Transcript Roadshow Presentation 2006 Initial Public Offering

Roadshow Presentation
2006 Initial Public Offering
Safe Harbor Statement
Some of the statements in this presentation constitute “forward-looking statements”
about Houston Wire & Cable Company. Such statements include, in particular,
statements about our plans, strategies, business prospects, changes and trends in
our business and the markets in which we operate. These statements can be
identified by the fact that they do not relate strictly to historical or current facts. They
use words such as “aim,” “anticipate,” “believe,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “project,” “should,” “will be,” “will continue,” “will likely result,”
“would,” and other words and terms of similar meaning in conjunction with a
discussion of future operating or financial performance. These statements represent
our present expectations or beliefs concerning future events and are not guarantees.
Such statements speak only as of the date they are made, and we do not undertake
any obligation to update any forward-looking statement.
We caution that forward-looking statements involve risks and uncertainties and are
qualified by important factors that could cause actual events or results to differ
materially from those expressed or implied in any such forward-looking statements.
The Prospectus delivered in connection with this offering describes some of these
factors under the heading “Risk Factors.” Although we believe that our expectations
are based on reasonable assumptions, actual results may differ materially from
those in the forward looking statements as a result of various factors, including, but
not limited to, those described under the heading “Risk Factors” and elsewhere in
the Prospectus. Before you invest in our common stock, you should read the
Prospectus completely and with the understanding that our actual future results may
be materially different from what we expect.
1
Offering Summary
Offering Size:
 8.5 Million Shares
o
4.25 Million Primary
o
4.25 Million Secondary
Over-allotment
 1.275 Million Secondary Shares
Post-Offering Shares
 20.9 Million Shares (excludes over-allotment)
Price Range:
 $12 to $14 per share
Use of Proceeds:
 Repay a Majority of Outstanding Debt
Exchange/Symbol:
 NASDAQ/HWCC
Expected Pricing:
 Week of June 12, 2006
Underwriters:
 William Blair & Company, Sole Book-Runner
 Robert W. Baird & Co., Co-Lead Manager
 BB&T Capital Markets, Co-Manager
2
Introduction
Company Overview
•
One of the largest specialty wire and cable distributors in the U.S.
•
Comprehensive value-added services
•
Broad, deep product offering - distributed approximately 20,000
SKUs in 2005
•
Majority of business driven by MRO applications, while
complemented by new capital projects
•
Successfully penetrating target vertical markets: utility, industrial
and infrastructure
•
Private branded products led by LifeGuardTM
•
Tenured management team
3
Strong Financial Momentum
($ in millions)
Gross Profit
Sales
$80
$300
$214.0
$200
$149.1
$55.7
$60
$172.7
$40
$100
$43.1
$66.4
$35.1
$41.3
$18.0
$20
$11.2
$0
$0
2003
2004
2005
Q1 '05
2003
Q1 '06
2004
2005
Q1 '05
Q1 '06
Net Income(1)
Operating Income(1)
$20
$30
$22.1
$15
$20
$12.1
$10
$10.9
$9.0
$10
$4.7
$3.2
$4.8
$4.4
$5
$1.6
$0.2
$0
$0
2003
2004
2005
Q1 '05
Q1 '06
2003
(1) Excludes litigation settlement income of $650,000 in 2004 and $672,000 in both 2005 and Q1 2005.
