Huttig Building Products, Inc. Announces Second Quarter 2020 Results and Provides Business Update on COVID-19 Impact
Second Quarter 2020 Highlights (as compared to prior year quarter):
- Net sales decreased 12.1% to
$192.0 million - Gross margin of 20.2% compared to 20.3%
- Operating income of
$2.5 million , net of$1.5 million restructuring charge. Operating income before restructuring charge was$4.0 million compared to$3.3 million . - Adjusted EBITDA of
$5.7 million compared to$5.1 million - Total liquidity increased to
$56.0 million compared to$39.6 million a year ago - Reduced senior indebtedness by
$32.2 million compared to a year ago
“In light of all of the economic uncertainty caused by the COVID-19 pandemic, I am pleased with our financial performance in the second quarter,” said
Three Months Ended |
|||||||||||
2020 | 2019 | ||||||||||
Net sales | $ | 192.0 | 100.0 | % | $ | 218.5 | 100.0 | % | |||
Gross margin | 38.7 | 20.2 | % | 44.3 | 20.3 | % | |||||
Operating expenses | 34.7 | 18.1 | % | 41.0 | 18.8 | % | |||||
Restructuring charges | 1.5 | 0.8 | % | - | 0.0 | % | |||||
Operating income | 2.5 | 1.3 | % | 3.3 | 1.5 | % | |||||
Income (loss) from continuing operations | 1.6 | 0.8 | % | (10.3 | ) | -4.7 | % | ||||
Net income (loss) | 1.6 | 0.8 | % | (10.3 | ) | -4.7 | % | ||||
Earnings (loss) from continuing operations per share- basic and diluted | $ | 0.06 | $ | (0.40 | ) | ||||||
Net earnings (loss) per share - basic and diluted | $ | 0.06 | $ | (0.40 | ) | ||||||
Six Months Ended |
|||||||||||
2020 | 2019 | ||||||||||
Net sales | $ | 395.0 | 100.0 | % | $ | 415.9 | 100.0 | % | |||
Gross margin | 79.6 | 20.2 | % | 81.7 | 19.6 | % | |||||
Operating expenses | 73.7 | 18.7 | % | 80.6 | 19.4 | % | |||||
9.5 | 2.4 | % | - | 0.0 | % | ||||||
Restructuring charges | 1.5 | 0.4 | % | - | 0.0 | % | |||||
Operating income (loss) | (5.1 | ) | -1.3 | % | 1.1 | 0.3 | % | ||||
Loss from continuing operations | (7.3 | ) | -1.8 | % | (13.5 | ) | -3.2 | % | |||
Net loss | (7.3 | ) | -1.8 | % | (13.5 | ) | -3.2 | % | |||
Loss from continuing operations per share- basic and diluted | $ | (0.28 | ) | $ | (0.53 | ) | |||||
Net loss per share - basic and diluted | $ | (0.28 | ) | $ | (0.53 | ) | |||||
Results of Operations
Three Months Ended
As anticipated, the impact of the COVID-19 pandemic negatively affected our net sales, although our COVID-19 readiness and response plan has driven an overall improvement in our operating results relative to our initial pandemic forecasts.
Net sales were
Millwork product sales decreased 17.9% in the second quarter of 2020 to
Gross margin was
Operating expenses, excluding restructuring charges of
We are in the process of closing our
Net interest expense was
Income taxes were
As a result of the foregoing factors, we reported net income of
Adjusted EBITDA was
Six Months Ended
Net sales were
Millwork product sales decreased 8.7% in the first six months of 2020 to
Gross margin was
Operating expenses, excluding restructuring costs of
During the first quarter of 2020, a decline in the market value of the Company’s public equity concurrent with the COVID-19 pandemic triggered an assessment of goodwill. As a result of the interim goodwill impairment test, the Company recognized a goodwill impairment charge of
We are in the process of closing of our
Net interest expense was
Income taxes were
As a result of the foregoing factors, we reported a net loss of
Adjusted EBITDA was
Balance Sheet & Liquidity
Cash provided by operating activities was
At
Impact and Company Response to COVID-19
In
With the exception of closing two branches as a part our restructuring efforts, all of our branches remain open and capable of meeting customer needs. We have taken protective measures to guard the health and well-being of our employees and customers, including the implementation of social distancing guidelines and remote work options where possible. We have observed certain of our customers reducing purchases and operations due to the impact of COVID-19 and governmental restrictions. We adjusted our sales forecast accordingly and have taken proactive measures to protect our operating liquidity, including communicating with vendors and customers, seeking modification of payment and other terms of rental and procurement agreements and monitoring our accounts receivable. We have also reduced inventory levels to meet an anticipated decrease in demand and implemented cost containment measures, including closing two branches, lay-offs, wage reductions, suspension of matching contributions under a qualified defined contribution plan, and eliminated non-essential spend. We have delayed or cancelled certain planned capital expenditures. We have utilized our diverse overseas network to source alternative suppliers of our proprietary products, while simultaneously rationalizing our purchase volume to better align with our current sales projections. We have also been proactively communicating with our lenders regarding potential modification to the terms of our credit facility should it be deemed necessary. While we intend for these actions to mitigate the impact of the pandemic on our operations, we cannot provide any assurance that these actions will be successful.
