HWCC Houston Wire and Cable Company

Houston Wire & Cable Company (NASDAQ:HWCC) (the “Company”) announced operating results for the fourth quarter and year ended December 31, 2016.

Selected quarterly results were:

• Sales of $69.3 million down 1.5% but up 1%  metals adjusted, from Q4 2015
• Net loss of $(1.8) million
• Adjusted net loss (non-GAAP) of $(1.2) million, excluding Vertex acquisition expenses
• Diluted EPS of $(0.11)
• Adjusted diluted EPS (non-GAAP) of $(0.08), excluding acquisition expenses
• Cash flow of $1.3 million

Selected annual results were:             

• Sales of $261.6 million down 15.1% or down 8% metals adjusted, from 2015
• Net loss of $(6.0) million
• Adjusted net loss (non-GAAP) of $(3.3) million, excluding impairment charges and acquisition expenses
• Diluted EPS of $(0.37)
• Adjusted diluted EPS (non-GAAP) of $(0.21), excluding  impairment charges and acquisition expenses
• Cash flow of $17.2 million
• Completed the acquisition of Vertex in October 2016

Fourth Quarter Summary Jim Pokluda, President and Chief Executive Officer commented, “During the quarter, industrial market conditions including the oil and gas industry remained inconsistent.  Daily sales results were quite choppy as we experienced several days of strong activity, followed by others that were disappointing.  Although such inconsistent results are frustrating, in our experience this type of deviation is usually an early sign of market recovery which is encouraging.  Sales decreased 1.5% from the fourth quarter of 2015, but increased 1% over 2015, when adjusted for the impact of metals and increased 6.2% sequentially. Excluding the $7.0 million of sales by Vertex, we estimate that Maintenance, Repair and Operations (MRO) sales increased 7% or approximately 9% on a metals adjusted basis, while project sales decreased 51% or approximately 49% on a metals adjusted basis."

Gross margin at 21.8% increased 30 basis points from the fourth quarter of 2015, primarily due to the incrementally higher margins generated by Vertex following the  acquisition. Sequentially, excluding Vertex, gross margin increased approximately 150 basis points. We experienced higher freight and shrinkage costs, offset by higher vendor rebates, due to Q4 activity and rising copper prices. Operating expenses at $16.7 million (which included approximately $0.7 million of acquisition expenses) were up $2.3 million or 16.2% from the prior year period, primarily due to the inclusion of Vertex’s operating expenses from the acquisition date. Excluding Vertex’s operating expenses and acquisition expenses, operating expenses were $13.8 million, a decrease of 3.7% from 2015.

Interest expense of $0.4 million was up 115% from $0.2 million in the prior year period, primarily due to the additional debt taken on to fund the Vertex acquisition.  Average debt levels for the quarter increased 57.8% from $39.8 million in 2015 to $62.8 in 2016, while the effective interest rate increased from 1.5% in 2015 to 2.4% in 2016.

The results of operations produced a net loss of $1.8 million, as compared to net loss of $0.2 million in the prior year period.

Mr. Pokluda further commented, “Despite our disappointment in the fourth quarter results, we were happy to see what we believe were positive activity trends that arose throughout the quarter, and are encouraged that those trends have continued into January, February and early March of 2017.  Sales, order counts and overall gross margins have shown a more consistent recovery from the levels experienced in the fourth quarter of 2016, which we believe marked the bottom for our end markets that have underperformed primarily due to the reduction of the price in oil and gas.  Our success in the expansion of our commercial products line continued and was a welcome contributor to sales and operating margins, and the acquisition of Vertex in early October was the most recent example of our efforts to broaden our product offering to the industrial market. I was also pleased that we again achieved success in reducing our working capital investment and generating operating cash flow.”