2004
2005
Q1 '05
Q1 '06
4
Investment Highlights
•
Industry Leading Performance
•
•
•
Attractive Industry Dynamics
•
•
•
First mover advantage with LifeGuardTM Cable
Strong Competitive Position
•
•
•
•
•
$74 billion industry growing at 2x GDP
Growth driven by new and upgraded infrastructure
Opportunity to Capture Market Share
•
•
Double digit organic sales growth
Double digit EBIT margin
Market leader with national distribution network
30+ year operating history
Investment in integrated IT system
Significant barriers to entry
Critical link in the supply chain for specialty wire and cable
We believe this is the right industry, right company and
right time to invest in Houston Wire & Cable Company
5
Right Industry
Strong Market Dynamics
•
$74 billion electrical distribution market expected to grow 7.9% in 2006
–
•
5.1% CAGR over last 20 years
$7.0 billion market in 2004 for specialty wire and cable
–
Specialty wire and cable typically ranges from 1% to 3% of capital value
of investment
Full-Line
Electrical
Distributors
Niche
Distributors
• Largest segment of the
electrical distribution
market
• Example firms: GE
Supply, Graybar,
WESCO
• Includes niche
providers of products
and services
• Includes HWC and
other specialty wire
and cable providers
Primary Customers
Other Channels
• Includes distributors
from other segments
Other Customers
6
Sales Channel for Specialty Wire and Cable
•
Transactions that require customization and high service levels are
more likely to involve a specialty wire and cable distributor such as
HWC
Manufacturers versus Specialty Distributors
Manufacturer
Specialty Wire and Cable
Distributor
Bulk Orders
Customized Orders
Limited Product
Availability
Broad Product Availability
Minimum Service Levels
Comprehensive Service
Offering
No Inventory
Management
Inventory Management
Long Lead Times
Same Day Shipment
7
Right Company
Critical Role in the Supply Chain for Specialty Wire and Cable
We Offer
Manufacturers
We Offer
Customers
• Efficient order sizes
• Incremental revenue
• Nationwide sales and
marketing presence
• Restricted brands
• Knowledgeable
technical support
personnel
• Preservation of
market share
• Short lead times
• National distribution
platform
• Elimination of
inventory and
warehouse
investment
We Offer
End Users
• Application
engineering
• Just-in-time shipment
• Custom lengths;
minimize waste
• Cable management
programs
• Internet-based
inventory access
• Approximately
20,000 SKUs
8
Specialized Product Offering
•
Extensive array of
specialty wire and
cable
•
Approximately 20,000
SKUs with 45,000 reels
in stock
Control & Power
Electronic
Flexible & Portable Cords
•
High quality products
from leading
manufacturers
•
Large inventory
facilitates same day
shipment
•
Custom cut products
that are ready for use
at destination site
•
Exclusive supplier of
LifeGuardTM and other
private branded
products
Instrumentation & Thermocouple
Medium Voltage
Continuous Armor
Interlocked Armor
Lead Wire & High Temperature
Category & Premise
9
National Distribution Network
•
Eleven strategically located
distribution facilities
•
24/7/365 nationwide
customer service
•
516,000 total square feet
•
Capacity for significant
additional sales volume
•
Inventory customized by
region
•
100% bar-coded inventory
•
Centrally managed
purchasing, logistics,
accounting and
administration
•
ISO 9001:2000 processes
Focus on Operational Excellence
•
Drive for “Best-in-Class” through
continuous improvement
•
Shipping accuracy 99.9%
•
Order accuracy 99.9%
•
94% customer satisfaction
10
Houston Headquarters and Distribution Center
11
Experienced Management Team
Name
Position
Years of
Company
Experience
Chuck Sorrentino
President, Chief Executive Officer and Director
7
Nic Graham
Chief Financial Officer, Treasurer and Secretary
21
Jim Pokluda
Vice President, Marketing and Merchandising
19
Chris McLeod
Vice President, Logistics
5
Marcus Jones
Vice President, Southeast Region
6
Greg Donato
Vice President, Northeast Region
12
Eric Blankenship
Vice President, National Business Development
25
Eric Davis
Vice President and Controller
12
12
Formidable Barriers to Entry
24/7/365 Service
Strong
Balance
Sheet
Restricted
Lines
94% Customer
Satisfaction
13
Growth Strategies
New Target
Markets
• Penetrate new target markets through realigned marketing efforts
Sales Force
Expansion
• Implement pull through strategy
LifeGuardTM
• Leverage proprietary LifeGuardTM market opportunity
Operational
Excellence
• Continue operational excellence to drive industry leading efficiencies
Acquisitions
• Opportunistically pursue acquisitions
14
Market Opportunity
$4 Billion Estimated Addressable Annual Wire & Cable Market Size
Targeted
Industrials
Proprietary
Electronic
Cable
Traditional
Market
Utility
• Power Generation
• Environmental Compliance
LifeGuardTM
Opportunity
Engineering &
Construction
Substantial Organic Growth Opportunities With New Markets
15
Leverage Proprietary LifeGuardTM Market Opportunity
•
Estimated $1.75 billion potential U.S. market (assumes similar penetration
rates as European and Asian markets)
•
Demonstrated market acceptance of low-smoke, zero-halogen products in
Europe and Asia for many years
•
First-mover advantage in low-smoke, zero-halogen products in the U.S.
