Q1 2020 Earnings Call

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Ladies and gentlemen, today's conference is scheduled to begin momentarily until that time unless will again be placed on musical we thank you for patients.

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I would now like to turn call over to the look.

<unk>, President and Chief Financial Officer. Please go ahead.

Thank you operator, and good morning, everyone. We would go first like to apologize for the delay.

There have been some technical difficulties with the with the line.

And we appreciate your patience.

So thank you won't be topics first quarter 2020 earnings call.

Me this morning, as John Bray, Bleep, President and Chief Executive Officer, and Bob Puerile Executive Vice President and Chief operating officer. During the call today, we will discuss our first quarter 2020, operating and financial results and provide commentary on our aggressive efforts to combat the effects of the cold at 19 pandemic.

Following the prepared remarks, the operator, we'll open up the lines for questions.

Let me take them all much remind you that today's discussion reflects management's views as of today.

May include forward looking statements actual results could differ materially from those currently anticipated iconic disclaims any obligation to update information discussed on this call as result of developments that occur afterward.

Also to the extent you're listening to this call a replay information could have already changed.

Additional information about factors that could potentially impact the financial results is included in the earnings release issued yesterday in our filings with the FCC.

During this call certain non-GAAP financial measures will be discussed a description of any non-GAAP adjustments and reconciliation to the most comparable GAAP adjustments can be found in the earnings release issued yesterday and then on the company's website at Www Dot Dot com.

This call is being webcast live and is being recorded if you ask a question. It will be included in our life transmission spend in any future use of the recording you can we play to call on the Investor Relations page of the web site under financials.

And now it's my pleasure to turn the call over to John for opening remarks. Thank you Phil.

Good morning, and thank you for joining our first quarter 2020 earnings call.

During the call, we will discuss our first quarter performance as well as our cold. It 19 readiness in response plan.

We'll begin by providing an overview of our quarterly results and covert Nike plan bobbing, Phil will discuss our first quarter results and I will close the call with a more detailed status of our cold and thanking plan.

Even though we experienced some level of this disruption as result of the pandemic towards the end of the first quarter. Our operating results were significantly better across every key financial metric as compared to the prior year quarter.

On a standalone basis, the first quarter of Twentytwenty marked the first full quarter that our results began to reflect the positive impact we planned and anticipated since embarking on our accelerated growth strategy.

Fortunately as our results were just beginning to reflect the impact of our efforts in strategy Oh, well like virtually every other company on the planet changed.

Yeah unprecedented magnitude of the Corona wide with pandemic forced us to shift resources away from the continued execution of our growth strategy to focus on the development and implementation of our Cobra 19 readiness and response plan.

While we believe we were ahead of the curve and developing executing consistently updating our plan.

Pandemic has had a devastating effect on the economy, which has resulted in unparalleled levels of U.S. unemployment.

Furthermore, there was no certainty or consensus regarding the duration and impact a pandemic will continue to have on the U.S. economy.

Especially in the back the virus researchers at some point in the future.

Based on all the information available to us today.

Dissipate the pandemic will negatively affect our performance and the second quarter and possibly throughout the second half of 2020.

As such we have taken aggressive actions to mitigate its potential effect on our business.

Later in the call I will address the key components of our plans as well as the actions we've taken to date.

Now I will turn the call over to bomb to discuss our first quarter performance.

Good morning, everyone.

Provide enough.

Operationally sales initiatives discussed.

Does that get on first quarter performance.

I will then discuss the overall well enough.

For the quarter.

The fourth quarter sockets again, so the positive trends, we discussed on our yearend call just nine weeks ago.

Well focus on more profitable non commoditized sales delivered higher year over year sales the walls higher gross margins.

Thank you Todd operating expenses were in line with our expectations.

Our sales increased $5.6 million or 2.8% in the first quarter 20 Twond.

This was a result of the increased levels of construction activity, which began in the second half in 2019, coupled with the mobile with the continued momentum from our strategic sales initiatives.

This important national lunch strategy, you have established flash level sales initiatives based on local market off the team.

Our sales growth in strategic categories are generally at higher margins I don't have pushed the ship product mix toward non commoditized products are generating you desire who so.

Yes cost the continued focus on pricing strategy and they've lost increased gross margins by 120 basis points over the prior year to 20.1% in the first quarter.

Some highlights related to our strategic sales initiatives include.

21% growth.

Definitely warehouse sales with a corresponding margin increase of 360 basis points.

Secondly, a significant portion the sales and marketing world, that's something additional market share gains.

As we convert more core another customer segments, what pockets nails from Prober.

Sure.

And I have for some sales growth refinished door, which is a key value added service proposition for our customers.

