HOUSTON, Aug. 06, 2020 (GLOBE NEWSWIRE) -- Houston Wire & Cable Company HWCC (the "Company") announced operating results for the second quarter ended June 30, 2020 and progress on its cost and debt reduction programs.
- Revenue of $66.8 million
- GAAP net loss of $2.2 million after a $0.2 million non-cash tradename impairment charge, compared to net income of $1.6 million in the second quarter of 2019
Operational Update
President & Chief Executive Officer James Pokluda commented "Although the Board and the Company acted quickly to reduce cost and debt, execute plans to provide a safe working environment, assure business continuity and operational excellence and reduce costs, the rapid and pervasive economic downturn resulting from the COVID-19 pandemic negatively impacted the Company's financial performance during the second quarter."
The sales decline and operating loss were caused by three simultaneous factors:
- Metals price deflation and the resulting negative impact on revenue and gross margin
- A sharp reduction in the commodity prices for oil and natural gas, which negatively impacted energy company's maintenance and repair capital expenditures
- A significant recessionary downturn in most end markets, especially service businesses
Restoration of cash flow and profitability remain top priorities. During the quarter:
- We announced and implemented a 20% reduction in operating expenses
- We announced and implemented a program to more aggressively monetize excess working capital and to use cash generated to pay down the Company's net debt, with a year-end goal of reducing it to $40 million
- We continued to invest in initiatives to improve sales, operational productivity, and customer experience; to service customer demand from COVID-19 recovery efforts and regional markets minimally affected by the pandemic
These measures reduced second quarter operating expenses by $1.6 million, or approximately 9% sequentially versus the first quarter. During the second quarter, operating expenses included severance and accrued vacation payments, and other expenses generated by shrinking our cost structure. With those items mostly behind us, we anticipate additional savings in the third and fourth quarters, as we see the full impact of our expense reduction initiatives, as well as savings from LEAN projects, processes and controls.
HWCC is also targeting a return to positive EBITDA in the third quarter, and a return to profitability in the fourth quarter, as a result of our cost reductions programs, reduction of interest expense, the recently strengthened price of copper, and our sales initiatives.
Selected Second Quarter 2020 Financial Highlights
| Three Months Ended June 30 | ||||||||
| 2020 | 2019 | |||||||
| (in thousands, except per share data) | ||||||||
| Sales | $ | 66,777 | $ | 85,326 | ||||
| Gross Margin (1) | 21.3 | % | 24.1 | % | ||||
| Operating Expenses (2) | $ | 16,251 | $ | 17,507 | ||||
| Diluted Earnings (Loss) per share | $ | (0.13 | ) | $ | 0.10 | |||
| Revolver Debt | $ | 74,540 | $ | 73,107 | ||||
(1) Gross margin decreased to 21.3% in 2020 from 24.1% in 2019 primarily due to the decline in demand for our products as a result of the pandemic and the decline in the oil and gas market, combined with the relatively low price of copper through much of the quarter. Gross margin for 2020 also reflects an impairment charge of $0.6 million for inventory returned under a one-time agreement with a supplier.
(2) Operating expenses exclude non-cash trade name impairment charges of $0.2 million in the second quarter 2020, but includes severance and accrued vacation expenses.
Improved Liquidity
The Company made progress reducing net debt in the second quarter, although receipt of products which had been ordered before the recession temporarily offset some of the Company's underlying progress. The Company received a Paycheck Protection Program ("PPP") loan of $6.2 million on May 4, 2020 funded under the Coronavirus Aid, Relief, and Economic Security Act. In July we applied all the funds received from the PPP loan to our Revolver debt. Our PPP loan and Revolver debt has been reduced to $75.7 million at August 5, 2020. Debt in 2020 hit a peak of approximately $95 million in the middle of the first quarter, which is a total debt reduction of over $19 million. Our Revolver debt at August 5, 2020 was $69.5 million. The Company's year-end goal remains to reduce Revolver debt to $40 million, which would be a total Revolver debt reduction of approximately $55 million from peak to trough. The Company believes this substantial debt reduction reduces financial risk, without any deterioration of its ability to provide excellent customer service.
In addition to the programs mentioned above, the Company is pursuing the following medium-term initiatives to build the value of the company:
- Concentrating the Company's business development in areas less-exposed to the cyclicality of oil prices
- Maintaining a tight linkage between the Company's performance and executive compensation
Mr. Pokluda concluded "The Company's employees have done an outstanding job rising to a very difficult occasion. The hard work, dedication, and unwavering commitment to excellence in everything they do is remarkable, and for that I and the board of directors express our upmost gratitude."
