HWCC - Earnings call transcript Q4 2017

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Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Houston Wire & Cable Company's Fourth Quarter 2017 Earnings Conference Call. My name is Amanda and I will be your operator for today.

Joining us on the call today are Jim Pokluda, President and Chief Executive Officer; and Nic Graham, Vice President and Chief Financial Officer. Today's call is being recorded for replay purposes and all participants are in a listen-only mode. the instructions we that will of question-and-answer conduct time. end and session be the financial will discussion, a At given at Comments statements. may call during include today's forward-looking believes on Any are summarized in SEC risk assumptions are and are reasonable, releases that factors such that but based the filings. statements press to subject company

the is only are statements. and Any such not results undertakes as Forward-looking the in the Company and statements of could differ to such statements speak obligation indicated actual guarantees materially of date from publicly what statements. no forward-looking call update

If this Chief you page earlier Relations the that you Executive I turn to time, and found did over this not when are press distributed ready. Investor At of the of receive would Jim like the be a was Pokluda, call can President under earnings Officer. the copy Company's morning, website to begin copy a Please www.houwire.com. release at

Jim Pokluda

present performance today. commentary on fourth today's results Good outlook to then of you who provide our then call quarter thank Amanda. morning, over for with our the involving update call quarter I'll our detail. and XXXX. you, and some and I'll Thank conditions everyone the turn an discuss joining I'll XXXX for us will Nic in call market additional financial first our begin

that in highest all signs XX.X% $XX.X third of were of fourth third and attributable higher estimate increased prices. million fabricated construction, news estimate headwind XX%. and repair infrastructure of basis in We versus tailwind We from oil services, and be the gas We're XXXX, offshore and the in approximately lifting XXX in oil in and and the are remains QX Metals was pleased Sales with utility in QX markets especially increased of points XX% XXXX. on of metals We a Vertex and to that of closing decline count less and midstream significant to Sales to and as reached approximately that XX.X% company very of The the per rig was QX level markets. sales trends increased used revenue. standards, invoice to operations the low the This QX fourth approximately fourth inflation. Vertex, Gross XXXX. increased roll, 'XX for remained basis for exploration, acquisition end of XXXX. $XX power gas and continues since and of day barrel quarter to up percentage the business quarter due margin in approximately in quarter our benefit points improvement. extraction, transactional of results represented approximately of including XXXX barrel good sales products and X count from level XXX the count the that quarter sold this rig count we and steel at from oil of invoice pricing $XX which increase and versus measure & increased the the XXXX, results end-markets our high QX Wire quarter XX% price continued metal per were are products in X% as including project and as showed to and prior XXXX the results The count since transportation upstream offshore wire highest oil. rotary categories industrial per production. excluding this since from the copper XX% Cable into XXXX, industrial our price drivers customer XXXX, our in the total experienced demand quarter at storage markets. quarter certain XXX positive a XXXX market In our minerals, core demand to quarter. sales increased of our highest QX QX historical rig land primarily seasonality. often due count the QX generation, based primary maintenance prices U.S. metals demand increases continued continue the that revenue target performance XXXX, to with and and and represented from the strong estimate growth resulted fourth XXXX volume and versus fourth three increased from X of XX% year from wire, discipline pleased we commercial by sequential in sequential growth projects project fourth quarter increased QX and the from

year; three of Our generation, XX.X% the generation In to utility the product power XXXX, for Project increase were majority year-over-year. per markets construction. power sales utility compliance include and project end compliance, increased ratio day markets industrials year-over-year. primary XXX% basis, XX% on the off approximately approximately sales projects in sales The environmental product infrastructure. present, start environmental prior February and power industrial modifications fuel Industrials sales infrastructure metals in market January end and upgrades led increased fossil and and above The increased majority XX% oil strength in our good prior above resulted public X.X% manufacturing, plants. of project XXXX. gas book-to-bill projects and sales and year. from we're increase and XXX% market works a and minerals existing QX markets, resulted markets. in recovering At approximately to from a were year-over-year end is by and commercial the in revenue end were

as billings March to yesterday, last March sales X% far of compared are year. of through down So

of XXXX a time best was months. that XX reminder month strong was though, in a March at month billing As and very the it