For our debt went from sales out of world increased by 38.4% with margin growth of 42.9%.

Third the Q1 2019.

Yeah overall odd warehouse sales increased 7.3%, while direct sales, which are generally less profitable based on sales mix declined 10 point, we foresaw [noise].

These are just some of the highlights related towards strategic initiatives. So they demonstrate that our plan is gaining traction we expect that like the rest of our business a pandemic, we'll have a significant impact as we move for the remainder of 2020.

From an operating expense perspective, we lowered our expense ratio like 90 basis points as compared to the first quarter of 2019 from 20.1% to 19.2%.

Improved leverage was driven in part by some of the cost reduction actions, we took a fourth quarter of 2019.

Additionally, as stated on previous calls, we adjusted and right size, our inventory by location, which require a higher than normal number of inventory transfers between locations, resulting in higher personnel logistics costs.

These transfers were largely completed by the end of 2019.

From a working capital perspective in anticipation of lower sale man.

To me to rightsize, our inventory levels rationalize product lines and focus our resources on our strategic product initiatives.

As we move through the balance of a year. We will continue this focus and not just based on the change in bottom.

We also continue to keep margin improvement to our pricing strategy and focus on strategic value add programs like our fastener freehold I'm pretty finished exterior door business.

Now I'll turn the call over to fill and stuff from financial performance.

Thank you Bob.

First quarter 2020, net sales were 203 million, which was 5.6 million for 2.8% higher than the first quarter 2019.

Increased levels of construction activity plus momentum from our strategic initiatives helps down the declining sales environment. We saw in the second half of 2019.

Gross margin was 20.1% of net sales during the first quarter 2020 compared to 18.9% in the first quarter of 2019.

The increase in margins is consistent with the observations and trends we discussed on our fourth quarter call as we continue to focus on higher margin sales opportunities.

Operating expenses decreased 600000, a 1.5% to 39 million representing 19.2% of net sales in the first quarter 2020, compared to 39.6 million or 20.1% of net sales in the first quarter of 20000 2019.

Personnel expenses declined 1.2 million, primarily related to lower contract labor and medical expenses, well Nonpersonnel expenses increased 600000, largely due to higher insurance claims.

We conducted a review of our goodwill and recorded a 9.5 million noncash impairment charge.

Impairment charge was largely driven by the sustained decline in our market capitalization, coupled with a cold at 19 environment.

Our operating loss in the first quarter was 7.6 million.

Adjusted for the goodwill impairment charge, we had operating income of 1.9 million compared to an operating loss of 2.2 million a year ago.

Adjusted EBITDA was 3.5 million during the first quarter 2020, as compared to negative 300000 for the first quarter of 2019.

Next I will address our balance sheet and liquidity.

We had total debt of 149.9 million at March 31, 2020, compared to 145.3 million a year ago.

The increase is primarily due to higher working capital levels as compared to a year ago, largely driven by higher accounts receivable from increased sales.

Cash used to continuing operating activities was 14.4 million in the first quarter of 2020.

Compared to cash use of 5.6 million in the first quarter 2019.

You could the seasonality of our business, we typically build working capital in the first quarter.

Total available liquidity was 55.4 million.

As of March 31, 2020, as compared to 53 million at March 31 2019.

From an overall liquidity perspective, given the anticipated decline in market demand.

And proactive in communications with our senior lending partners as well those fitness business partners throughout the supply chain. We believe it isn't the best interest of supply chain partners to work together through this difficult environment, we have taken precautionary measures across various cash management checkpoints, including capital spending expense reductions credit policies.

In other areas to address the full spectrum of levers available to us.

Now I will turn the call over to John for closing comments.

You Phil.

I'm very proud of them work the entire organization did in 2019 that directly led to the results we achieved in the first quarter.

First quarter performance was in line with our expectation as was the trends we discussed on our last call.

While we do not why we did not experience pandemic related disruption to the business until very late in the first quarter in mid February we recognized the potential threats that kobin 19, coals to the business and maybe a sharp and immediate pivot to develop a readiness and response plan.

We completed and implemented the first version of our Cobot Nike plan on February 29, and have consistently updated and modified the plan as more information became available and as the business environment continued to change.

The primary goals of the plans have been and continued to be to create a work environment that protects the health and wellbeing of our associates.

To support the country's efforts to control the spread of the virus.

I have to protect the interests of all politics stakeholders by ensuring we have ample liquidity to manage through the crisis.

The primary components of our plan, our associates safety health and welfare.

Suit of all potential benefits of the cares act applicable to hike.

Yes, its cash management and operational restructuring tend to expense reduction.

Since February 29, we have consistently updated our associates safety health and welfare plan.