Although we are reviewing and intend to seek available benefits under the CARES Act, we cannot predict the manner in which such benefits will be allocated or administered and we cannot assure you that we will be able to access such benefits in a timely manner or at all. Certain of the benefits we seek to access under the CARES Act have not previously been administered on the present scale or at all. Government or third party program administrators may be unable to cope with the volume of applications in the near term and any benefits we receive may not be as extensive as we currently estimate, may impose additional conditions and restrictions on our operations or may otherwise provide less relief than we contemplate. Accessing these benefits and our response to the COVID-19 pandemic have required our management team to devote extensive resources to these issues, which we expect to continue in the near future, and which negatively affect our ability to implement our business plan and respond to opportunities.
Conference Call
About Huttig
Huttig, currently in its 136th year of business, is one of the largest domestic distributors of millwork, building materials and wood products used principally in new residential construction and in-home improvement, remodeling and repair work. Huttig distributes its products through 27 distribution centers serving 41 states. Huttig's wholesale distribution centers sell principally to building materials dealers, national buying groups, home centers and industrial users, including makers of manufactured homes.
Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “believe,” “estimate,” “project” or similar expressions may identify forward-looking statements, although not all forward-looking statements contain such words. Statements made in this press release looking forward in time, including, but not limited to, statements regarding our current views with respect to financial performance, future growth in the housing market, distribution channels, sales, favorable supplier relationships, inventory levels, the ability to meet customer needs, enhanced competitive posture, strategic initiatives, absence of material financial impact from litigation or contingencies, including environmental proceedings, are included pursuant to the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995.
These statements present management’s expectations, beliefs, plans and objectives regarding our future business and financial performance. We cannot guarantee that any forward-looking statements will be realized or achieved. These forward-looking statements are based on current projections, estimates, assumptions and judgments, and involve known and unknown risks and uncertainties. We disclaim any obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise.
There are a number of factors, some of which are beyond our control that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements. These factors include, but are not limited to, the following: the impact of global health concerns, including the current COVID-19 pandemic, and governmental responses to such concerns, on our business, results of operations, liquidity and capital resources; the success of our growth initiatives; expansion of the Huttig-Grip product line; the strength of new construction, home improvement and remodeling markets and the recovery of the homebuilding industry to levels consistent with the historical annual average total housing starts from 1959 to 2019 of approximately 1.4 million starts based on statistics tracked by the
Non-GAAP Financial Measures
Huttig supplements its reporting of net income with the non-GAAP measurement of Adjusted EBITDA. This supplemental information should not be considered in isolation or as a substitute for GAAP measures.
The Company defines Adjusted EBITDA as net income adjusted for interest, income taxes, depreciation and amortization and other items as listed in the table below and presents Adjusted EBITDA because it is a primary measure used by management, and by similar companies in the industry, to evaluate operating performance and Huttig believes it enhances investors’ overall understanding of the financial performance of our business. Adjusted EBITDA is not a recognized term under GAAP and does not purport to be an alternative to net income as a measure of operating performance. Huttig compensates for the limitations of using non-GAAP financial measures by using them to supplement GAAP results to provide a more complete understanding of the factors affecting the business. Because not all companies use identical calculations, Huttig’s presentation of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies.
