Horizon Global Corporation
Q3 2017 Earnings Call Transcript

Published: 31 Oct 2017

[Operator:]

Good morning, everyone, and welcome to Horizon Global's Third Quarter 2017 Conference Call. My name is Laurie and I will be your operator for today's call. [Operator Instructions] I would now like to introduce Ms. Christi Cowdin, Director of Corporate Communications and Investor Relations for Horizon Global. Ms. Cowdin, you may proceed.

[Christi Cowdin:]

Thank you, Laurie. Good morning, everyone and welcome to our third quarter 2017 conference call and webcast. On the call today are Mark Zeffiro, President and CEO of Horizon Global; and also David Rice, our Chief Financial Officer. Today this morning we announced our third quarter 2017 results. Release is available on many new sites, as well as in the Investor Relations section of our website at horizonglobal.com. Turning to Slide 2, I would 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 have 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. Today's presentation also includes non-GAAP disclosures. These disclosures are reconciled to GAAP in the Appendix used to our quarterly press release and presentation both of which are available in the Investor Relations section of our website at horizonglobal.com. With all of that being said, I would now like to turn the call over to our President and Chief Executive Officer, Mark Zeffiro. Mark?

[Mark Zeffiro:]

Thank you, Christi, and good morning everyone. Thank you for joining us. Our execution delivered third quarter financial results in line with our guidance. Before I discuss our company's performance, I’d like to start off on Slide 5 by sharing the vision, mission and values that got our Global firm nearly 4700 employees. Importantly, we transformed our vision to empowering people to live, work and play. Clear recognition of our company's products which are designed to meet the wants and needs of consumers in multiple aspects of their lives, whether working on a farm, or at a building site or enjoying a weekend around the campfire on the water, Horizon Global products are engineered to perform and delight the end user. We do this through our defined mission of engaging and interacting with our employees, shareholders and end users, as well as a defined set of core values that guide our interactions and effort as a company. Further to our vision, mission and values we also employ our Horizon Global Business System as outlined on Slide 6. The Horizon Global Business System is being rolled out L-67 Horizon Global facilities and provides a blueprint for execution through our people process and strategy. The Horizon Business System also guides our interactions with our global customers, partners and suppliers. We're proud of the foundation we have built as a company, and we are focused on ensuring that we execute which is a great segue to discuss our quarterly results. Slide 7 touches on the trend we are seeing in the industry and our business. OE globalization continues and this trend mirrors our own company growth. Our OE business grew in every region and remains on a trajectory for future growth. Doing business with Global OEs as a combination of TriMotive and Westfalia is powerful on both global and regional levels and sets us apart in the eyes of our customers. Trucks, CUVs, and SUVs continue to expand in category growth and share of SAAR and our business is well-positioned for this important trend. Overall U.S. retail has seen an impact due to the hurricanes with any short-term negative impact being offset by a certain activity. Overall U.S. retail sales in September were up and rebounded from a dip in August as reported by Bloomberg. Analysts are expecting storm related distortion to continue for several months but underlying demand is expected to keep growing due to the impact of steady hiring and limited inflation. For Horizon Global we expect to see some growth post-hurricanes but this impact is difficult to predict regarding the time or magnitude as several factors including inventory and towing and trailering needs during the rebuilding process. The growth in the aftermarket channel in our industry slowed during the quarter as this channel continues to adjust and adapt to the e-commerce impact on the more traditional business model employed by many independent players in the space. We continue to keep a close watch on the steel price and exchange rates as they impact our cost of goods. We've instituted a [waive] of price increases but these increases have not yet been fully realized in our financial. We will continue to assess the situation and may increase prices again in early 2018 if necessary. Our 50% revenue increase during the quarter was attributable in part to the addition of the Westfalia business and our Europe-Africa segment but also supported by organic sales growth in every geographic region. Our pretax income increased 321% and we reported adjusted diluted earnings per share of $0.38. We tightened and raised our full-year revenue guidance while we also reaffirmed our full-year EPS expectation. If we turn to Slide 8, I would like to provide an update on the teams execution against our key financial priorities during the quarter. Focusing on margins, the Westfalia