•
LifeGuardTM already accepted for use by over 300 end-users in the U.S.
•
Significant market opportunity across vertical markets
– Power generation, wastewater treatment, data centers, etc.
•
Proprietary product construction
•
Significant barriers to entry
16
Benefits of LifeGuardTM Cable
•
Benefits of low-smoke,
zero-halogen compounds
in the event of fire
– Emits minimal smoke
Conventional
Cable
Low Smoke Zero
Halogen Cable
– Eliminates toxicity
from halogenated
acid gases
– Protects equipment
from corrosion
caused by
halogenated acid
gases
•
Ideal for use in
environments where
high-performance,
reliability, and equipment
protection are required
17
Penetrate New Target Markets
Engineering & Construction
Key Drivers in Target Markets
Infrastructure Market
Infrastructure
•
Engineering and construction firms overseeing active
projects totaling approximately $221 billion
Energy
•
Continued construction of wastewater treatment facilities
estimated at $25 to $41 billion annually
•
Capital investment in oil and gas infrastructure is expected
to total approximately $6 trillion through 2030
Utility
Utility Market
Petrochemical
•
Power generating facilities needed to parallel population
growth
•
Continued increases in energy demands
General Manufacturing
Wastewater Treatment
–
•
World energy consumption is expected to increase
over 50% by 2030, requiring $17 trillion of investment
($625 billion per year)
Federally mandated pollution control projects
Industrial Market
Transportation
Communications
•
•
•
Growth in diverse manufacturing and production industries
Productivity and capacity expansion
Recurring and increasing levels of MRO needs
18
Implement Pull Through Strategy
Pull through strategy creates valuable sales partnership with electrical
distributor customers
•
Sales channel expansion initiative was implemented in 2003 to leverage the strength of
HWC's product and service platforms and market position
•
Increased outside sales resources and sales force, while introducing new management
systems
Realigned compensation structure
•
Electrical
Distribution
Other
Channels
 e.g., OEMs,
International, Industrial
Distributors
Targeted
Industrials
Engineering &
Construction
Industrial
Contractors
Utilities
19
Operational Excellence Drives Industry Leading Efficiencies
As compared with typical electrical distributors…
2005 HWC
PAR Results
(1)
HWC Outperforms
Industry Averages
Sales Growth (%)
23.9%
11.1%
+115.1%
Gross Profit (%)
26.0%
22.2%
+17.3%
EBIT (%)
10.3%
3.2%
+221.9%
EBIT to Total Assets
27.9%
10.5%
+157.5%
Sales Per Employee
$780,865
$446,459
+74.9%
EBIT Per Employee
$83,095
$14,577
+455.5%
(1) Performance Analysis Review (“PAR”), issued by the National Association of Electrical Distributors (“NAED”), results reflect
2005 industry data for typical electrical distributors.
