In July we applied all the funds received from the PPP loan to our Revolver debt. The Company received a Paycheck Protection Program (“PPP”) loan of $6.2 million on funded under the Coronavirus Aid, Relief, and Economic Security Act. The Company made progress reducing net debt in the second quarter, although receipt of products which had been ordered before the recession temporarily offset some of the Company’s underlying progress. (2) Operating expenses exclude non-cash trade name impairment charges of $0.2 million in the second quarter 2020, but includes severance and accrued vacation expenses. Gross margin for 2020 also reflects an impairment charge of $0.6 million for inventory returned under a one-time agreement with a supplier. (1) Gross margin decreased to 21.3% in 2020 from 24.1% in 2019 primarily due to the decline in demand for our products as a result of the pandemic and the decline in the oil and gas market, combined with the relatively low price of copper through much of the quarter.
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With those items mostly behind us, we anticipate additional savings in the third and fourth quarters, as we see the full impact of our expense reduction initiatives, as well as savings from LEAN projects, processes and controls.
During the second quarter, operating expenses included severance and accrued vacation payments, and other expenses generated by shrinking our cost structure. These measures reduced second quarter operating expenses by $1.6 million, or approximately 9% sequentially versus the first quarter. We continued to invest in initiatives to improve sales, operational productivity, and customer experience to service customer demand from COVID-19 recovery efforts and regional markets minimally affected by the pandemic We announced and implemented a program to more aggressively monetize excess working capital and to use cash generated to pay down the Company’s net debt, with a year-end goal of reducing it to $40 million We announced and implemented a 20% reduction in operating expenses Restoration of cash flow and profitability remain top priorities. Metals price deflation and the resulting negative impact on revenue and gross marginĪ sharp reduction in the commodity prices for oil and natural gas, which negatively impacted energy company’s maintenance and repair capital expendituresĪ significant recessionary downturn in most end markets, especially service businesses The sales decline and operating loss were caused by three simultaneous factors:
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