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 | |||||||
| 2020 | 2019 | ||||||
| (in thousands, except per share data) | |||||||
| Sales | $ | 70,247 | $ | 85,403 | |||
| Gross Margin (1) | 21.3 | % | 22.8 | % | |||
| Operating Expenses Interest Expense | $ $ | 15,509 344 | $ $ | 19,518 812 | |||
| 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.
HOUSTON WIRE & CABLE COMPANY
Consolidated Balance Sheets
(In thousands, except share data)
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| 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 | ||||
HOUSTON WIRE & CABLE COMPANY
Consolidated Statements of Operations
(Unaudited)
(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 | ||||||||||||
HOUSTON WIRE & CABLE COMPANY
Consolidated Statements of Cash Flows
(Unaudited)
(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 | ||||