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

Houston, Texas, UNITED STATES

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.

Consolidated Balance Sheets
(In thousands, except share data)

  June 30,  December 31, 
  2020  2019 
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 

Consolidated Statements of Operations
(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 

Consolidated Statements of Cash Flows
(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 



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