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

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: CONTACT:

Eric W. Davis
Chief Financial Officer 
Direct:  713.609.2177
Fax:  [phone]
[e-mail]