Adjusted EBITDA
The following table presents a reconciliation of net income (loss), the most directly comparable financial measure under GAAP, to Adjusted EBITDA for the periods presented (in millions):
Three Months Ended | Six Months Ended | ||||||||||||||
2020 | 2019 | 2020 | 2019 | ||||||||||||
Net income (loss) | $ | 1.6 | $ | (10.3 | ) | $ | (7.3 | ) | $ | (13.5 | ) | ||||
Interest expense, net | 0.9 | 1.8 | 2.2 | 3.5 | |||||||||||
Benefit from income taxes | - | 11.8 | - | 11.1 | |||||||||||
Depreciation and amortization | 1.4 | 1.3 | 2.7 | 2.7 | |||||||||||
Stock compensation expense | 0.3 | 0.6 | 0.6 | 1.1 | |||||||||||
- | - | 9.5 | - | ||||||||||||
Restructuring Charges | 1.5 | - | 1.5 | - | |||||||||||
Other | - | (0.1 | ) | - | (0.2 | ) | |||||||||
Adjusted EBITDA | $ | 5.7 | $ | 5.1 | $ | 9.2 | $ | 4.7 | |||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(unaudited) | ||||||||||||||||
(in millions, except Per Share Data) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Net sales | $ | 192.0 | $ | 218.5 | $ | 395.0 | $ | 415.9 | ||||||||
Cost of sales | 153.3 | 174.2 | 315.4 | 334.2 | ||||||||||||
Gross margin | 38.7 | 44.3 | 79.6 | 81.7 | ||||||||||||
Operating expenses | 34.7 | 41.0 | 73.7 | 80.6 | ||||||||||||
— | — | 9.5 | — | |||||||||||||
Restructuring charges | 1.5 | — | 1.5 | — | ||||||||||||
Operating income (loss) | 2.5 | 3.3 | (5.1 | ) | 1.1 | |||||||||||
Interest expense, net | 0.9 | 1.8 | 2.2 | 3.5 | ||||||||||||
Income (loss) from operations before income taxes | 1.6 | 1.5 | (7.3 | ) | (2.4 | ) | ||||||||||
Income tax expense | — | 11.8 | — | 11.1 | ||||||||||||
Income (loss) from continuing operations | 1.6 | (10.3 | ) | (7.3 | ) | (13.5 | ) | |||||||||
Loss from discontinued operations, net of taxes | — | — | — | — | ||||||||||||
Net income (loss) | $ | 1.6 | $ | (10.3 | ) | $ | (7.3 | ) | $ | (13.5 | ) | |||||
Earnings (loss) per share: | ||||||||||||||||
Earnings (loss) from continuing operations per share- basic | $ | 0.06 | $ | (0.40 | ) | $ | (0.28 | ) | $ | (0.53 | ) | |||||
Loss from discontinued operations per share- basic | — | — | — | — | ||||||||||||
Net earnings (loss) per share - basic | $ | 0.06 | $ | (0.40 | ) | $ | (0.28 | ) | $ | (0.53 | ) | |||||
Earnings (loss) from continuing operations per share- diluted | $ | 0.06 | $ | (0.40 | ) | $ | (0.28 | ) | $ | (0.53 | ) | |||||
Loss from discontinued operations per share- diluted | — | — | — | — | ||||||||||||
Net income (loss) per share- diluted | $ | 0.06 | $ | (0.40 | ) | $ | (0.28 | ) | $ | (0.53 | ) | |||||
Weighted average shares outstanding: | ||||||||||||||||
Basic shares outstanding | 26.0 | 25.5 | 26.0 | 25.4 | ||||||||||||
Diluted shares outstanding | 26.2 | 25.5 | 26.0 | 25.4 | ||||||||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||||
(unaudited) | ||||||||||
(in millions) | ||||||||||
2020 | 2019 | 2019 | ||||||||
ASSETS | ||||||||||
CURRENT ASSETS: | ||||||||||
Cash and equivalents | $ | 1.8 | $ | 2.2 | $ | 1.1 | ||||
Trade accounts receivable, net | 95.5 | 60.5 | 96.7 | |||||||
Inventories, net | 108.5 | 139.4 | 141.7 | |||||||
Other current assets | 9.2 | 12.8 | 13.4 | |||||||
Total current assets | 215.0 | 214.9 | 252.9 | |||||||
PROPERTY, PLANT AND EQUIPMENT: | ||||||||||
Land | 5.0 | 5.0 | 5.0 | |||||||
Buildings and improvements | 32.6 | 32.4 | 32.5 | |||||||
Machinery and equipment | 58.8 | 58.2 | 56.5 | |||||||
Gross property, plant and equipment | 96.4 | 95.6 | 94.0 | |||||||
Less accumulated depreciation | 66.6 | 64.4 | 62.0 | |||||||
Property, plant and equipment, net | 29.8 | 31.2 | 32.0 | |||||||
OTHER ASSETS: | ||||||||||
Operating lease right-of-use assets | 38.6 | 40.9 | 34.2 | |||||||
— | 9.5 | 9.5 | ||||||||