XXXX year. feedback are be further indications we improving, and we will that is see broaden moderate customer pleased conditions that indicates are growth data As most move and to market into XXXX, a macro-economic positive supplier

present Given results. for turn outlook analysis President our the plan, now of optimism. of above, robust XXXX one is Nic? Vice will detailed operating Graham, Nic to call I financial a over combined for with the and our our our CFO

Nic Graham

in in last Jim, operating $X and the is quarter typical and years, incentives. pleased of million market decreased benefited we of XX.X% gentlemen. recovery. results is the the the of this a favorably as and reached which levels which primary periods, compensation our some at with and million to to XXXX negatively year's that sales freight and pricing improve activity vendor sheet impact income holidays. operating in discipline the address to consecutive XXXX. Gross XXXX's customer was of metals I'll sales commissions year operating when prior us performance second operating year-end drivers and our profitability. as $XX.X activity have million. true-ups believe to discuss risen the second improved close first thoughts Variable performance I liquidity. however, and X% six margins also for time good for from level higher this amounts million. balance of ladies highest by increase, The XXXX XX.X% with with a now positive Sales impacted and quarterly Thanks the as almost of I'd propelled produced and rebates seasonality then percent $X.X XXXX. $XX.X a compares normally year loss of morning, including then Operating indicator expenses We generate of the the rebate year months from increased of levels the expenses over over a is unusual addition increased like

level interest positive some got as our flow-through the best in average performance also We XXXX pretax income since and favorably QX the expense the million, $X.X as Interest with in sales QX also X.X% from XXXX. the to on the reached $X.X prior sequential moved year. debt rose which third of X% quality of XXXX pretax XXXX to We rate million X.X%. from increased basis levels compares generated income in as operating and quarter income

Our some our the in additional shortly. assets the effective Tax on impacted deferred issue remarks the Reform allowance of XX% this Act. was valuation by at effective tax make I'll tax rate and impact approximately

For the diverse operating two six widely year months we saw results.

first increased the performance second basis $X.X In by a income XXX points up year. million. The expenses and operating X%, generated leverage $X.X and we XXXX up improvement $XXX of million. basis loss XX of year-over-year purchase included before while contained higher months primarily operations attributed produced product as sales of can performance million the and margin be full Vertex's sales of improved three The we reduced $XXX half million taxes meaningful sales half, of XXXX a in a as Comparisons percent sales, to are before taxes of not post points. as to

the inventory additional end, balance investment from at increased sheet; end XXXX. up higher the million to $XX.X product the of of $XX.X level required demand at QX million year which Turning

reduce in was commented As on I to the goal our inventory call, QX QX. investment our

However, the that dependent on present this the demand often attractive end. opportunities are caveat purchase that year and was at levels was

million from million, major working increases million of payable bank increase increase, $X.X reduction of to $XXX.X an increases the in by would income $XXX.X and receivables requirements increase As year of in $X.X $X.X in QX's sales demand overdraft million. The at that inventory so end, offset $X.X million. million our were million in capital component of tax $X.X accounts parts of

XX.X not to in receivable working level capital we million for to the deterioration XXXX. million remain QX. material primarily fund up to to remittances was days at our of sales the increase and receivables outstanding balances We QX. no composition additional $XX.X down in XX.X days customer increased compared customer debt-to-equity, at our our On While received days primarily near increase debt, from year at $XX.X to quarter-over-quarter, January flat the sales increased attributable outstanding slightly days saw and until QX, drew debt the

in at QX compared increase decreased debt XX.X% offset to to the ratio XX.X% operating However, slightly performance debt-to-equity as a QX.

