LAWS - Earnings call transcript Q3 2019 | Distribution Solutions Group, Inc.

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Operator

Good morning, ladies and gentlemen and welcome to the Lawson Products Third Quarter 2019 Earnings Call. This call will be hosted by Michael DeCata, Lawson Products’ President and Chief Executive Officer; and Ron Knutson, Lawson Products’ Chief Financial Officer.

During this call, they will be providing an update on business as well as covering relative financial and operational information. There will then be time for questions-and-answers.

Please note that statements on this call and in the press release contain forward-looking statements concerning goals, beliefs, expectations, strategies, plans, future operating results and underlying assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those described.

during of are today. made company on statements as views addition, this based call the In The cause change. those anticipates views company that to future developments may Please that presented consider light. the information in update at point but may disclaims to obligation so. any statements company The specifically elect to made the some today, do forward-looking

November This the webcast the XXXX. via lawsonproducts.com. company’s XX, Lawson call A simulcast website will Investor Products replay internet being the audio the be website, on available Relations through is of on the page on

I will over Lawson now turn the to Products’ call DeCata. CEO, Mike

Mike DeCata

followed you Good morning results joining and Ron provide our morning This by I’ll continued results, detailed our on thank Knutson, quarter your for third questions. more the CFO will of a call. the our progress. comment review and financial

with and adjusted very trajectory again We our the as quarter. be XX% achieved third over continue the to our during results quarter we margin pleased EBITDA during

by by Bolt and were EBITDA strong quarter sales, this Supply. sales results strong driven Our MRO complemented performance leverage operating at

sales the effective daily X.X%, structure increase results Bolt with sales These X.X% quarter our including of as And a by to increased in and average Supply. X.X% drove sales Consolidated MRO XX% increase adjusted XX.X%. by segment. combined the at percent for cost EBITDA a management Lawson the grew of

between curiosity such the and is milestone. for an Previous continued with to performance. row we’ve intellectual XX% of that results. teams Congratulations commitment in the to encouraging are a our service producing Lawson better exceeded entire the the departments second improvement their to customers’ as This in quarter desired the explore use alignment our tools, teammates investments, Lean Six eye to Sigma, analytical toward and our Bolt

product. margin remain customers reinforcing service Trends premium and are finding in our value in our our that gross positive,

shortages, labor environment held at case truck MRO reps was In as in best an supervisors, on third it welders profit a and years. solve in Products’ especially mechanics, manage gross every practices has percent sales again XX.X%. problems with margin share maintenance to for range inventory, rely shop the customers finishing of Lawson many Our narrow the drivers, their relates steady That week. quarter, to their and

maximum customers in resources, critical enables turn time to maximize machine model these achieve utilization. the service productivity their from Our and

Our value the proposition more lowest cost provide makes service as Products we customers. continues for And total to valuable over our customers resonate to that alternative our Lawson time. the

on leverage our XX% XX% our With that our the couple XX% to of XX% we MRO sales second with I’d within having for continued achieved are to a stated leverage, like especially areas the quarter. exceeded Ron details. But discuss we pleased This this previously focus quarter highlight the compares business. the achieved cost growth quarter. guidance in will financial of we and favorably to management, operating

additional army remains Our government key Account XX% a customers. XX% strong. the the on on up in bases. our XXXX account adding government Sales expanded sales are second Manager top relationship several of field-based will resources compared increase our focusing We recently business to quarter. by and with of Strategic third reach strengthen strategic This quarter realized government

We also contracts to new our added three portfolio. state

cycle our track Department and Lawson the award-to-delivery of customers. time part now with our cycle market. we example time This differentiated an to become analytical has years, that, our oriented, DNA. become is that Over process increasingly the and this has us has few past in of of the report approach quote-to-award Defense An

past. strategic as positive within steps that take discussed we I’d our Additionally, accounts execute our we to account for process on the conversion continue business strategic in

locations effort focused recall, to this within win customers. site you’ll new existing As a is

third accounts, the XXX bringing quarter, existing year-to-date new added total within to locations the we locations. During new XX

and this Ten consolidation. integrated customers account grow, industry capture strategic new strategic through continue three and growth we resources, accounts added to well construction also supplies additional are in industries. positioned natural have We quarter to the

to acquisitions most the thoughtful deliver, Bolt and disciplined continues recently Our to Supply. approach in case of