20
Operational Excellence Drives Industry Leading Efficiencies
As compared with the most recent results for select industry participants…
Q1 ’06 Gross Margin
Q1 ’06 Sales Growth (YOY)
60%
30%
54.1%
50%
25%
40%
20%
27.7%
30%
12.4%
22.8%
20.0%
10%
5%
10%
0%
0%
HWC
WESCO
Anixter
HWC
Belden
Q1 ’06 Operating Income Margin
16%
14%
12%
10%
8%
6%
4%
2%
0%
24.0%
15%
22.1%
20%
27.1%
Belden
WESCO
Q1 ’06 Operating Income to Total Assets
12%
13.5%
Anixter
10.1%
10%
8%
8.4%
6.1%
5.6%
6%
4.6%
2.9%
4%
2.1%
2%
0%
HWC
Belden
WESCO
Anixter
HWC
WESCO
Anixter
Belden
21
Financial Overview
Financial Highlights
•
Following a strategic acquisition in 2000, management focused on
business integration and customer rationalization
•
Strong momentum from 2003 to 2005 driven by new growth
initiatives
– Organic sales CAGR of 20%
– Operating income CAGR of 117%
– Net income CAGR of 678%
•
Capital expenditures less than 1% of sales
•
Strong free cash flow
•
Profitability enhancements
22
Profitability Enhancements
Increased gross margins
driven by favorable
product mix and vendor
rebates
Increased efficiencies and
reduced operating
expenses as a % of sales
Significant increases in
operating margin
Operating Expenses as a
Percentage of Sales *
Gross Margin
28.0%
Operating Margin *
25.0%
16.0%
14.0%
Gross Margin
26.0%
25.0%
24.0%
23.0%
20.0%
12.0%
Operating Margin
Operating Expenses as a % of Sales
27.0%
15.0%
10.0%
10.0%
8.0%
6.0%
4.0%
5.0%
22.0%
2.0%
21.0%
0.0%
2003
2004
2005
Q1
2006
0.0%
2003
2004
2005
* Excludes litigation settlement income of $650,000 and $672,000 in 2004 and 2005, respectively.
Q1
2006
2003
2004
2005
Q1
2006
23
Financial Summary - 2003 to Q1 2006
($ in thousands)
Three Months Ended
March 31,
Fiscal Year Ended December 31,
2003
2004
2005
2005
2006
$149,084
$172,723
$213,957
$43,106
$66,428
Cost of sales
113,959
131,419
158,240
31,949
48,437
Gross Profit
35,125
41,304
55,717
11,157
17,991
Salaries and commissions
14,588
16,665
18,707
4,289
5,072
Other operating expenses
13,857
12,392
14,016
3,408
3,748
502
501
500
125
125
(650)
(672)
(672)
0
1,481
876
398
110
93
30,428
29,784
32,949
7,260
9,038
Operating income
4,697
11,520
22,768
3,897
8,953
Interest expense
4,186
3,544
2,955
713
1,054
Income before income taxes
511
7,976
19,813
3,184
7,899
Income tax provision
295
3,167
7,299
1,173
3,097
Net income
$216
$4,809
$12,514
$2,011
$4,802
Fully Diluted EPS
$0.01
$0.29
$0.69
Sales
Operating expenses:
Management fee
Litigation settlement
Depreciation and amortization
Total operating expenses
(1)
0
(2)
Interest expense in Q1 2006 reflects additional debt used to fund a $20 million dividend payment on December 30, 2005.
$0.12
(2)
$0.26
(1)
(2)
24
Capitalized for Continued Growth
($ in thousands)
As of March 31, 2006
Actual
Cash and Equivalents
$
--
As Adjusted
$
--
Book Overdraft
2,093
2,093
Current Portion of Long-Term Obligations
3,783
450
43,857
3,418
Term A Loan
3,975
3,975
Term B Loan
6,111
--
53,943
7,393
5,597
55,480
Long-Term Obligations:
Revolving Loan
Total Long-Term Obligations
Total Stockholders’ Equity
25
Right Time
Right Time to Invest
Double-Digit
Organic Growth
Invest in Growth
Strategies
Strong Cash
Flows
Maximize
Shareholder
Value
Operational
Excellence
Industry
Leading EBIT
Margins
26