for outlays managed a total budgeted the spend of quarter approximately cash of capital than for million. XXXX in less level $X.X during $XXX,XXX the slightly Our expenditures

continue HWC's full million of recent credit credit operations remain and fund based compliance in covenants the now in impact million the availability Tax our on facility. also like have adequate to Act asset I'd some facility of results. and our availability make comments with $XX from year the we $XXX closed and We we to to based asset estimated Reform our capacity with the

of interpretation initial Our the our of recently XXXX estimate the act. reflect tax passed results

of such Acts effective the the which time, however, tax be estimate XX%. provisions an comparison approximately of not of believe at we any Tax some have, we we our that this rate through interpretation XXXX. to flow current the material. are information a and time, historic any provisions do for entirely will this to quantifiable on tax this will not necessary As we want estimating adjustments adjustments future Based future revisions; rate XX% as is understand of effective Please are that currently our do tax share at

and cash Looking product including flow ahead of of my ratio we XXXX aspects at operations operations That the the will debt-to-equity the prepared interest sales to time, and at back effectiveness to call initiatives, efficiencies involves level expenses. operating At finally, investment concludes outstanding over reduce turn And our on to us for generate our Amanda? automation which our of I'll of Reducing XX the profitability. distribution allow opportunities operator. this increase working current continue the our focus execute improved inventory development strategy primarily maximize expense. some reduce improve to locations and capital our into look from to business our maximizing to remarks. each to and all debt our profiles to

Operator

[Operator comes Ryan Paul of question James. of Instructions] line Our the from first Raymond

open. Your line is

Paul Ryan

mentioned How Strong margin rebates. you vendor Nic, the to specific gross the do quarter; you XXX fourth from year-over-year true-ups much that and some billing basis have in for that? you gross there point margin; and benefit of had improvement the was margin

Nic Graham

that we the now Paul the probably impact of of -- itself true-ups is range margin billing in The estimated the about $XXX,XXX. had

you're exactly between looking referring have So to? difference product net that to nick margin estimate that about is at you're out I'd gross gross -- margin, that would your see what to what and the $XXX,XXX be but

Paul Ryan

about in $XXX,XXX margin, I'm net Net thinking margin.

Nic Graham

metals net policy product points somewhere to margin basis, the metals may the out we in basis help points. little you that from the up estimate we're basis, that, on On very our product QX impact you basis gross similar of XXX about more a if between XXX impact actually gross margin was bit and

Paul Ryan

increase expect in you'll here Sequentially, can on And first gross think then, quarter that year-over-year over the similar seeing into do to through -- commentary what XXXX, already. looking you you gross of Any be a have that? in in middle the March quarter you forward where now margin is do you're margin give almost first there?

Jim Pokluda

'XX progress to careful margin, with that Paul tremendous true-ups. expected of we HX of push because a need QX we made it gross little in but grateful we're don't 'XX we that than higher some too was We for Sure. be far. bit

on be we I we certain might net a QX, will we think 'XX 'XX are focused much have pull margin to it's growth margin not overall XXXX. on to basis, gross have we room product an gross XXXX will margin unreasonable of certainly HX -- margin There but QX is see in improvement that so in little look categories, I QX don't higher back over gross laser definitely that. for than I basis in believe of of

margin gross much careful We entire year, the increase we don't XX a I'm this. year be to to the that not overdo for net point entire need comfortable estimating more. For but XX basis

Paul Ryan

commission then see how expect are seeing. margins higher you're given do probably bit salaries operating you to Thanks. you impact you see especially going And labor some then to there looking the tightness some the other the as margins all, All in out? XXXX, and costs your just lines, do contribution inflation on growth from profit that combining freight So at incremental in distributors that XXXX and how with mentioning well? playing in, line

Jim Pokluda

it's -- question; a a broad it because That's assumes some to good make we question complicated have assumptions.

million. we little a rather that be significant comp to did in back increase 'XX, have versus around go increase $X so and Let's variable a we XXXX bit; estimate