integration is expected to achieve the 9 million synergy target that we previously communicated for 2017. We realized €4.1 million in Q3 to bring our unity total to €7.3 million. This synergy achievement reflects impressive execution by our Europe-Africa team. We'll take out closer look at these efforts in a few moments. Asia-Pacific had a stand-out quarter delivering 530 basis point improvement in adjusted operating profit or 18.7% of sales. Key contributors to this margin expansion included productivity improvements in manufacturing and the focus implementation of the Horizon Global Business System. Meanwhile, the Americas dealt with a meaningful margin headwind due to increased input cost, timing of price increases and costs associated with protecting our intellectual property. Looking at our capital structure leverage improved from the second quarter the 3.6 times. Net sales were up across all three regions during the quarter. Our OE business had 11 new wins during the quarter with an approximate $31 million run rate as we continue to grow this important part of our business across all geographies. Most notably the Americas team secured an award with a leading OE to integrate Horizon Global's next trip generation trailer electronics module. The combination lighting a breaking module represents the cost savings for OE customer and provides additional space behind the dashboard. New electronics module begin - will bring significant technical improvements over our current systems and provides for future technological expansion that can integrate our company's existing sensing technologies, as well as other advanced add-ons. This award represents a very significant award to the OE team. This also marks our third consecutive quarter posting double-digit organic sales growth in Asia-Pacific. We have continued growth through new products in the industrial channel. Growth was accelerated further due to sales associated with bolt-on acquisition in the quarter. We are pleased with our team's efforts in progress against these three important global financial priorities, and we're not taking eye of the ball as there are still much more to achieve. I’d like to provide an update on the progress made on our margin dashboard during the quarter on Slide 9. We announced our plans for consolidating distribution in the new Kansas City facility during the last quarterly conference call and the team is excited about the real benefits we expect to see from this effort. The new Kansas City DC will serve as Horizon Americas primary distribution hub for the aftermarket and retail channels. We’re in the process of transitioning certain inventory and will begin the first phase of shipments from Kansas City in November. This move will align and optimize our freight and distribution efforts in the Americas and is expected to begin generating cost savings during the first half of 2018 with an anticipated full year run rate savings between $5 million and $7 million for 2019. Our efforts to reduce a supply base by 20% during the quarter continued and we expect to achieve that stated goal by the end of 2018. As a growing organization, we're focused on simplifying our business and leveraging our full buying power. The sourcing team remains hard at work to reap these benefits including meaningful cost reductions. Today, the SEMA show opens in Las Vegas and is the premier automotive specialty products trades event in the world. Over the next several days, we will meet with key customers, introduce new products and highlight the innovation effort of our product development and engineering teams around the globe. We are also focused on additional ways we can leverage our product development and engineering expertise as evidenced by the industrial product sales and Horizon Asia-Pacific and the new product wins in OE. I spoke about the Horizon Business System at the start of my remarks. We roll this system out globally and have created a global quality council to support our team's efforts and ensure that we are providing our customers with the consistency and performance they expect from Horizon Global and our brands. Slide 10, this is a new slide highlights the impressive efforts towards delivering the €9 million in synergies by our Europe-Africa team. This slide demonstrates the five key work streams including aligning the organization and improving productivity. The graphic on the left quantifies the progress of each workstreams towards reaching our synergy target for the year and where we're seeing the most benefit. It should be noted that the management team is focused on change management throughout our European operations and that the entire team in Europe is aligned and dedicated to achieving our goals. This team is still working through our 2018 synergies but we expect to at least double our 2017 achieve synergies by the end of 2018. We will share more details regarding that expectation when we provide detailed 2018 guidance during our Q4 and year-end earnings conference call. I'd like to now turn the call over to Dave Rice our CFO who will provide additional insight into the company's third quarter 2017 performance. After Dave's comments, I’ll share some final thoughts on Q4 and full year guidance. Dave?

