Jim Pokluda - President and CEO Nic Graham - Vice President and CFO

Jim Pokluda - President and CEO Nic Graham - Vice President and CFO

Thank you, Howard. Good morning, everyone.

And thank you for joining us on our call today. I’ll begin today’s call with an overview of our third quarter 2015 results and then I will turn the call over to Nic, who will discuss our financial performance in greater detail.

Third quarter market conditions were challenging and the level of industrial activity remained disappointing. The combination of continued metals deflation, and the reduction in oil and gas related activity severely affected our operating results in comparison to the prior year period.

Sales decreased 19.1% or approximately 10% when adjusted for declining metals prices. Gross margin at 20.6% decreased 120 basis points from the third quarter of 2014, primarily due to lower product margins and vendor rebates, partially offset by lower customer incentives.

Product gross margin, excluding the impact of vendor rebates and customer incentives, declined approximately 81 basis points quarter-over-quarter and increased 3 basis points for the comparative nine-month year-to-date period. Transactional volume, which we measure as invoice count, decreased approximately 12% versus the record level it reached in Q3 2014.

Moving forward, I will discuss results on a metals adjusted basis. We estimate that sales results in our core business, which services MRO demand, decreased approximately 11% and represented approximately 67% of our total revenue.

MRO activity was down across all geographic markets, with the largest quarterly declines experienced in the West Coast, Central, and Eastern regions. The rate of year-over-year decline was flat in the South Central region, and on a sequential quarter-over-quarter basis, sales increases in the South Central region were offset by decreases in remaining regions.

Project sales decreased 9% and represented approximately 33% of our revenue. Our three primary end-markets for projects include utility power generation and environmental compliance, industrials, and infrastructure.

Project sales in the utility power generation and environmental compliance market was up approximately 1% year-over-year. Sales and business activity improved in alternative fuel power generation and substation construction, and decreased in fossil fuel power generation and environmental compliance devices.

Project sales within the industrial segment declined approximately 35% year-over-year. Upstream and midstream oil and gas markets continued to experience the most negative economic impact from today’s difficult operating environment, closely followed by downstream oil and gas and mining and minerals.

Project sales in the infrastructure segment increased approximately 34% year-over-year. Spend involving a large telecommunications project drove improved results in this area, as well as significant improvement in transportation and wastewater end-markets.

As we move into the fourth quarter of 2015, we believe the long-term fundamentals of our targeted markets are intact, although still likely to experience and be subject to inconsistent performance due to decreased demand which has been largely driven by the reduction in the price of oil. Not content to wait or hope for the transition of today’s headwinds to an eventual market recovery tailwind, we continue to move forward with new services and products.

The recent launch of our digital portal, called My ePower, greatly enhances the digital interface with our customers by providing an abundance of account specific data and resources. Sales of new products that expand our reach into markets less concentrated in the heavy industrial oil and gas space, continue to gain traction.

And very recently we announced an initiative with Emerson Industrial Automation and Appleton Group Company, a leading manufacturer of a broad line of components for current and non-current carrying electrical distribution devices, to provide Appleton and O-Z/Gedney distributors an option to purchase select conduit fittings with inconsistent demand from our local inventories. We will offer the channel accelerated availability to help authorized distributors, capture sales of conduit fittings that in the past may have been lost to stockouts or longer lead times.

Houston Wire & Cable and Appleton Group are very excited about this opportunity and believe it will be a positive experience for all her partners. As I near the end of my prepared remarks, I will emphasize, as I have done on prior calls, that we remain exceedingly close to the areas of our business where despite the difficult operating environment, we have control.

We are laser focused on expense management, gross margin retention and optimization, strategic inventory management, capital allocation, product line expansion, and providing a superior customer experience with industry-leading operational excellence. We believe we have taken the appropriate steps to operate in the present environment and continue to execute our business plan through a group of highly motivated and talented individuals.

I will now turn the call over to Nic Graham, our Vice President and CFO, for a detailed analysis of our financial results. Nic?

Thanks, Jim. And good morning, ladies and gentlemen.