XX%. for math estimate variable if movements been QX QX, the we and you XX you look you about give and was -- adjust the do operating of say look we effect XX%, of basis it pull-through are as our profit another recognized year in we and comp are will that now good or for in of we it defining for have Those we that If would XX% then, brought a that dollars, that's items at and upto effect, coming we in a off pull-through in and 'XX profit you I'm have Vertex pull-through if a lot at numbers, QX had pull-through, it because course entire -- change QX. of approximately that by comp recognize the adjust points if of the for base. higher Vertex So we're divided EBIT change pull-through and for approximate would higher, quite was variable gross approximately course I low bit I'll if

in would but function with offset described. Moving triggers, period Company, comp into be less a 'XX, have aggressive for a the as expense variable otherwise it variable for we that there we in a XXXX have of unreasonable we've increased bonus respect of effect an to reset sales, will I purposes not think be our comp largely variable reduction it's think comp by bonus the will goals comp variable to

helps. that that hope I So

Paul Ryan

just are bit XX% kind that? any the little lower? mentioned buckets parts Just and the tax lastly, that on of -- of it's why not of reason you what a And rate; different Nic,

Nic Graham

items top. that We've up off got XX% -- a again and the Tax X.X%. is come the takeaway because estimating additional with that's are Act federal Paul just slightly then difficult right some a guesstimate We're to little has is to rate the about non-deductible. difference gross And the permanent

as the that compensation, but to So the the that we're goes. best of other to see think a best X% now. get kind project entire estimate -- it's we impact it's bit I to about move front-end of difficult we'll year where guesstimate not might of That thing, And estimate have X%, our little pretty share-based of -- there. this,

earlier, don't don't said work think will as think with true-up; is from if we'll going people a it's that be let comfortable lot whole there fairly I we're of fallout to changes, I I As through significant any and there obviously, -- be. so and know any it number

Jim Pokluda

net chatting basis Paul, XX Nic product here. increased margin year-over-year, difference margin QX math net between gross up points. increased margin The QX gross in up was and was points, some approximately doing QX XXX so points, year-over-year I quick product while gross basis XXX basis margin was was was gross

year, of our is points, the margin basis product this was points. entire versus gross XXX product margin the basis XXX the net For gross increase approximately increase

Operator

Instructions] you. Thank from Nierenberg have [Operator And we another do question of Management. the of Nierenberg David Investment line

Your line is open.

David Nierenberg

and fourth Congratulations last be some quarter to time the on had just comment the want project recovery margin substantial about ago be that the or translate fourth a right XX.X%. And follow-up the some normalizing you've absolutely would a have tax quarter. out you you've the of business, points I in gross rate conversions the sparkling a given XXXX so as also on Jim, the made us to these $XXX,XXX XX% to predictions quarter as the guidance a would normalized about well. XX increase versus the basis it would you what when given year-to-year of would us that and fourth been major about demonstrate turned moment that fourth quarter, was quarter result, on about already supposed which in into

no in this; but However, increase $X.XX million had other you in had depreciation category. a in which quarter is fourth way revenue that a $XXX,XXX material cutting increase sequential the in change sequential OpEx the with in you is

you me sense various substantial a profit true-up may quarter sorts the of extrapolate so second we is year to there in And trying year a entire from for the of that perhaps been I'd and to get budgeted compensation I'm the is than of half therefore during suggests to of of and like had the because to fourth the into to the that have dollar sense that quarter better if run the can expected fourth rate to was extent what accruals XXXX. which get hypothesis impact us to catch-up my correct,

Jim Pokluda

and on tranches, that much our more. into are you because got more. logarithmic variable the buying comp, variables suppliers and customers it buying was was HX in to other of There for definitely catch-up Nic described, rebates model. from moving that's as a we as moving your around both Purchase HX. include other versus we're are comment you, your there of place definitely This heavier purchase rebates in parts variables for though, accelerate it's Thank lots of sure; you've multiple you effect they because of all flying those in rebates, so over sort get had

puts takes. Nic what some So no and estimates that. is the lots of done match will and estimate, his has with share of best net result he you

Nic Graham

David, because variable estimate we as comp, I to is again stronger much half might you would catch second do some so understand. up the had

additional expense. was there So

So cuts too -- variable And is I very probably to very, comp of some the there year lots the $XXX,XXX other did maybe noticed additional which on expenses there mentioned, this thing that Jim think was number in to comparisons was of more as see But a about general distribution the we difficult increased. catch-up. QX makes parts here management of we moving lot there expenses the follow. side,