[David Rice:]

Thanks Mark. In the commentary to follow, I will be discussing our performance in the quarter on an adjusted basis excluding special items which have been identified in the Appendix of today's presentation. Also included in the Appendix is a reconciliation of all adjusted non-GAAP results to the most comparable U.S. GAAP measure. References to earnings per share in my commentary refer to adjusted diluted earnings per share attributable to Horizon Global excluding special items. Cash flow and balance sheet commentary will be on an as reported U.S. GAAP basis. With that, please turn to Slide 12 for a summary of our third-quarter results. Net sales increased over 58% compared to the third quarter of 2016 supported by growth in every region. This increase was primarily attributable to Westfalia, as well as double-digit growth in Asia-Pacific and strong performance in our e-commerce, OE and aftermarket channels in the Americas segment. Operating profit in the quarter increased $5.1 million or 43% to $17 million from $11.9 million in the third quarter of 2016. Operating profit benefited from both sales leverage and the effect of margin improvement projects we have completed. Operating profit margin declined 7.1% of sales from 7.8% in 2016 primarily on the ship and concentration of net sales from higher-margin segments to lower margin Europe Africa segment and increased input cost ahead of price realization in the Americas. Net income increased nearly 70% to $10 million from $6 million in the prior year. Earnings per share in Q3 were $0.38 as compared $0.03 in 2016 an increase to 26.7%. The primary drivers of this increase are improved operating profit and income earning jurisdictions with lower statutory tax rates. EPS for the current quarter also reflects the increased number of shares outstanding as compared to the prior year. To the first nine months of the year we have used cash of $2.3 million for operating activities compared to the $27.5 million of cash provided at the same point in 2016. This use of cash relates to higher working capital levels driven by increased sales in the third quarter of 2017 versus 2016 in all our segments, as well as the timing of those sales within the quarter and a conscious investment in inventory primarily in the Americas segment. Total debt increased to $279.2 million compared to $190.6 million with net leverage ratio rising compared to last year. Our total debt and net leverage ratio reflect the acquisition of Westfalia, as well as our recapitalization efforts during the first half of 2017. On Slide 13, I’ll go to the performance of Horizon Americas. Third quarter net sales in our Americas segment increased €4.7 million driven by strong performance in our automotive OE, e-commerce and aftermarket channels. The automotive OE channel experienced higher volume and brake controllers and heavy duty products while e-commerce continues to show solid growth that we believe will continue as consumer habits further evolve. The aftermarket channel benefited from increased sales to warehouse distributors supported in part by healthy RV industry. Always we saw strength in pockets and retail, the channel remained relatively flat as lower volume with mass merchant customers more than offset strength in our final fleet in auto retail customers. Operating profit decreased $1.8 million to $11.7 million from $13.5 million in the third quarter of 2016. A decline in operating profit was largely the result of higher input costs including commodity and freight costs. Operating profit margin declined to 10.1% of net sales compared to 12.2% in the same quarter last year. In addition to the impact of higher input costs, operating profit margin was negatively impacted by increased cost associated with protecting our intellectual property. While announced price actions became effective during the quarter, the full impact of these increases were not realized in Q3. Combined these factors more than offset cost savings realized from the consolidation of manufacturing facilities. The fundamentals of the Americas market are strong and the team remains focused on executing strategic projects such as the Kansas City distribution facility, and the conversion of the Reynosa paintline while maintaining the delivery of innovative products. In addition, the Americas team continues to respond to changes in our sales channels and provide the commercial support expected by both new and existing customers. Performance of Horizon Europe-Africa is highlighted on Page 14. Net sales in our Europe-Africa segment increased approximately $75 million largely due to the acquisition of Westfalia. The segment continues to experience organic revenue growth driven by double-digit gains in the OE channel partially offset by weakness in the aftermarket channel. Operating profit for Europe-Africa increased to 4 million as the business recognized €4.1 million or about $4.8 million in integration synergies in the quarter as Mark has already presented. As a reminder, these synergies reflect in our