Houston Wire & Cable Company
Q1 2020 Earnings Call Transcript

Published: 8 May 2020

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Houston Wire & Cable Company's First Quarter 2020 Earnings Conference Call. My name is Josh, and I will be your operator for today. Joining us on the call are Jim Pokluda, President and Chief Executive Officer; and Chris Micklas, Vice President and Chief Financial Officer.Today's call is being recorded for replay purposes and all participants are in a listen-only mode. At the end of the financial discussion, we will conduct a question-and-answer session and instructions will be given at that time.Comments during today's call may include forward-looking statements. Any such statements are based on assumptions that the company believes are reasonable but subject to risk factors that are summarized in press releases and SEC filings. Forward-looking statements are not guarantees, and actual results could differ materially from what is indicated in such statements. Any forward-looking statements speak only as of the date of this call, and the company undertakes no obligation to publicly update such statements.If you did not receive a copy of the earnings press release that was distributed earlier this morning, a copy can be found under the Investor Relations page of the company's website at www.houwire.com.At this time, I would now like to turn the call over to Jim Pokluda, President and Chief Executive Officer. Please begin when you’re ready.

[Jim Pokluda:]

Thank you, Josh. Good morning, everyone, and thank you for joining us on our call today. If you've read the press release, you're already familiar with our first quarter performance. Therefore, today's call will be primarily focused on the recent progress we've made to strengthen our company.First and foremost, though, I wish to express my gratitude to my coworkers for extraordinary efforts and accomplishments during these challenging times. Everybody pulling together as a team; moving quickly; acting responsibly; and second only to safety, making all decisions in the context of providing superior customer service, are accomplishments for which you should all be proud.First quarter revenue was negatively impacted in March due to the impact of COVID-19. Were it not for this event and the reduction in the price of metals, which negatively affected product pricing, we believe Q1 revenue would have increased over the prior year period. Adjusting for noncash impairment charges, we estimate Q1 EPS of $0.04 per share.Now let's move on to what we are doing today to strengthen our company. As you know, on March 16 of this year, we elected our largest shareholder, David Nierenberg, to our Board. We immediately put them on our Compensation Committee and told him he would be chairing that committee in May. After his current chair, Gary Yetman becomes the Nominating and Corporate Governance chair as part of our planned transition for him to become our next Board chair, succeeding Bill when Bill retires from the Board in 2021.Within days of David joining the compensation committee, the committee meant to determine how COVID, economic recession and the imbalance between oil supply and demand should make us change our 2020 goals for the company and for management because the world had changed so radically.The committee, and then the Board, with management, refocused and simplified the annual incentive plan to just two goals

[Chris Micklas:]

Good morning. As Jim mentioned, we are on track for sales growth in the first quarter until the abrupt changes caused by the COVID-19 pandemic and the falling oil demand and prices. In preparation for lower sales volume, we reacted immediately to these changes and began to adjust our purchasing activities and operating structure. In addition, given the new reality of the operating environment, the Board refocused and simplified the company's 2020 annual incentive plans on two major goals, with 70% weighted on halving the year-end 2019 net debt and 30% on remaining profitable for the full year.The first goal of reducing the net debt by $40 million will be achieved through leveraging our $141.5 million of working capital and countercyclical business model that monetizes receivables and inventory in economic downturns. As I stated earlier, we immediately changed our purchasing behaviors by adjusting minimal stock levels, changing reorder targets and concentrating products within certain markets. The initial results of our actions are a reduction of $11.7 million in net debt to $70.7 million on May 5th from our quarter end level of $82.4 million.This May 5th level was over $20 million lower than the peak in February, and we have made progress; and believe, as we have demonstrated in the past economic downturns, we can make the needed improvements without adversely impacting our ability to serve our customers. Again, reiterating what Jim had said, these actions were are taken and are being done in response to changing market conditions and to improve our operational efficiencies, but not because of issues with our banking relationship.We are in compliance with the availability-based covenants within our credit facility, and the agreement matures in 2024. Therefore, the result of reducing our debt serves – services two purposes

[Operator:]

Thank you. [Operator Instructions] And I'm not showing any questions at this time. I would now like to turn the call back over to Jim Pokluda for any further remarks.

[Jim Pokluda:]

Thanks, Josh, and thanks to all our valued team members for their continued hard work and dedication to the company. To our shareholders, we appreciate you joining us on the call today and look forward to success in the period ahead. Good day, everyone.

[Operator:]

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.