Houston Wire & Cable Company Announces Results for the Quarter Ended September 30, 2020, Update on Continuing Cost and Debt Reduction

Houston, Texas, UNITED STATES

HOUSTON, Nov. 05, 2020 (GLOBE NEWSWIRE) -- Houston Wire & Cable Company (NASDAQ: HWCC) (the “Company”) announced operating results for the third quarter ended September 30, 2020 and progress on its continuing cost and debt reduction programs.

Third Quarter 2020

  • Revenue of $70.2 million up 5.2% sequentially from $66.8 million in Q2
  • Operating expenses as a percentage of sales decreased 252 bps, a 5.6% improvement sequentially versus Q2
  • Revolver debt decreased $19.3 million or 25.8% sequentially versus Q2 and $30.6 million or 35.7% versus Q1 2020
  • Return to positive EBITDA of $0.4 million for Q3
  • Net loss of ($0.7) million identical to a net loss of ($0.7) million in the third quarter of 2019

Operational Update

President & Chief Executive Officer James Pokluda commented, “Throughout the third quarter, the Company made notable progress with the execution of its business recovery plan. Performance improved in several key areas including total gross profit contribution, operating expense reduction, debt reduction, and return to positive EBITDA. Given present market conditions, and understanding that economic recovery will evolve overtime, we exit the quarter an increasingly lean and profitable Company and better positioned for the period ahead.”

Third quarter results were generally better sequentially versus the second quarter, although COVID headwinds persisted. Reduced petrochemical prices curtailed investments in upstream and midstream oil and gas markets, and diminished consumer confidence stalled investments in large capital projects. Given the continued economic uncertainty of today’s operating environment, our goals remain to control what is within our realm, increase profitability through gross margin optimization and expense management, and to manage working capital prudently to drive positive cash flow.

Third quarter highlights include:

  • Total operating expenses of $15.5 million improved 20.5% or $4.0 million over Q3 2019, $0.9 million or 5.6% sequentially over Q2, and $2.5 million or 13.9% over Q1 2020
  • Revolver debt at $55.3 million decreased $22.6 million or 29.0% from Q3 2019, $19.3 million or 25.8% sequentially over Q2, and $30.6 million or 35.7% versus Q1 2020
  • Cash provided by operating activities was $14.6 million, as we monetized working capital
  • Revenue increased 5.2% sequentially
  • Return to positive EBITDA

The operating expense measures taken in the second and third quarters reduced third quarter operating expenses by $0.9 million, or approximately 5.6% sequentially versus the second quarter. Second quarter operating expenses included severance and accrued vacation payments, and other expenses generated by shrinking our cost structure. We hope to realize additional savings in the fourth quarter, as we see the full impact of our expense reduction initiatives, as well as savings from on-going LEAN projects, processes and controls.

Selected Third Quarter 2020 Financial Highlights

 Three Months Ended September 30
 (in thousands, except per share data)
Sales$70,247  $85,403 
Gross Margin (1) 21.3%  22.8%
Operating Expenses
Interest Expense
Diluted Earnings (Loss) per share$(0.04) $(0.04)
Revolver Debt$55,288  $77,903 

(1)   Gross margin decreased to 21.3% in 2020 from 22.8% in 2019 primarily due to the decline in demand for our products as a result of the decline in oil and gas prices, the pandemic and lower vendor rebates and prompt pay discounts.

Improved Liquidity

The Company made great progress reducing net debt in the third quarter. 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. Our PPP loan and Revolver debt have been reduced to $57.8 million at November 4, 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 $37.2 million. Our Revolver debt at November 4, 2020 was $51.6 million. The Company’s year-end goal is to reduce Revolver debt to $45 million, which would be a total Revolver debt reduction of approximately $50 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, we are 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
  • Investing in Revenue, Gross Margin, and Expense Reduction initiatives that will impact 2021 and beyond

Mr. Pokluda concluded, “The Board of Directors and I sincerely appreciate all the hard work, sacrifice, and contributions our team has made in order to accomplish these results and position us for continued improvements in the periods ahead.”