net of investments made in the business from a leadership and governance perspective. Operating profit margin for this segment was 4.5% of net sales, an increase of 260 basis points. We expect the continuing integration Europe to transform our business in that region and to drive higher margins in future periods. The integration of the Europe-Africa business and realization of related synergy products remain the primary focus of the team in addition to launching new OE programs. Further, the Europe-Africa team continues to refinance strategy in the aftermarket channel to strengthen its position and gain share. Performance of Horizon Asia-Pacific is highlighted on Page 15. Net sales on a constant currency basis increased 27.2% primarily due to our regional bolt-on acquisition completed earlier in the quarter and the benefit of introducing a new product to a new customer in the industrial channel. Net sales in that channel increased $2.5 million compared to the third quarter of 2016. Operating profit increased $3.1 million to $6.9 million compared to $3.8 million in the same quarter of 2016. Operating profit margin improved 530 basis points to 18 .7% of net sales compared to 13.4% in the third quarter of 2016. This increased the risk with the result of cost leverage on higher volumes and the realization of benefits from previously implemented productivity and restructuring initiatives. The Asia-Pacific team remains focused on launching new programs and continuing to identify productivity opportunities. Additionally the team is committed to successfully integrating its recent bolt-on acquisition, and developing and implementing commercial strategy for China. Slide 16 is a view of our leverage and liquidity. Our total debt at the end of the third quarter was $279.2 million slightly down from the second quarter. The trends you see in our leverage ratio reflects the improvement in our profitability and the seasonality of our business. Note that we have modified the presentation of our leverage ratio on the current quarter. In prior periods we have presented the ratio using the U.S. GAAP definition of debt with respect to our convertible notes. All periods presented on this page reflect the U.S. GAAP exception provided for in our credit agreement treating the portion of convertible notes, reflected its equity on our balance sheet as debt for purposes and measuring leverage. We believe this provides our investors and lenders a clearer view of our total leverage position. We expect to see continued delevering to the end of the year consistent with our historical business trends. With respect to working capital, the timing of increased sales in the quarter have led to a higher receivable balance than we have seen historically at this point in the year. This coupled with an inventory build to support projects being completed in the fourth quarter and the decision to carry additional inventory of our highest volume products in the Americas kept working capital flat at the second quarter. Cash on hand decreased $19.1 million to $20.5 million from $39.6 million in the second quarter, and net facility borrowing remained flat with the second quarter at $20 million. The previously mentioned bolt-on acquisition in Asia-Pacific completed in the third quarter for $19.8 million was the primary factor for this decrease. Debt incurred in connection with the closing of that transaction at the beginning of the quarter was completely extinguished with cash on book and generated by the operations over Asia-Pacific business. Cash was also used for the repurchase of approximately 116,000 shares of our common stock under our previously announced share buyback program at a cost of $1.6 million in the quarter. In total we have purchased 686,000 shares of common stock under the program at total cost of 10 million. 117.5 million of availability at the end of Q3 continues to provide adequate flexibility to execute our strategic initiatives. In closing I would like to leave you with a couple takeaways from our financial performance in Q3. First, the performance of all of our regional teams reflect decisions incentive to enhance the shareholder value of Horizon. While the Americas faced margin headwinds in the third quarter, team continues to execute their strategic initiatives to improve the commercial and operational outcomes of the business. Our international regions improved significantly year-on-year both in the quarter and on a year-to-date basis. Second, while the timing of increased sales has led to higher working capital levels and historically experienced at this point in the year, we expect the normal conversion of working capital to cash to occur in the fourth quarter which will further delever the business. We continue to focus on upgrading value for shareholders through improved operating performance while delevering the business. If you'll turn to Slide 17, Mark will take over and cover our long-term goals, discuss our fourth quarter and full-year guidance, as well as wrap up our prepared remarks. Mark?