Deferred income taxes | — | — | — | |||||||
Other | 4.8 | 5.0 | 5.5 | |||||||
Total other assets | 43.4 | 55.4 | 49.2 | |||||||
TOTAL ASSETS | $ | 288.2 | $ | 301.5 | $ | 334.1 | ||||
CONDENSED CONSOLIDATED BALANCE SHEETS | |||||||||||
(unaudited) | |||||||||||
(in millions, except share data) | |||||||||||
2020 | 2019 | 2019 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
CURRENT LIABILITIES: | |||||||||||
Current maturities of long-term debt | $ | 1.7 | $ | 1.7 | $ | 1.7 | |||||
Current maturities of operating lease right-of-use liabilities | 9.8 | 9.7 | 9.2 | ||||||||
Trade accounts payable | 62.9 | 56.8 | 69.6 | ||||||||
Accrued compensation | 5.5 | 5.5 | 4.4 | ||||||||
Other accrued liabilities | 15.3 | 15.8 | 13.1 | ||||||||
Total current liabilities | 95.2 | 89.5 | 98.0 | ||||||||
NON-CURRENT LIABILITIES: | |||||||||||
Long-term debt, less current maturities | 125.6 | 135.1 | 158.6 | ||||||||
Operating lease right-of-use liabilities, less current maturities | 29.0 | 31.6 | 25.5 | ||||||||
Other non-current liabilities | 2.2 | 2.4 | 2.5 | ||||||||
Total non-current liabilities | 156.8 | 169.1 | 186.6 | ||||||||
SHAREHOLDERS’ EQUITY: | |||||||||||
Preferred shares: |
— | — | — | ||||||||
Common shares: |
0.3 | 0.3 | 0.3 | ||||||||
Additional paid-in capital | 48.8 | 48.2 | 47.0 | ||||||||
Retained earnings (accumulated deficit) | (12.9 | ) | (5.6 | ) | 2.2 | ||||||
Total shareholders’ equity | 36.2 | 42.9 | 49.5 | ||||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 288.2 | $ | 301.5 | $ | 334.1 | |||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||||||
(unaudited) | ||||||||||||||||
(in millions) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Cash Flows From Operating Activities: | ||||||||||||||||
Net income (loss) | $ | 1.6 | $ | (10.3 | ) | $ | (7.3 | ) | $ | (13.5 | ) | |||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 1.4 | 1.3 | 2.7 | 2.7 | ||||||||||||
Non-cash interest expense | — | — | 0.1 | 0.1 | ||||||||||||
Stock-based compensation | 0.3 | 0.6 | 0.6 | 1.1 | ||||||||||||
Deferred income taxes | — | 11.8 | — | 11.0 | ||||||||||||
— | — | 9.5 | — | |||||||||||||
Restructuring charges | 1.5 | — | 1.5 | — | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Trade accounts receivable | 1.2 | (7.5 | ) | (35.0 | ) | (27.7 | ) | |||||||||
Inventories, net | 38.8 | 7.5 | 30.9 | (7.7 | ) | |||||||||||
Trade accounts payable | (22.6 | ) | (17.0 | ) | 6.1 | 18.1 | ||||||||||
Other | 2.5 | (0.6 | ) | 1.2 | (3.9 | ) | ||||||||||
Cash provided by (used in) continuing operating activities | 24.7 | (14.2 | ) | 10.3 | (19.8 | ) | ||||||||||
Cash used in discontinued operating activities | — | (0.1 | ) | (0.1 | ) | (0.2 | ) | |||||||||
Total cash provided by (used in) operating activities | 24.7 | (14.3 | ) | 10.2 | (20.0 | ) | ||||||||||
Cash Flows From Investing Activities: | ||||||||||||||||
Capital expenditures | (0.4 | ) | (0.4 | ) | (0.8 | ) | (0.8 | ) | ||||||||
Total cash used in investing activities | (0.4 | ) | (0.4 | ) | (0.8 | ) | (0.8 | ) | ||||||||
Cash Flows From Financing Activities: | ||||||||||||||||
Borrowings (repayments) of debt, net | (22.9 | ) | 14.9 | (9.8 | ) | 21.2 | ||||||||||
Repurchase of shares to satisfy employee tax withholdings | — | — | — | (0.1 | ) | |||||||||||
Total cash provided by (used in) financing activities | (22.9 | ) | 14.9 | (9.8 | ) | 21.1 | ||||||||||
Net increase (decrease) in cash and equivalents | 1.4 | 0.2 | (0.4 | ) | 0.3 | |||||||||||
Cash and equivalents, beginning of period | 0.4 | 0.9 | 2.2 | 0.8 | ||||||||||||
Cash and equivalents, end of period | $ | 1.8 | $ | 1.1 | $ | 1.8 | $ | 1.1 | ||||||||
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Source: Huttig Building Products, Inc.