Based on Cold 19 employee safety guidance from the centers for disease control Department of Labor and occupational safety and Health administration.

We developed and implemented procedures designed to keep our associates safe, including but not limited to silly cleanliness and sanitation staggered work hours workstation distancing required temperature checks prior to entering any location and required to use a person.

Protection equipment.

In addition on March 20, yet we successfully completed our work from home program across the entire organization for every position that could work from home.

While only certain aspects of the cares act or clickable to hotter.

We are taking full advantage of those provisions, including the payroll tax deferral and the employee retention tax credits programs.

The goal of our cash management plan is to eliminate or defer as long as possible. All short term uses of cash.

On March 20, Threerd, we requested that all of our suppliers temporarily hold all open warehouse purchase orders that had not yet shift.

After a comprehensive analysis of our inventory levels anticipated demand.

Worked closely with our suppliers and successfully reduced our open purchase orders by nearly 36 million, eliminating a meaningful amount of our projected second quarter cash.

Simultaneously, we began collaborative working with our suppliers landlords and other key business partners to explore opportunities to adjust or mitigate our short term use of cash.

On March Thirtyth, we implemented at the first components of our cost reduction management plan like indefinitely suspending the company for on K match.

All 2020, but you did merit increases all company related travel and all Nancy related capital expenditures.

On April 20, it we instituted additional components of the plan, including but not limited to workforce adjustments temporary wage reductions ranging from 5% to 20% and the elimination of all nonpersonnel expenses that were not essential to maintaining short term operating.

Capabilities.

All of these actions were implemented in the month of March and April and therefore, our results will not reflect the full benefit of these actions until may.

As stated earlier the speed at which the environment continues to change and the level of uncertainty that continues to exist regarding the future impact of the pin down the future impact the pandemic will have on the U.S. economy considerably inhibitor, our ability to predict forecast our future operating perform.

Thanks.

While we do not provide guidance, we estimate the cumulative effect of our cost reduction cost reduction actions.

Will result in an estimated decline in operating expenses of 8.5 million to $10 million over the second and third quarters as compared to the first quarter expense structure.

In addition, we are aggressively executing every aspect of our cobot 19 plan.

We expect that the rapidly changing environment and the continued lack of clarity to what the future holds well certainly challenge us in the second quarter and possibly for the balance of the year.

The disruption the pandemic has had on our lives as well as de railing. The momentum progress results. We achieved in the first quarter is disappointing, but we are not discouraged or dissuaded.

In fact, this challenge has galvanized the rigs all of our entire management team.

As the environment continues to change we are committed to maintaining our aggressive management of every controllable aspect of the business to preserve liquidity.

I could not be more pleased with the manner that all of our associates have pulled together to steer the company through this crisis.

And I'm very proud of our entire organization.

Operator, we will now take questions.

Ladies and gentlemen.

In order to ask a question. Please press star followed by the number one of your telephone keypad. Please limit questions to one question and one follow up question.

[noise]. Your first question, that's when a lot of Dan Aaron.

Hi, I'm your stock operated under the minimum.

<unk> on the Navistar for 31 days.

Two questions did you receive potential delisting notice and if your workforce that could you. Please comment on how that might negatively impacted our company.

Well, we did job received a notice and we filed an 8-K related to the notice and for with which there's there's further information with regard to the timeline.

To comply which was extended based upon the corporate 19 environment by NASDAQ and the FCC. So I would refer you to the AK, which has all the information that I think that you might be looking for.

Thank you.

As a reminder, in order to ask a question. Please press star bulk about knowing what are your telephone keypad I get that start one.

At this time there no further questions.

Thank you operator.

Nationally and globally. The challenges we face today are unprecedented unpredictable and fraught with risk.

Future of our economy and the related impact it has on our industry and our company remain uncertain.

I believe that people generally react in one of two ways one facing a challenge of this magnitude they are either paralyzed by fear or step up lean in and embrace the challenge.

Over the course with my career and certainly over the course of the last 90 days I had been witness to and affected by bolt.

As he stakeholder in Hardick I can assure you that our management team and the entire organization has embraced this challenge and is doing everything possible to protect your interest in our company.

I want to take all of our associates for quickly adapting to a rapidly changing environment as well as the fortitude in urgency they continue to demonstrate and making difficult decisions during the unprecedented times.

I also want to think our customers for continuing to placing their trust in us to care for their business and I, especially want to thank our supply partners and other key business partners that are collaboratively working through these challenging times with US together that's been partners.

Finally, I think you for your ownership in our company and your participation in our call today and we look forward to speaking with you again, when we report our second quarter results.

Thank you ladies and gentlemen. This concludes today's conference call you may now disconnect.

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