[Mark Zeffiro:]

Thanks Dave. If everyone could please turn to Slide 18, you'll see the strategic goals our Global team refers to daily and those we strive as one team to achieve. If you turn to Slide19, we've included on the left inside of this slide a snapshot of how our Q3 results compared to our guidance. I would like also to review our expectations for the fourth quarter which as reminder is our lowest historical contributor to earnings. Please be reminded that this is the foundation setting year for the business with the addition of Westfalia. We're providing quarterly guidance so investors and the analysts will have additional insight into the expected cadence of our business. As such we expect fourth-quarter 2017 consolidated revenue to range from $200 million to $210 million. Fourth quarter 2017 adjusted earnings per share to range from $0.04 plus or minus a breakeven. Our full-year guidance remains consistent with prior guidance reflecting an increase in the range of our revenue growth and an adjusted earnings per share expected to come in around the midpoint of our range. Turn to Slide 20 please. Again we're also pleased that all of our geographic regions achieved organic revenue growth during the third quarter. Our business model is balanced in such a way that any challenge in a particular channel, customer set or geography is likely to be offset by strong performance somewhere else the business but it is particularly gratifying when we can point to a positive results across all geographies. Our margin performance in Asia-Pacific was outstanding. We had a strong result in Europe and Africa and Westfalia synergies are expected to deliver benefits in line with the communicated expectations. We continue to demonstrate progress against our key financial priorities and the team is making headway against our goals for 2018 and beyond. The commitment of our Global team is unwavering and we remain focused on delivering shareholder value as we continue to build our global business. We're nearing the end of our planning process for 2018 and we see a bright future ahead for the team and the business. We look forward to sharing our detailed 2018 outlook on our fourth quarter and full-year conference call. Now I'd like to turn it back over to the operator and will gladly take your questions.

[Operator:]

[Operator Instructions] Your first question comes from the line of Matt Koranda of Roth Capital.

[Matt Koranda:]

Just want to start up with North America and sort of the margin pressure that you guys highlighted there during the quarter. So, is it possible to break out for us how much of that pressure was due to essentially commodity input pricing like steel versus freight versus the IP protection efforts? You guys cited a number of things, but wanted to clear up and see if we can get it and kind of need buckets.

[Mark Zeffiro:]

I would say of the dollar value that you described that decreased about two-thirds of it is input cost related and the balances of cost to protect our IP. In the material cost - with an input cost about 75% of it is steel, the balance is freight which really relates to a freight carrier going out of business in the quarter which took both containers and slabs out of circulation for the cost of all of our containers and then the price demand shifts increased. That's the other 25% of the input cost change.

[Matt Koranda:]

So, is it safe to assume that the other 25% of the change I guess is dealt with now or are there other steps you need to take to kind of change over some of the freight costs that you guys have experienced here.

[David Rice:]

Well in terms of getting product into the country yes it’s been dealt. As Mark pointed out we’ll continue to keep an eye on input cost and if this becomes more of a longer term trend, we’ll take actions in Q1 of 2018 from a pricing perspective.

[Matt Koranda:]

So the pricing action in Q1 would mainly be to combat freight input cost increases because that would assume just looking at kind of six month ago steel price indices - Q3 would have been the peak of the headwinds from steel input pricing or could you comment a little bit about how the steel input price sort of impacted you in Q3 and has it abated a bit as we head into Q4?

[David Rice:]

I would say that it actually abated a bit towards the end of Q2 and it was basically flat through Q3 our high point in terms of payroll was really to enter Q1 beginning at Q2 and then there is obviously delay in terms of how those costs run through our income statement. But you’re right in saying while prices for steel are up right now relative to where they were as we exited 2016. They're basically flat with where they were at the beginning of the year. So all things being equal our pricing actions to-date should cover the material cost that we have seen, freights and new thing and we’ll continue to watch steel as it moves to time.

[Mark Zeffiro:]

The other part of that Matt, this is a Mark I’d like to add to it is if you look at exchange rates specifically R&B compared to U.S. dollar, they're significant on changes in the last period of time that's affecting our inbound purchase goods costs as well. So it’s not just steel, I think steel has flattened out for us and we’ve dealt with that from a pricing perspective the transportation side of it we’ll continue to optimize as we deal with dislocation by a carrier out of business but that's just a temporary issue and quite frankly as you shift, you don't necessarily have the ability to shift at the lowest cost provider. So I think that will harmonize naturally here. The broader question and most immediate question will be is the implications associated with exchange rate and whether or not that precipitates a need for another price increase.