Twelve month summarySales for the twelve month period were down 15.1% versus the prior year period and down approximately 8% on a metals adjusted basis.  Excluding the $7.0 million of sales by Vertex, we estimate that MRO sales increased 1% and project sales decreased 34%, in each case on a metals adjusted basis. Mr. Pokluda commented, “This has been an extremely difficult year as the level of industrial demand continued to fall short of more normal historical levels. Our model loses leverage at these activity levels which severely impacts operating margin. The results were also affected by the impairment charge for the HWC division, which was directly impacted by the low demand levels from the industrial and oil and gas sectors. I am pleased, however, with the progress we have made towards our ability to re-align our operations with current demand levels and with the operating cash flow of $17.2 million, as we continued to drive more efficiencies in our inventory profiles and other aspects of our working capital investment.”

Gross margin at 20.2% was down 120 basis points from the 2015 period.  “The higher margins generated by Vertex helped the overall margin, but legacy market conditions remained extremely competitive and pricing and margin pressure continued,” said Mr. Pokluda.

Operating expenses at $59.5 million (including Vertex) decreased 1% from the prior year amount of $59.9. Excluding the impairment charges from both periods, the impact of Vertex’s operating expenses and the acquisition expenses, operating expenses decreased by 4.2% or $2.4 million, principally due to lower facility costs, reduced commissions resulting from lower sales and gross margin, and lower employee related expenses.

Interest expense of $0.9 million decreased 6.2% from 2015, while interest rates increased from 1.9% in 2015 to 2.0% in 2016.

The full year effective tax rate of 18.8% included the 7.5% effect of the non-deductible portion of the impairment charge and the 9.9% impact of forfeited equity awards.

The results of operations generated a net loss of $6.0 million, compared to net income of $2.0 million in 2015.

Conference CallThe Company will host a conference call to discuss fourth quarter results today, Thursday, March 16, 2017, at 10:00 a.m., C.D.T.  Hosting the call will be James Pokluda, President and Chief Executive Officer and Nicol Graham, Vice President and Chief Financial Officer.

A live audio web cast of the call will be available on the Investor Relations section of the Company’s website www.houwire.com.

Approximately two hours after the completion of the live call, a telephone replay will be available until March 23, 2017.

Replay, Toll-Free #: 855-859-2056 Replay, Toll #: 404-537-3406 Conference ID #   77191821

About the Company  With over 40 years’ experience in the industry, Houston Wire & Cable Company, an industrial distributor, is a large provider of industrial 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 StatementsThis 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.

Non-GAAP Financial Disclosures and ReconciliationsWhile the Company reports financial results in accordance with U.S. GAAP, this press release includes non-GAAP measures. We use the non-GAAP measures to evaluate and manage our operations and provide the information to assist investors in performing financial analysis that is consistent with financial models developed by research analysts. Investors should consider non-GAAP measures in addition to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP.

HOUSTON WIRE & CABLE COMPANYReconciliation of Non-GAAP Measures(Unaudited)(In thousands, except per share data)
Adjusted net income (loss) and adjusted diluted EPS		Three Months Ended December 31, 2016
		Net Income (Loss)				Diluted EPS
Net income (loss), as reported under GAAP		$	(1,826	)		$	(0.11	)
Acquisition expenses			748				0.04
Tax effect of  acquisition expenses			(106	)			(0.01	)
Adjusted net income (loss)		$	(1,184	)		$	(0.08	)

 

Adjusted net income (loss) and adjusted diluted EPS		Year Ended December 31, 2016
		Net Income (Loss)				Diluted EPS
Net income (loss), as reported under GAAP		$	(6,006	)		$	(0.37	)
Acquisition expenses			861				0.05
Impairment charge			2,384				0.15
Tax effect of  acquisition expenses and impairment charge			(547	)			(0.04	)
Adjusted net income (loss)		$	(3,346	)		$	(0.21	)