It was another quarter where activity levels continued the lackluster trend of the first half of the year. The depressed market conditions and related low demand level, caused us to fall short of our expectations.

The sales level achieved and the resulting lower gross profit dollars, compressed operating income; net income; and EPS. When operational activity falls this short of more normal demand levels, our results are heavily impacted, as our operating model is more influenced by fixed costs, such as employees; facilities; and related infrastructure costs.

However, we continue to work on those areas of our business where we have the ability to exert influence and are pleased to report the following: Continued success in driving down operating expenses. It decreased 5% year-over-year or $750,000.

On a year-to-date basis, excluding the Q2 2015 impairment charge, operating expenses were down 7.6% or $3.5 million. Further reduction in our working capital investment, in line with current activity levels.

Our receivables have fallen close in line with the reduction in sales and days sales outstanding have remained within recent norms. We have only experienced one sizable bad debt this year, just short of $100,000.

We stepped up our efforts to improve the regional inventory profiles, reduced the overall investment while at the same time balancing the need for investment in new enhanced product offerings. Since December 2014, this re-profiling initiative has delivered working capital savings in excess of $12 million.

During the quarter, our working capital fell by 4.4% or $5.1 million from June 30, 2015 levels. On a year-to-date basis, our working capital reduction totals $21.6 million or 17% of the investment at December 31, 2014.

Maximizing cash flow, operations generated $6.4 million in cash during the quarter. This was used to invest in capital expenditures of $1.4 million, primarily the building modifications of the Houston facility for Southwest Wire Rope.

This is now 99.9% complete with only some minor punch-out items remaining, and leasehold improvements for the new Chicago distribution center, which we moved into in July 2015. In addition, we paid dividends of $2.1 million and made stock repurchases of $1.4 million.

The balance of the operating funds was used to reduce debt by $1.5 million. On a year-to-date basis, operations have generated $28.8 million in cash.

We have continued to reduce our debt levels. Since December 2014, when the balance outstanding was $53.8 million, debt has decreased by $15 million or almost 28%.

We continue to improve the balance sheet leverage. Our debt-to-equity ratio improved to 37.7%, and including the bank overdraft, 39.9%.

These low levels continue to provide a great deal of financial flexibility for the Company. We have extended and enhanced our financing capacity.

Availability under our credit facility at September 30th was $48.4 million, which provides ample capacity for our current and near-term needs. We remain in full compliance with the availability-based covenants of our loan and security agreement.

We negotiated a new $100 million asset base credit facility effective October 1, 2015. This 2015 loan has similar attributes to the 2011 loan but also contains some enhanced borrowing features and the potential to reduce rates.

It is a five-year term and under certain circumstances, subject to approval, we can access an additional $50 million accordion feature. We continue to reward shareholders.

The recent dividend program, albeit at a reduced level, $0.06 per share. The stock buyback initiative procured 216,000 shares of stock during the third quarter and 535,000 shares year-to-date.

Since the inception of the buyback program, in March 2014, a total of 1,080,000 shares have been repurchased or about 6% of the December 2013 outstanding shares. The recent change in the dividend rate allows for greater decision making flexibility, as funding for stock repurchases and dividends are balanced with the Company’s long-term needs, performance, and financial condition.

Initiatives for the balance of the year continue more efficient working capital utilization, primarily focused on our inventory investment by region; ensure prudent and efficient allocation of capital to support new business development initiatives, new products, and markets; and finally, maximize the efficiency of the operating expense spend, including all discretionary expenses. That concludes the prepared remarks.

At this time, I’ll turn the call back over to the operator. Howard?

Yes, Howard. We regrettably have chosen a time for this conference call that significantly conflicts with several analysts that have called me this morning, saying they will be unable to attend due to prior commitments; a couple are on airplanes and others are at conferences.

So, not unexpected that we have no participants for the Q&A session. Afraid, it’s just the reality of some bad timing.

So with that, we’ll just proceed forward. Thank you again to our valued team members for their hard work and dedication at the Company.

To our shareholders, we extend this special thanks as well. We appreciate you joining us on our call today and look forward to success in the period ahead.

Good day everyone.