[Matt Koranda:]

In terms of the revenue guide for Q4, looks a little higher than I would have expected since you guys have good visibility into the quarter here. Could you help us understand what's driving that sort of higher growth rate heading into Q4 and then how sustainable is that as we head into 2018?

[David Rice:]

Well we've seen real growth as continued OE volume increases and that's really what's driving the higher overall volume in the period - across the globe each region has seen sizable increases in its OE volumes through share take, new projects, new wins, but also just good full dynamics in terms of the conversion of Sedans, SUVs, CUVs and that dynamic. So Matt the largest impact here is that, plus also the addition of the Best Bars acquisition in Asia-Pacific which is circa $5 million add for the quarter. Those are the major pieces. There is one last thing I wanted to add through your last question Matt if I could and that is realized that hot rolled steel index that we feel here in terms of the input costs for manufacturing in North America is real and it's abated. Those dynamics still are seeing pressure in China for the Chinese manufacturing supply base. So we’re still working our way through that as well, so it's a matter of as the global view towards hot rolled steel and input cost change we’ll see that continue to abate but again I think in large part the North American dynamics here is otherwise been dealt with. The real issue is our input costs in China at this point in time.

[Matt Koranda:]

May just one more from me, Mark I think in your prepared remarks you alluded to sort of the expectation that you double - that you can double achieve 2017 synergies by the end of 2018. So I just want to make sure I understood that correctly. If you achieve the €9 million target, does that mean we get another $9 million next year is that sort of what you're alluding to or is that something different than that?

[Mark Zeffiro:]

Now you’re precisely on that Matt, and not if I would say when we achieved the €9 million in 2017 we expect we will achieve another €9 million incremental to that as we go into 2018.

[Matt Koranda:]

And then I’ll stick the last one follow up and here on that though. In terms of Slide 10 that was helpful slide where you guys kind of break out the five buckets in terms of workstreams. Maybe could you walk us through kind of roughly where you see those workstreams contributing potentially 9 million in synergies in 2018?

[Mark Zeffiro:]

We’re not prepared to do as projects move forward and back. We’ll give you the results and the outcomes. As we enter 2018 we’ll probably going to give you the goals for those different streams for 2018 but at this point Matt we’re not prepared to do that.

[Operator:]

[Operator Instructions] Your next question comes from the line of Gerrick Johnson of BMO Capital Market.

[Gerrick Johnson:]

So in the second quarter you guys had price increases in third quarter would offset your price increases you’re seeing then now in your release said that high materials cost impact your margin ahead of pricing actions. So were those pricing actions delayed?

[Mark Zeffiro:]

It's really a question by customer of the notification period we have to give and then obviously how those customers order. So the comments made at the end of Q2 were appropriate. I think on the day we released earnings that was the day that the pricing actions along much of the customer base was both to take it back but some of our larger distribution customers have a longer waiting period and just the pattern of ordering resulted in a delay in recovery within the quarter. So it’s not a delay in terms of initiating the price increases, it's really how they flow through the income statement.

[Gerrick Johnson:]

So you are able to get those price increases through having no trouble there?

[Mark Zeffiro:]

Gerrick it never easy a price increase, I would do the sales and marketing team at the service by saying yes, we can just flop a price increase in place. It's obviously negotiation and we try to be as thoughtful as we can with respect to our competitive position, but also obviously making sure that we haven't disproportionally hurt any individual customer or channel of business. So it's implemented which is a good thing. It takes a lot of effort by the sales and marketing team to be able to do such, and I'm pleased with the first round but I do anticipate that there's you know a wave of cost actions that will be coming out of China that we’re going to have to deal with.

[Gerrick Johnson:]

And kind of related implied in your guide after third quarter, it shows self basically going up to about what 209 million in midpoint 210 million and the prior implied guidance has been 163. So big 28% increase implied fourth quarter revenue yet your adjusted EPS doesn't change. So looks like you're still having significant margin impact in the fourth quarter can you talk about that?

