Houston Wire & Cable 2Q Results

HOUSTON — 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

(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 of 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.”