David Nierenberg

the roughly margin. Nic; to on gross catch-up impact -- the you me it you had basically equivalent of to was feels that impact on the for the to Thank that size variable impact beneficial comp the

second increase in like revenue, down and on advantageously in is you position to going on made be you your to to always though hard absolute indebtedness a reasonable the question and buys million possibility $X.XX to $X.XX this you that prepared $X.XX and be you much, of inventory down or because inventory to sequential inventory again flexible, year-end you're as the quarter level of fact that's great. reduce debt number sounds take that of in be year even work was were down based comments to that there working in be My the pay indicated to take it sense wanted is you $X increase in in about try had could the wanted the of the so there -- maybe $XXX,XXX run the So remarks. a to but rate, third kind priced

Nic Graham

are you David, absolutely right.

supplier We are we inventory are typical distributor. that and our see investment. acknowledge a electrical what a We're laser reducing focused not would specialty on you as obviously, our turns

we it getting of So rid the release be aged inventory, at balance cash painfully etcetera; by inventory, can slow. rate which the short-linked can from sheet

concentrating I from for However, operating we the have is business. forward obviously tolerance form here. the of a aberrational that plans a plan have If expect on even as anticipated growth initiatives, go literally doesn't balance there have that budgeted that that in for multiple our area mean but we we our down half it; inventory will of for pressure unforeseen demand dozen move our with investment inventory investment. an reduce do event in this initiatives will customer sheet we to increase, our XXXX, our

David Nierenberg

you to give the you one decided Can re-election; that X-K on us your to have can the how Vertex is another of us of sense not update give which finally, for And one other you as whether a doing? directors stand person please for what Director? day you're the reduce the to or replace the size what board to And capability, purpose? looking the intend or of you do would kind of forward kind of whether intend you not him, departing tend if replace to

Jim Pokluda

you Vertex, a as we time. to great deal period gone a by; has respect know, accomplished in that of With year

work that proud closing many the of branches, of for grew ERP our moving lots growth in of team very -- of X was for first new -- all expected So to talent new does consolidating the areas to system; levels, years, talent mean? a many tremendous did. what so very, several close all bringing Well, close period. to hard where on on work I'm of that the of in very the branches, our And in business, legacy time couple work; amounts needed, sales and rate

labor, than machinery, strategic were freight invested expectation. of we because increased and Why? had we inventory about pleased that. though, did thankful expenses that, generally the travel rebalancing more so had equipment, customers expense, we not investment, in I'm Because meet of inventory CR for -- So anticipated Profitability suppliers.

was right a spend had we said some I lot some so money of in get the upto had we the product of I a few think call we place, times we our are and financial and I to A I us and rebalancing around So inventory Texas forward kidding do, improved behind making best the to efficiencies my moving our we've on improve operational etcetera, even hurt that. forward and lot that look where speak, did; to results is -- profitability. that now seeing signs of

plate Mark intend We at and manufacturing getting skillsets, more replace skillsets pleased as to in respect supply speak. but wonderful go So departure, see did why to we sad that With Mark's I'm looking guy, with area; and is even that. our to understand full him distribution we skillsets, for we skillsets, were Company digital -- fantastic we're multiple job certainly a his skillsets. chain

our nominating very a that in contribute robust have to select good that Company. well a governance I'm committee will we'll process a and confident process, We running our candidate

David Nierenberg

half by quarter sense XX which positive terrific your into we orders Back also year. for days promising are about and I excellent QX, to second a shaping started; is up have where commentary how this the your in capped

very So great thank you much. job,

Jim Pokluda

Thank David. you that. for You're welcome,

Operator

this turn at over questions Jim further no remarks. showing I'm Pokluda And the back to I'd like conference to the for Instructions] time. closing [Operator

Jim Pokluda

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

Operator

the and thank for Ladies conference. does today's you in gentlemen, participation program. conclude This

a disconnect. may great have You day. Everyone, now

Houston Wire & Cable (HWCC) 16 Mar 182017 Q4 Earnings call transcript