[David Rice:]

Absolutely. So the dollar value of operating profit wasn’t expected to change and really a couple things are driving that. The two biggest - we had more currency translation pressure in Q3 then we've seen all year. So more than two-thirds of the impact of translation happened in the year driving sales op but basically zeroing out in the operating income line as we have cost in the same currency as we have sales in most regions that's part of it. The other one really as Mark talked about the growth in the OE channel specifically but if you look at how we earned sales across the world, the disproportionate shift to Europe from the Americas and then the disproportionate shift to OE from aftermarket is also having a negative impact on the conversion of those sales. Now that’s a temporary thing, we certainly are glad that we have those sales but they're going into a region that we’re impacting right now by cost kick outs and integration. So the return on those sales will be better as we go forward but right now they lever us down a bit.

[David Rice:]

Just to make sure of overall balance of business is right.

[Gerrick Johnson:]

The hurricane impact, that inhabitability to shift how exactly it impact retail can we get a little more specifics on what happened with the hurricane and how we expect to recover whatever we lost from the hurricane. Thank you.

[Mark Zeffiro:]

That's a great question, thank you for asking it because when you look at the two areas of the country, first and foremost, I would say all of our constant prayers go out to all those families and regions of the country that have been impacted by those hurricanes, as they are still recovering and still dealing with the tragedy that they felt. What we felt though for us was in the context of our business, our facilities, our structure, no damage, no loss in our structures. So that was a tremendous outcome for us individually as a company. What's happened though is it dislocated demand and our ability to ship within the period. So what does that feel like? Well that felt look like is that the two regions were, say for about $100,000 a day for the combined shipping to those particular sets of customers. It’s hard to quantify, you know some days we actually got good shipments out and other days we got nothing for three days. So the dislocation obviously sort of two weeks’ worth of activity, really starts to point to the kind of shape and size that we otherwise felt. My view though Gerrick is that this is going to be a demand driver for us for replacement product and the ability to actually participate in the reconstruction and the rebuilding process as people or otherwise doing construction related activities which drives natural demand in our products set but also as the people just replace their vehicles. My commentary I made mention of the fact that there was, there's expected growth as a result of that, and while we would love to be able put a specific number on it I think it's a bit premature to be able to do that.

[Gerrick Johnson:]

I understand we lived through Sandy here five years ago, saw it firsthand. So the dislocation and your ability to ship, you said 100,000 a day for two weeks. So may five shipping days a weeks, so it that about 1 million bucks?

[David Rice:]

Although more than that because we also ship through Saturdays and it’s plus minus and it's about two weeks’ worth of shipment. So it's about six shipping days a week and two weeks’ worth of shipments plus or minus.

[Mark Zeffiro:]

$1 million or $1.5 million kind of the range we are talking about.

[Operator:]

[Operator Instructions] Your next question comes from the line of Matthew Gall of Barrington Research.

[Matthew Gall:]

Gerrick kind of followed up on some of the impact of the hurricane and the tropical season here in the Gulf Coast. So I appreciate the clarity there. But one thing I did, hear Gerrick talk about and just kind of want to touch on is, one of the wins you had in the Americas region as far as, kind of, the trailer, electronics and the modules. So you have moving forward what's the differentiator of that product that allows you to get that win and how do you see that moving forward obviously early stages but, what’s the profit there?

[Mark Zeffiro:]

This is an exciting win for us. What we provided to our OE customers in this context was the combination of a control module that deals with breaking and lighting. Today behind the dashboard they would have two boxes, if you will, behind the dashboard, of approximately equal size. We will replace that box with and just bear with me on the physical discussion for a second, then we'll talk about the technological for a second. We combined it into a single module. And there's IP that comes along with that related implementation. So what they gain as an OE is, they don't have to buy the second module. We obviously earn a new line of business for us that being in the lighting control module in the process, which is obviously a nice add to our business. We have dislocated a competitor in that respect. And in the process we've added our next-generation technology in terms of the ability to deal with trailer control in the next iteration, with obviously intellectual property surrounding that. So this is a big deal for our customer, it's a sizable cost save for them. And it is a sizable improvement in terms of the technological improvement as well. I will tell you the engineering team did a tremendous job here and we are very thankful that they spent the time thinking this one all the way through with IP that ties this whole thing up. So we look forward to seeing this become more of a standard across maybe other customers over time and we will obviously make efforts to not just have this in one particular line up for this customer but be able to take it across a broader offerings as well. So this was a tremendous opportunity for us and contributes sizably here over the next few years.

