the next a couple of days look forward to those again to the people in a in the company that are on a cough. There's a lot of them I want to say, thank you again for the great <unk>.
And dedication that you put for the company and to our customers. So we look forward to talking to you at the end of a quarter to uhm. We have good trajectory in late we we are looking forward to that that conversation.
Thanks.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.