The following discussion and analysis of our financial condition contains
forward-looking statements regarding industry outlook and our expectations
regarding the performance of our business. These forward-looking statements are
subject to numerous risks and uncertainties, including, but not limited to, the
risks and uncertainties described under the heading "Forward-Looking
Statements," at the beginning of this Quarterly Report on Form 10-Q. Our actual
results may differ materially from those contained in or implied by any
forward-looking statements. You should read the following discussion together
with the Company's reports on file with the Securities and Exchange Commission,
as well as our Annual Report on Form 10-K for the year ended December 31, 2019
(See Item 1A. Risk Factors).
Overview
Headquartered in Plymouth, Michigan, Horizon Global Corporation and its
consolidated subsidiaries ("Horizon," "Horizon Global," "we," or the "Company")
are a leading designer, manufacturer and distributor of a wide variety of
high-quality, custom-engineered towing, trailering, cargo management and other
related accessory products on a global basis, primarily servicing the
aftermarket, retail and e-commerce and original equipment manufacturers ("OEMs")
and original equipment servicers ("OESs") (collectively, "OEs") channels,
supporting our customers through a regional service and delivery model.
Critical factors affecting our ability to succeed include:
•Our ability to realize the expected future economic benefits resulting from the
changes made to our manufacturing operations, distribution footprint and
management team during 2017 through 2019, including the operational improvement
initiatives implemented in 2019;
•Our ability to continue to manage our liquidity, including continuing to
deleverage our balance sheet and service our debt obligations;
•Our ability to quickly and cost-effectively introduce new products to our
customers and end-user market with a resulting streamlined customer service
model and improved operating margins;
•Our ability to continue to successfully launch new products and customer
programs to expand our geographic coverage or distribution channels and realize
desired operating efficiencies;
•Our ability to manage our cost structure more efficiently via global supply
base management, internal sourcing and/or purchasing of materials, selective
outsourcing and/or purchasing of support functions, working capital management
and a global approach to leverage our administrative functions; and
•Our ability to manage the business disruption and the operational and financial
impacts, including temporary facility closures, liquidity and other economic and
business uncertainties related to the COVID-19 pandemic as further detailed
below.
If we are unable to do any of the foregoing successfully, our financial
condition and results of operations could be materially and adversely impacted.
In December 2019, a novel coronavirus ("COVID-19") outbreak occurred in China
and has since spread to other parts of the world and been declared a pandemic.
In connection with the COVID-19 pandemic, we have been adhering to mandates and
other guidance from local governments and health authorities, as well as the
World Health Organization and the Centers for Disease Control. As a result of
the pandemic, we experienced, and may experience again in the future, decreases
in demand and customer orders for our products in all sales channels, as well as
temporary disruptions and closures of some of our facilities due to decreased
demand and government mandates. The COVID-19 pandemic also impacted various
aspects of the supply chain as our suppliers experienced similar business
disruptions due to operating restrictions from government mandates. We continue
to monitor procurement of raw materials and components used in the
manufacturing, distribution and sale of our products, but future disruptions in
the supply chain due to the COVID-19 pandemic may cause difficulty in sourcing
materials or unexpected shortages or delays in delivery of raw materials and
components, and may result in increased costs in our supply chain. The extent to
which we or our customers may successfully mitigate the impact of the COVID-19
pandemic, if at all, is unclear. The extent and duration of the impact of the
COVID-19 pandemic and resulting effect on the Company's operations continues to
evolve and remains uncertain. However, we expect that our results of operations
in future periods may be adversely impacted by the COVID-19 pandemic and its
negative effects on global economic conditions. See Part II, Item 1A, "Risk
Factors," for additional risks relating to the COVID-19 pandemic.
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Horizon Global reports its business in two operating segments: Horizon Americas
and Horizon Europe-Africa. See Note 17, Segment Information, included in Part I,
Item 1, "Notes to Condensed Consolidated Financial Statements," within this
Quarterly Report on Form 10-Q for further description of the Company's operating
segments.
We report shipping and handling expenses associated with Horizon Americas'
distribution network as an element of selling, general and administrative
expenses in our condensed consolidated statements of operations. As such, gross
margins for Horizon Americas may not be comparable to those of Horizon
Europe-Africa, which primarily relies on third-party distributors, for which all
costs are included in cost of sales.
Supplemental Analysis and Segment Information
Non-GAAP Financial Measures
The Company's management utilizes Adjusted EBITDA as the key measure of company
and segment performance and for planning and forecasting purposes, as management
believes this measure is most reflective of the operational profitability or
loss of the Company and its operating segments and provides management and
investors with information to evaluate the operating performance of its business
and is representative of its performance used to measure certain of its
financial covenants, further discussed in the Liquidity and Capital Resources
section below. Adjusted EBITDA should not be considered a substitute for results
prepared in accordance with US GAAP and should not be considered an alternative
to net income attributable to Horizon Global, which is the most directly
comparable financial measure to Adjusted EBITDA that is prepared in accordance
with US GAAP. Adjusted EBITDA, as determined and measured by Horizon Global,
should also not be compared to similarly titled measures reported by other
companies. The Company also uses operating profit (loss) to measure stand-alone
segment performance.
Adjusted EBITDA is defined as net income attributable to Horizon Global before
interest expense, income taxes, depreciation and amortization, and before
certain items, as applicable, such as severance, restructuring, relocation and
related business disruption costs, impairment of goodwill and other intangibles,
non-cash stock compensation, certain product liability recall and litigation
claims, acquisition and integration costs, gains (losses) on business
divestitures and other assets, board transition support and non-cash unrealized
foreign currency remeasurement costs.
The following table summarizes Adjusted EBITDA for our operating segments for
the three months ended September 30, 2020 :

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