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IPO Roadshow Presentation Final

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IPO Roadshow Presentation Final Powered By Docstoc
					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)


                                   Sales                                                                    Gross Profit
   $300                                                                                 $80

                                   $214.0                                                                        $55.7
                                                                                        $60
   $200                 $172.7
            $149.1                                                                                       $41.3
                                                                                        $40      $35.1

   $100                                                               $66.4                                                         $18.0
                                                           $43.1                        $20                                $11.2

      $0                                                                                 $0
             2003        2004       2005                  Q1 '05      Q1 '06                     2003    2004    2005      Q1 '05   Q1 '06



                    Operating Income(1)                                                                    Net Income(1)
   $30                                                                                  $20

                                    $22.1
                                                                                        $15
   $20                                                                                                           $12.1
                                                                                        $10
                        $10.9
                                                                       $9.0
   $10                                                                                                   $4.4                       $4.8
             $4.7                                          $3.2                          $5
                                                                                                                           $1.6
                                                                                                  $0.2
    $0                                                                                   $0
            2003        2004        2005                  Q1 '05      Q1 '06                     2003    2004    2005      Q1 '05   Q1 '06


(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
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
                                          Niche
        Electrical                                                   Other Channels
                                       Distributors
       Distributors
   • Largest segment of the         • Includes niche                • Includes distributors
     electrical distribution          providers of products           from other segments
     market                           and services
   • Example firms: GE              • Includes HWC and
     Supply, Graybar,                 other specialty wire
     WESCO                            and cable providers




        Primary Customers                                         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
                                                      Specialty Wire and Cable
           Manufacturer                                     Distributor

             Bulk Orders                                 Customized Orders


           Limited Product
                                                      Broad Product Availability
             Availability

                                                      Comprehensive Service
       Minimum Service Levels
                                                            Offering

            No Inventory
                                                       Inventory Management
            Management


          Long Lead Times                               Same Day Shipment

                                                                                   7
Right Company
Critical Role in the Supply Chain for Specialty Wire and Cable



         We Offer                   We Offer                  We Offer
       Manufacturers               Customers                 End Users

   • Efficient order sizes   • Incremental revenue     • Application
                                                         engineering
   • Nationwide sales and    • Restricted brands
     marketing presence                                • Just-in-time shipment
                             • Short lead times
   • Knowledgeable                                     • Custom lengths;
     technical support       • National distribution     minimize waste
     personnel                 platform
                                                       • Cable management
   • Preservation of         • Elimination of            programs
     market share              inventory and
                               warehouse               • Internet-based
                               investment                inventory access

                             • Approximately
                               20,000 SKUs



                                                                                 8
Specialized Product Offering

 •   Extensive array of        Control & Power
     specialty wire and
     cable
                               Electronic
 •   Approximately 20,000
     SKUs with 45,000 reels
     in stock
                               Flexible & Portable Cords
 •   High quality products
     from leading              Instrumentation & Thermocouple
     manufacturers

 •   Large inventory           Medium Voltage
     facilitates same day
     shipment
                               Continuous Armor
 •   Custom cut products
     that are ready for use
     at destination site
                               Interlocked Armor
 •   Exclusive supplier of
     LifeGuardTM and other     Lead Wire & High Temperature
     private branded
     products                  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                             Focus on Operational Excellence

•   100% bar-coded inventory       •   Drive for “Best-in-Class” through
                                       continuous improvement
•   Centrally managed              •   Shipping accuracy 99.9%
    purchasing, logistics,
    accounting and                 •   Order accuracy 99.9%
    administration                 •   94% customer satisfaction
•   ISO 9001:2000 processes
                                                                           10
Houston Headquarters and Distribution Center




                                               11
Experienced Management Team

                                                                         Years of
        Name                             Position                        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




                                                  Restricted
             Balance




                                                    Lines
              Strong

              Sheet




                               94% Customer
                                Satisfaction



                                                               13
Growth Strategies


 New Target    • Penetrate new target markets through realigned marketing efforts
  Markets



 Sales Force   • Implement pull through strategy
 Expansion




 LifeGuardTM   • Leverage proprietary LifeGuardTM market opportunity



 Operational   • Continue operational excellence to drive industry leading efficiencies
 Excellence




Acquisitions   • Opportunistically pursue acquisitions

                                                                                          14
Market Opportunity


          $4 Billion Estimated Addressable Annual Wire & Cable Market Size

                                     Proprietary
                       Targeted      Electronic    Traditional
                       Industrials   Cable         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
                                    Conventional   Low Smoke Zero
        – Emits minimal smoke          Cable        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
 Utility                          to total approximately $6 trillion through 2030
                              Utility Market