About the Company 
With 45 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)

  September 30,  December 31, 
  2020  2019 
Current assets:        
Cash $  $4,096 
Accounts receivable, net:        
Trade  46,092   50,325 
Other  2,138   6,640 
Inventories, net  89,259   114,069 
Income taxes  1,331   1,353 
Prepaids and other current assets  2,760   1,833 
Total current assets  141,580   178,316 
Property and equipment, net  15,351   14,589 
Intangible assets, net  10,164   10,282 
Goodwill  22,353   22,353 
Deferred income taxes  1,041   600 
Operating lease right-of-use assets, net  12,267   13,481 
Other assets  484   527 
Total assets $203,240  $240,148 
Liabilities and stockholders’ equity        
Current liabilities:        
Book overdraft $532  $ 
Trade accounts payable  8,636   13,858 
Accrued and other current liabilities  15,661   23,261 
Operating lease liabilities  2,967   2,742 
Total current liabilities  27,796   39,861 
Revolver Debt  55,288   83,500 
Paycheck Protection Program Loan  6,185    
Operating lease long term liabilities  9,841   11,182 
Other long term liabilities  2,224   1,977 
Total liabilities  101,334   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: 16,553,637 and 16,556,950 outstanding         
at September 30, 2020 and December 31, 2019, respectively  21   21 
Additional paid-in-capital  52,821   52,304 
Retained earnings  106,273   108,626 
Treasury stock, at cost  (57,209)  (57,323)
Total stockholders’ equity  101,906   103,628 
Total liabilities and stockholders’ equity $203,240  $240,148 

Consolidated Statements of Operations
(In thousands, except share and per share data)

  Three Months Ended  Nine Months Ended 
  September 30,  September 30, 
  2020  2019  2020  2019 
Sales $70,247  $85,403  $220,557  $255,999 
Cost of sales  55,257   65,972   171,739   194,772 
Gross profit  14,990   19,431   48,818   61,227 
Operating expenses:                
Salaries and commissions  7,503   9,249   25,384   27,673 
Other operating expenses  7,120   9,602   21,714   24,994 
Depreciation and amortization  886   667   2,468   1,754 
Impairment charge        373    
Total operating expenses  15,509   19,518   49,939   54,421 
Operating income (loss)  (519)  (87)  (1,121)  6,806 
Interest (expense)  (344)  (812)  (1,631)  (2,291)
Income (loss) before income taxes  (863)  (899)  (2,752)  4,515 
Income tax (expense) benefit  128   178   399   (1,309)
Net income (loss) $(735) $(721) $(2,353) $3,206 
Earnings (loss) per share:                
Basic $(0.04) $(0.04) $(0.14) $0.19 
Diluted $(0.04) $(0.04) $(0.14) $0.19 
Weighted average common shares outstanding:                
Basic  16,480,449   16,443,446   16,436,960   16,475,131 
Diluted  16,480,449   16,443,446   16,436,960   16,558,068 

Consolidated Statements of Cash Flows
(In thousands) 

  Nine Months
Ended September 30,
  2020  2019 
Operating activities        
Net (loss) income $(2,353) $3,206 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:        
Impairment of intangibles  373    
Depreciation and amortization  2,468   1,754 
Amortization of unearned stock compensation  666   1,083 
Non-cash lease expense  2,686   5,143 
Provision for refund liability  366   751 
Provision for inventory obsolescence  907   426 
Deferred income taxes  (441)  453 
Other non-cash items  175   101 
Changes in operating assets and liabilities:        
Accounts receivable  8,603   (1,546)
Inventories  23,903   (11,968)
Prepaids  (723)  (771)
Other assets  (204)  (817)
Lease payments  (2,694)  (3,016)
Book overdraft  532    
Trade accounts payable  (5,222)  1,036 
Accrued and other current liabilities  (8,385)  (1,186)
Income taxes  22   (888)
Other operating activities  247   1,311 
Net cash provided by (used in) operating activities  20,926   (4,928)
Investing activities        
Expenditures for property and equipment  (1,510)  (1,742)
Expenditures for intangibles  (838)   
Net cash used in investing activities  (2,348)  (1,742)
Financing activities        
Borrowings on revolver  227,805   266,322 
Payments on revolver  (256,017)  (259,735)
Proceeds from Paycheck Protection Program loan  6,185    
Payment of dividends  (1)  (30)
Purchase of treasury stock/stock surrendered on vested awards  (35)  (1,120)
Lease payments  (611)  (154)
Net cash (used in) provided by financing activities  (22,674)  5,283 
Net change in cash  (4,096)  (1,387)
Cash at beginning of period  4,096   1,393 
Cash at end of period $  $6 
Supplemental disclosures of non-cash activities        
Purchase of assets under finance leases $1,137  $1,878 



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