About the Company
With 44 years' experience in the industry, Houston Wire & Cable Company, an industrial distributor, is a large provider of products in the U.S. market. Headquartered in Houston, Texas, the Company has sales and distribution facilities strategically located throughout the United States.
Standard stock items available for immediate delivery include continuous and interlocked armor cable; instrumentation cable; medium voltage cable; high temperature wire; portable cord; power cable; primary and secondary aluminum distribution cable; private branded products, including LifeGuard™, a low-smoke, zero-halogen cable; mechanical wire and cable and related hardware, including wire rope, lifting products and synthetic rope and slings; corrosion resistant fasteners, hose clamps, and rivets.
Comprehensive value-added services include same-day shipping, knowledgeable sales staff, inventory management programs, just-in-time delivery, logistics support, customized online ordering capabilities and 24/7/365 service.
Forward-Looking Statements
This release contains comments concerning management's view of the Company's future expectations, plans and prospects that constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements are inherently uncertain and projections about future events may, and often do, vary materially from actual results.
Other risk factors that may cause actual results to differ materially from statements made in this press release can be found in the Company's Annual Report on Form 10-K and other documents filed with the SEC. These documents are available under the Investor Relations section of the Company's website at www.houwire.com.
Any forward-looking statements speak only as of the date of this press release and the Company undertakes no obligation to publicly update such statements.
HOUSTON WIRE & CABLE COMPANY
Consolidated Balance Sheets
(In thousands, except share data)
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 5,696 | $ | 4,096 | ||||
| Accounts receivable, net: | ||||||||
| Trade | 43,593 | 50,325 | ||||||
| Other | 2,921 | 6,640 | ||||||
| Inventories, net | 106,018 | 114,069 | ||||||
| Income taxes | 1,314 | 1,353 | ||||||
| Prepaids and other current assets | 2,885 | 1,833 | ||||||
| Total current assets | 162,427 | 178,316 | ||||||
| Property and equipment, net | 15,774 | 14,589 | ||||||
| Intangible assets, net | 9,521 | 10,282 | ||||||
| Goodwill | 22,353 | 22,353 | ||||||
| Deferred income taxes | 900 | 600 | ||||||
| Operating lease right-of-use assets, net | 12,244 | 13,481 | ||||||
| Other assets | 380 | 527 | ||||||
| Total assets | $ | 223,599 | $ | 240,148 | ||||
| Liabilities and stockholders' equity | ||||||||
| Current liabilities: | ||||||||
| Trade accounts payable | $ | 10,212 | $ | 13,858 | ||||
| Accrued and other current liabilities | 14,932 | 23,261 | ||||||
| Operating lease liabilities | 2,803 | 2,742 | ||||||
| Total current liabilities | 27,947 | 39,861 | ||||||
| Revolver Debt | 74,540 | 83,500 | ||||||
| Paycheck Protection Program Loan | 6,185 | — | ||||||
| Operating lease long term liabilities | 9,946 | 11,182 | ||||||
| Other long term liabilities | 2,227 | 1,977 | ||||||
| Total liabilities | 120,845 | 136,520 | ||||||
| Stockholders' equity: | ||||||||
| Preferred stock, $0.001 par value; 5,000,000 shares authorized, none issued and outstanding | — | — | ||||||
| Common stock, $0.001 par value; 100,000,000 shares authorized: 20,988,952 shares issued: 16,591,818 and 16,556,950 outstanding at June 30, 2020 and December 31, 2019, respectively | 21 | 21 | ||||||
| Additional paid-in-capital | 52,484 | 52,304 | ||||||
| Retained earnings | 107,008 | 108,626 | ||||||
| Treasury stock, at cost | (56,759 | ) | (57,323 | ) | ||||
| Total stockholders' equity | 102,754 | 103,628 | ||||||
| Total liabilities and stockholders' equity | $ | 223,599 | $ | 240,148 | ||||