 Petrochemical                •   Power generating facilities needed to parallel population
                                  growth
                              •   Continued increases in energy demands
 General Manufacturing              –   World energy consumption is expected to increase
                                        over 50% by 2030, requiring $17 trillion of investment
                                        ($625 billion per year)
 Wastewater Treatment
                              •   Federally mandated pollution control projects
                              Industrial Market
 Transportation               •   Growth in diverse manufacturing and production industries
                              •   Productivity and capacity expansion
 Communications               •   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                                                  Other
          Distribution                                                Channels
                                                                     e.g., OEMs,
                                                                      International, Industrial
                                                                      Distributors

      Targeted     Engineering &    Industrial
                                                    Utilities
     Industrials   Construction    Contractors


                                                                                                  19
Operational Excellence Drives Industry Leading Efficiencies


 As compared with typical electrical distributors…

                                                                                                           HWC Outperforms
                                                                                                (1)
                                              2005 HWC                       PAR Results                   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 Sales Growth (YOY)                     Q1 ’06 Gross Margin
  60%    54.1%                                30%   27.1%
                                                             24.0%     22.8%
  50%                                         25%
                                                                                 20.0%
  40%                                         20%
                 27.7%
  30%                     22.1%               15%
  20%                               12.4%     10%
  10%                                          5%
  0%                                           0%
         HWC     WESCO    Anixter   Belden           HWC     Anixter   Belden    WESCO


   Q1 ’06 Operating Income Margin             Q1 ’06 Operating Income to Total Assets
  16%                                         12%
         13.5%                                      10.1%
  14%                                         10%
  12%
  10%                                          8%
                  8.4%
   8%                     6.1%                 6%             4.6%
                                    5.6%
   6%                                          4%                      2.9%
   4%                                                                            2.1%
   2%                                          2%
   0%                                          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
                                                                                   Increased efficiencies and
          driven by favorable                                                                                                                   Significant increases in
                                                                                   reduced operating
          product mix and vendor                                                                                                                operating margin
                                                                                   expenses as a % of sales
          rebates

                                                                                                   Operating Expenses as a
                          Gross Margin                                                                                                                           Operating Margin *
                                                                                                    Percentage of Sales *


                  28.0%                                                                           25.0%                                                  16.0%


                  27.0%                                                                                                                                  14.0%




                                                             Operating Expenses as a % of Sales
                                                                                                  20.0%
                                                                                                                                                         12.0%
                  26.0%




                                                                                                                                      Operating Margin
                                                                                                                                                         10.0%
   Gross Margin




                                                                                                  15.0%
                  25.0%
                                                                                                                                                         8.0%
                  24.0%
                                                                                                  10.0%
                                                                                                                                                         6.0%

                  23.0%
                                                                                                                                                         4.0%
                                                                                                  5.0%
                  22.0%                                                                                                                                  2.0%


                  21.0%                                                                           0.0%                                                   0.0%
                          2003   2004   2005    Q1                                                        2003   2004   2005    Q1                                2003   2004   2005    Q1
                                               2006                                                                            2006                                                    2006


* Excludes litigation settlement income of $650,000 and $672,000 in 2004 and 2005, respectively.
                                                                                                                                                                                              23
Financial Summary - 2003 to Q1 2006
($ in thousands)
                                                                                                                               Three Months Ended
                                                               Fiscal 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
                                                                                                                                                            (1)
  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

                                                                                                                    (2)                   (2)               (2)
  Fully Diluted EPS                                              $0.01               $0.29                $0.69                  $0.12            $0.26


(1)   Interest expense in Q1 2006 reflects additional debt used to fund a $20 million dividend payment on December 30, 2005.                                      24
Capitalized for Continued Growth
($ in thousands)


                                                   As of March 31, 2006

                                                 Actual        As Adjusted

  Cash and Equivalents                       $      --          $      --

  Book Overdraft                                 2,093              2,093

  Current Portion of Long-Term Obligations       3,783               450

  Long-Term Obligations:

        Revolving Loan                       43,857                 3,418

        Term A Loan                              3,975              3,975

        Term B Loan                              6,111                 --

             Total Long-Term Obligations     53,943                 7,393

  Total Stockholders’ Equity                     5,597          55,480
                                                                             25
Right Time
Right Time to Invest


                           Double-Digit
                          Organic Growth




      Invest in Growth                             Operational
         Strategies            Maximize            Excellence
                              Shareholder
                                 Value




                                              Industry
                Strong Cash
                                            Leading EBIT
                   Flows
                                              Margins

                                                                 26

				
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