roadshow presentation 2006 initial public offering
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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
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
$11.2$18.0
$55.7
$41.3$35.1
$0
$20
$40
$60
$80
2003 2004 2005 Q1 '05 Q1 '06
$43.1$66.4
$214.0
$172.7$149.1
$0
$100
$200
$300
2003 2004 2005 Q1 '05 Q1 '06
Strong Financial Momentum
Sales Gross Profit
($ in millions)
Operating Income(1) Net Income(1)
$3.2
$9.0
$22.1
$10.9
$4.7
$0
$10
$20
$30
2003 2004 2005 Q1 '05 Q1 '06
$1.6
$4.8
$12.1
$4.4
$0.2$0
$5
$10
$15
$20
2003 2004 2005 Q1 '05 Q1 '06
CAGR 20%
Growth 54%
CAGR 678%
Growth 200%
CAGR 26%
Growth 61%
CAGR 117%
Growth 181%
(1) Excludes litigation settlement income of $650,000 in 2004 and $672,000 in both 2005 and Q1 2005.4
Investment Highlights
• Industry Leading Performance• Double digit organic sales growth
• Double digit EBIT margin
• Attractive Industry Dynamics• $74 billion industry growing at 2x GDP
• Growth driven by new and upgraded infrastructure
• Opportunity to Capture Market Share• First mover advantage with LifeGuardTM Cable
• Strong Competitive Position• 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
• $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
Strong Market Dynamics
Full-Line Electrical
Distributors
Niche Distributors Other Channels
• 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
• Includes distributors from other segments
Other CustomersPrimary Customers
6
Specialty Wire and CableDistributor
Sales Channel for Specialty Wire and Cable
Manufacturers versus Specialty Distributors
• Transactions that require customization and high service levels are more likely to involve a specialty wire and cable distributor such as HWC
Bulk Orders Customized Orders
Limited Product Availability
Broad Product Availability
Minimum Service LevelsComprehensive Service
Offering
No Inventory Management
Inventory Management
Long Lead Times Same Day Shipment
Manufacturer
7
Critical Role in the Supply Chain for Specialty Wire and Cable
We Offer Manufacturers
We Offer Customers
We OfferEnd Users
• Efficient order sizes
• Nationwide sales and marketing presence
• Knowledgeable technical support personnel
• Preservation of market share
• Incremental revenue
• Restricted brands
• Short lead times
• National distribution platform
• Elimination of inventory and warehouse investment
• Approximately 20,000 SKUs
• Application engineering
• Just-in-time shipment
• Custom lengths; minimize waste
• Cable management programs
• Internet-based inventory access
8
Specialized Product Offering
• Extensive array of specialty wire and cable
• Approximately 20,000 SKUs with 45,000 reels in stock
• 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
Control & Power
Electronic
Flexible & Portable Cords
Instrumentation & Thermocouple
Medium Voltage
Continuous Armor
Interlocked Armor
Lead Wire & High Temperature
Category & Premise9
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
• Drive for “Best-in-Class” through continuous improvement
• Shipping accuracy 99.9%
• Order accuracy 99.9%
• 94% customer satisfaction
Focus on Operational Excellence
10
Formidable Barriers to Entry
24/7/365 Service
94% CustomerSatisfaction
Str
ong
Bal
ance
S
heet
Restricted Lines
Long
-Ter
m
Relatio
nship
sSpecialized
Sales Force
Broad
and
Deep
Inve
ntor
y
National
Platform
13
Growth Strategies
Acquisitions • Opportunistically pursue acquisitions
Operational Excellence
• Continue operational excellence to drive industry leading efficiencies
LifeGuardTM • Leverage proprietary LifeGuardTM market opportunity
Sales Force Expansion
• Implement pull through strategy
New Target Markets
• Penetrate new target markets through realigned marketing efforts
14
$4 Billion Estimated Addressable Annual Wire & Cable Market Size
Substantial Organic Growth Opportunities With New Markets
Market Opportunity
Traditional Market
Engineering & Construction
Utility• Power Generation• Environmental Compliance
Proprietary ElectronicCable
Targeted Industrials
LifeGuardTM
Opportunity
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
– 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
Conventional Cable
Low Smoke Zero Halogen Cable
17
Penetrate New Target Markets
Communications
General Manufacturing
Transportation
Energy
Infrastructure
Utility
Wastewater Treatment
Petrochemical
Engineering & Construction
Infrastructure Market
• Engineering and construction firms overseeing active projects totaling approximately $221 billion
• 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 Market
• Power generating facilities needed to parallel population growth
• Continued increases in energy demands
– 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
• Growth in diverse manufacturing and production industries
• Productivity and capacity expansion
• Recurring and increasing levels of MRO needs
Key Drivers in Target Markets
18
Implement Pull Through Strategy
• 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
Pull through strategy creates valuable sales partnership with electrical distributor customers
Electrical Distribution
Other Channels
Targeted Industrials
Engineering & Construction
Industrial Contractors Utilities
e.g., OEMs, International, Industrial Distributors
19
Operational Excellence Drives Industry Leading Efficiencies
(1) Performance Analysis Review (“PAR”), issued by the National Association of Electrical Distributors (“NAED”), results reflect 2005 industry data for typical electrical distributors.
As compared with typical electrical distributors…
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Operational Excellence Drives Industry Leading Efficiencies
As compared with the most recent results for select industry participants…
12.4%
22.1%27.7%
54.1%
0%
10%
20%
30%
40%
50%
60%
HWC WESCO Anixter Belden
Q1 ’06 Sales Growth (YOY)
20.0%22.8%24.0%
27.1%
0%
5%
10%
15%
20%
25%
30%
HWC Anixter Belden WESCO
Q1 ’06 Gross Margin
5.6%6.1%
8.4%
13.5%
0%2%4%
6%8%
10%12%
14%16%
HWC Belden WESCO Anixter
Q1 ’06 Operating Income Margin
2.1%2.9%
4.6%
10.1%
0%
2%
4%
6%
8%
10%
12%
HWC WESCO Anixter Belden
Q1 ’06 Operating Income to Total Assets
21
• 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
Financial Highlights
22
Profitability Enhancements
Increased gross margins driven by favorable product mix and vendor rebates
Gross Margin
21.0%
22.0%
23.0%
24.0%
25.0%
26.0%
27.0%
28.0%
2003 2004 2005 Q12006
Gro
ss M
arg
in
Operating Expenses as a Percentage of Sales *
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2003 2004 2005 Q12006
Op
erat
ing
Exp
ense
s as
a %
of
Sal
es
Operating Margin *
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2003 2004 2005 Q12006
Op
erat
ing
Mar
gin
Increased efficiencies and reduced operating expenses as a % of sales
Significant increases in operating margin
* Excludes litigation settlement income of $650,000 and $672,000 in 2004 and 2005, respectively.
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Financial Summary - 2003 to Q1 2006
(1) Interest expense in Q1 2006 reflects additional debt used to fund a $20 million dividend payment on December 30, 2005.
Three Months EndedFiscal Year Ended December 31, March 31,
2003 2004 2005 2005 2006
Sales $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
Operating expenses:
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
Management fee 502 501 500 125 125
Litigation settlement 0 (650) (672) (672) 0
Depreciation and amortization 1,481 876 398 110 93
Total operating expenses 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 (1)
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 $0.69
($ in thousands)
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