Houston Wire & Cable CompanyConsolidated Balance Sheets(In thousands, except share data)
		December 31,
		2016					2015
		(unaudited)
Assets
Current assets:
Accounts receivable, net		$	44,677				$	46,250
Inventories, net			79,783					75,777
Income taxes			1,948					932
Prepaids			456					648
Total current assets			126,864					123,607
Property and equipment, net			11,261					10,899
Intangible assets, net			13,378					5,984
Goodwill			22,770					14,866
Deferred income taxes			892					3,338
Other assets			591					419
Total assets		$	175,756				$	159,113
Liabilities and stockholders’ equity
Current liabilities:
Book overdraft		$	3,181				$	3,701
Trade accounts payable			8,406					6,380
Accrued and other current liabilities			13,134					9,568
Total current liabilities			24,721					19,649
Debt			60,388					39,188
Other long-term obligations			516					275
Total liabilities			85,739					59,112
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: 16,457,525 and 16,712,626 shares outstanding at December 31, 2016 and 2015, respectively			21					21
Additional paid-in capital			53,824					54,621
Retained earnings			97,550					106,048
Treasury stock			(61,264	)				(60,689	)
Total stockholders’ equity			90,131					100,001
Total liabilities and stockholders’ equity		$	175,756				$	159,113

Houston Wire & Cable Company Consolidated Statements of Operations(In thousands except, share and per share data)
		Three Months Ended									Year Ended
		December 31,									December 31,
		2016					2015				2016					2015
		(unaudited)								(unaudited)
Sales		$	69,257				$	70,314			$	261,644				$	308,133
Cost of sales			54,181					55,194				208,694					242,223
Gross profit			15,076					15,120				52,950					65,910
Operating expenses:
Salaries and commissions			8,474					6,820				29,369					28,537
Other operating expenses			7,412					6,394				24,714					25,023
Depreciation and amortization			820					740				3,018					2,915
Impairment charge			—					423				2,384					3,417
Total operating expenses			16,706					14,377				59,485					59,892
Operating income (loss)			(1,630	)				743				(6,535	)				6,018
Interest expense			392					182				845					901
Income before income taxes (loss)			(2,022	)				561				(7,380	)				5,117
Income taxes			(196	)				760				(1,374	)				3,073
Net income (loss)		$	(1,826	)			$	(199	)		$	(6,006	)			$	2,044
Earnings per share (loss):
Basic		$	(0.11	)			$	(0.01	)		$	(0.37	)			$	0.12
Diluted		$	(0.11	)			$	(0.01	)		$	(0.37	)			$	0.12
Weighted average common shares outstanding:
Basic			16,216,978					16,641,129				16,345,679					17,012,560
Diluted			16,216,978					16,641,129				16,345,679					17,067,593
Dividend declared per share		$	—				$	0.06			$	0.15				$	0.42

Houston Wire & Cable CompanyConsolidated Statements of Cash Flows(In thousands)
		Year Ended December 31,
		2016					2015
		(unaudited)
Operating activities
Net income (loss)		$	(6,006	)			$	2,044
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment charge			2,384					3,417
Depreciation and amortization			3,018					2,915
Amortization of unearned stock compensation			856					886
Provision for doubtful accounts			285					97
Provision for inventory obsolescence			93					397
Deferred income taxes			6					(485	)
Other non-cash items			(116	)				(59	)
Changes in operating assets and liabilities:
Accounts receivable			4,019					15,352
Inventories			10,483					12,784
Book overdraft			(517	)				588
Trade accounts payable			896					(1,613	)
Accrued and other current liabilities			2,473					(3,557	)
Income taxes			(1,016	)				(713	)
Other operating activities			385					(224	)
Net cash provided by operating activities			17,243					31,829
Investing activities
Expenditures for property and equipment			(1,319	)				(3,123	)
Proceeds from disposals of property and equipment			5					8
Cash paid for acquisition			(32,370	)				—
Net cash used in investing activities			(33,684	)				(3,115	)
Financing activities
Borrowings on revolver			302,898					310,366
Payments on revolver			(281,698	)				(325,025	)
Proceeds from exercise of stock options			—					11
Payment of dividends			(2,495	)				(7,172	)
Excess tax benefit for options			—					—
Purchase of treasury stock			(2,264	)				(6,894	)
Net cash used in financing activities			16,441					(28,714	)
Net change in cash			—					—
Cash at beginning of year			—					—
Cash at end of year		$	—				$	—
Supplemental disclosures
Cash paid during the year for interest		$	728				$	900
Cash paid during the year for income taxes		$	233				$	4,278

 

CONTACT:

Nicol G. Graham
Chief Financial Officer 
Direct:  713.609.2125
Fax:  713.609.2168
ngraham@houwire.com