HOUSTON WIRE & CABLE COMPANY
Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share data)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Sales | $ | 66,777 | $ | 85,326 | $ | 150,310 | $ | 170,596 | ||||||||
| Cost of sales | 52,541 | 64,789 | 116,482 | 128,800 | ||||||||||||
| Gross profit | 14,236 | 20,537 | 33,828 | 41,796 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Salaries and commissions | 8,407 | 9,244 | 17,881 | 18,424 | ||||||||||||
| Other operating expenses | 7,029 | 7,729 | 14,594 | 15,392 | ||||||||||||
| Depreciation and amortization | 815 | 534 | 1,582 | 1,087 | ||||||||||||
| Impairment charge | 173 | — | 373 | — | ||||||||||||
| Total operating expenses | 16,424 | 17,507 | 34,430 | 34,903 | ||||||||||||
| Operating income (loss) | (2,188 | ) | 3,030 | (602 | ) | 6,893 | ||||||||||
| Interest expense | 474 | 738 | 1,287 | 1,479 | ||||||||||||
| Income (loss) before income taxes | (2,662 | ) | 2,292 | (1,889 | ) | 5,414 | ||||||||||
| Income tax (benefit) expense | (499 | ) | 649 | (271 | ) | 1,487 | ||||||||||
| Net income (loss) | $ | (2,163 | ) | $ | 1,643 | $ | (1,618 | ) | $ | 3,927 | ||||||
| Earnings (loss) per share: | ||||||||||||||||
| Basic | $ | (0.13 | ) | $ | 0.10 | $ | (0.10 | ) | $ | 0.24 | ||||||
| Diluted | $ | (0.13 | ) | $ | 0.10 | $ | (0.10 | ) | $ | 0.24 | ||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | 16,442,493 | 16,504,471 | 16,414,976 | 16,491,236 | ||||||||||||
| Diluted | 16,442,493 | 16,597,496 | 16,414,976 | 16,571,113 | ||||||||||||
HOUSTON WIRE & CABLE COMPANY
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
| Six Months Ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| Operating activities | ||||||||
| Net income (loss) | $ | (1,618 | ) | $ | 3,927 | |||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Impairment charge | 373 | — | ||||||
| Depreciation and amortization | 1,582 | 1,087 | ||||||
| Amortization of unearned stock compensation | 768 | 707 | ||||||
| Non-cash lease expense | 1,793 | 1,968 | ||||||
| Provision for refund liability | 77 | 471 | ||||||
| Provision for inventory obsolescence | 1,273 | 459 | ||||||
| Deferred income taxes | (300 | ) | 460 | |||||
| Other non-cash items | 68 | 83 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 10,374 | 75 | ||||||
| Inventories | 6,778 | (12,407 | ) | |||||
| Prepaids | (952 | ) | (1,371 | ) | ||||
| Other assets | 18 | (550 | ) | |||||
| Lease payments | (1,800 | ) | (1,963 | ) | ||||
| Book overdraft | — | 330 | ||||||
| Trade accounts payable | (3,646 | ) | 2,106 | |||||
| Accrued and other current liabilities | (8,702 | ) | 2,235 | |||||
| Income taxes | 39 | (142 | ) | |||||
| Other operating activities | 250 | 359 | ||||||
| Net cash provided by (used in) operating activities | 6,375 | (2,166 | ) | |||||
| Investing activities | ||||||||
| Expenditures for property and equipment | (1,626 | ) | (875 | ) | ||||
| Net cash used in investing activities | (1,626 | ) | (875 | ) | ||||
| Financing activities | ||||||||
| Borrowings on revolver | 162,681 | 175,417 | ||||||
| Payments on revolver | (171,641 | ) | (173,626 | ) | ||||
| Proceeds from Paycheck Protection Program loan | 6,185 | — | ||||||
| Payment of dividends | (1 | ) | (30 | ) | ||||
| Purchase of treasury stock/stock surrendered on vested awards | (24 | ) | (65 | ) | ||||
| Lease payments | (349 | ) | (48 | ) | ||||
| Net cash (used in) provided by financing activities | (3,149 | ) | 1,648 | |||||
| Net change in cash | 1,600 | (1,393 | ) | |||||
| Cash at beginning of period | 4,096 | 1,393 | ||||||
| Cash at end of period | $ | 5,696 | $ | — | ||||
| Supplemental disclosures of non-cash activities | ||||||||
| Purchase of assets under finance leases | $ | 752 | $ | 407 | ||||
CONTACT: Eric W. Davis Chief Financial Officer Direct: 713.609.2177 Fax: 713.609.2168 edavis@houwire.com
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