[Operator:]

Our next question is a follow-up from Gerrick Johnson of BMO Capital Markets.

[Gerrick Johnson:]

First of all in your release its say GAAP EPS guide is $0.50 to $0.56 unchanged but after the second quarter was $0.54 to $0.64 so just a typo?

[David Rice:]

Sorry, what do you referring to now diluted earnings?

[Gerrick Johnson:]

Of EPS guidance $0.50 to $0.60, during this calls that was unchanged but last quarter you said it will be $0.54 to $0.64.

[David Rice:]

That is the typo.

[Gerrick Johnson:]

Next question, your ERP system all equations worked out of that?

[David Rice:]

All tie down all done with the opportunities now we’re shifting those resources to work on e-commerce related activities, and other related business process automation activity. So making our way through that whole process together.

[Gerrick Johnson:]

And last quarter you mentioned that there was an impact of a shift in customer ordering adjustment time that reduced deliveries in retail and would shift them in the third quarter yet retail didn’t look all that stronger so you see can talk about that?

[Mark Zeffiro:]

Retail demand again I think we’re seeing winners and losers in this space. We’re seeing winners with - you feel good POS with good growth and that dynamic remains stable and quite frankly it's based upon their ability to execute in market. So that's been going as expected. And quite frankly as certain of these customers have digested either their own e-commerce related business or are dealing with those eventualities, we’re seeing if the order patterns that are little bit more choppy than you would expect and then as such you got the predictability of those orders are little less certain. We see customers taken a day off versus otherwise you feel you know they’re normal ordering patterns. So we’re trying to make sure that we got the right inventory at the right time for the customer to be able to meet their delivery cycle requirements and that's what the team in the Americas is focused on in terms of the increase in inventory and high runners so that's what we’re seeing Gerrick.

[Gerrick Johnson:]

And then the cost associated with protecting the IP what's going on there and are those excluded from your adjusted earnings are they still in there? Thank you.

[Mark Zeffiro:]

They are included and this is part of our ongoing focus on offering technological solutions as occasionally we come across people that we believe violate that IP and we protected vigorously. So those costs are included in our normal operation, they're not back out as special items.

[David Rice:]

I mean as such it really relates to the electrical side of our business portfolio. This has been a going concern and frankly a legal battle for in excess of a year at this point in time when we’re getting hopefully to the end of it with going to arbitration here, and we believe that we’re on the side of the angels with this and believe that the outcomes is going to be positive one for us in the enterprise.

[Gerrick Johnson:]

Can you quantify how much that was in the quarter and if these are these costs expected to continue in future quarters?

[David Rice:]

Yes, we didn't disclose that amount for a couple of reasons but it will continue at least for one more quarter for sure after let's see what happens.

[Operator:]

At this time we have no further questions. I would now like turn the call back over to Mr. Mark Zeffiro.

[Mark Zeffiro:]

Thank you everyone. A good solid quarter given the eventualities and the uncertainties out in the markets I appreciate everybody's effort that went through to executing and delivering on our expected results. We as a company look forward to providing you our 2018 guidance and finishing the year strong. It's the eventuality that we have for 2018 that makes us all think that the days tomorrow are going to be brighter than the days today. Our productivity efforts are being realized and the profitability of the company is greater than it's ever been on a run rate basis. So we're excited about who we are, and who we're becoming as a company. With that, we’ll talk to you next quarter. Bye, bye.

[Operator:]

Thank you for participating at Horizon Global's third quarter 2017 conference call. You may now disconnect.