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

Houston Wire & Cable
·9 min read

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


CONTACT: CONTACT: Eric W. Davis Chief Financial Officer Direct: 713.609.2177 Fax: 713.609.2168 edavis@houwire.com