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Houston Wire & Cable Company Provides Results for the Quarter Ended June 30, 2020, Update on Cost and Debt Reduction

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HOUSTON, Aug. 06, 2020 (GLOBE NEWSWIRE) -- Houston Wire & Cable Company (NASDAQ: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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