Bolt XX% Canadian the of achieved top third second on nearly growth quarter. in a with XX% growth Supply of dollars, sales terrific had in quarter

with continue We appreciation to Bolt the acquisition the who and to team supports and be our to pleased corporate team thanks express like I’d Bolt and them.

in to that past, effort to retention our under initiatives. in customers. way concerted continued implementing also excellence We progress have of the a make operational we I’ve improve commented

retention as proposition This Lawson continues the continues revenue value data Our demonstrate improved we progress that sticky. to rates. this quarter is our

inventory Operationally, we effectiveness. achieved improvement and our and productivity in distributions

customer levels backorder and Our improve. order fine rates, to continue metrics completeness service

distribution Screw portfolio process a product than Screw and the integrated Screw it acquisition. provide will also our Products’ center. distribution SAP. Products kitting integrated to has prior much also had into been larger McCook We This to into now our Products access

Our three-part strategy deliver. to growth continues

foreseeable to continued the future. has Supply, First, retention hire Sales finished rep plan sales sales we growing and also our quarter improve. Including third to incrementally team. Bolt with the reps for X,XXX

Second, increasing productivity.

This X.X% quarter, achieved improvement rep versus sales XXXX. third sales productivity the core of in Lawson reps quarter

the by XXXX. Our also X.X% MRO sales daily third of average quarter versus grew

Third, efforts. Brian target September team larger will the to announced On us And facility. new through XXth, addition enable our we acquisitions. We acquisitions. credit of million M&A Hoekstra to October our multibank Xth, growth a to recently on several which plus $XXX we lead actions announced announced

performing previous And these drive four by years Our new further our success, believe will rigorous resources. process well. the disciplined have over that are recently announced acquisitions past supported that a six and we we

the to MRO the comps We operating in to We for leverage previously feel XX% are communicated we range further acquisitions. confident including up improvement allocation, to come XX% as approach fourth our the XXXX, accretive business executing well our challenging compelling quarter. commitment of proposition, drive positioned capital value and continuous against through to disciplined in

a the environment. indicated economy. the business of me overall comment metrics Economic on industrial Let have slowing

through to internal moderation While second some quarter our growth basis we third to on drive a we quarter, saw sequential the from initiatives. the continue

that well positioned, against we we very prudently our and ever While confident Products proposition than is value our customers’ our to business more running important are before. remain is Lawson this backdrop, success

into more third results. over insight Now, Ron I’ll financial turn the the call for quarter to

Ron Knutson

Thank you, Mike and morning, everyone. good

the Before quarter growth to recently access organic several very was I’d results, well acquisition an for The capital our that on as agreement million will to that $XXX excited I announced, agreement about new credit like us to additional reasons. we’re new third achievement comment opportunities initiatives. as support our further the our provide discuss

to new also the provides with flexibility two our accelerate us our now borrowing flow-based We’re capacity; CIBC, Chase additional our cash from group include Bank well comment I’ll and and and institutions quarter. which partnership to is financing These borrowing of acquisitions; our positions along expand financial on support on to JPMorgan America. pleased bank facility, overall growth. lowers The long-term costs.

mentioned, EBITDA. improvement Mike of XXXX of a and in the with solid As leverage continuation strong our quarter operating adjusted reflects execution, continued third results favorable

share highlights. me the some of Let

second the as a exceeded quarter for EBITDA XX% First, in our milestone of sales. stated we row, a percent

million or Adjusted EBITDA a over quarter represents XX.X% for $XX.X This $X increase quarter. or of sales. was a million XX.X% ago the year

Second, quarter basis, versus were quarter, sales sales for XXXX. X.X%. third of daily an On average up were the up X.X% the $XX.X million

XX.X% Third, expectations. line was our and consolidated margin in was gross with

a of business ago compared of in costs. prior with segment reported MRO loss for the margin service to of related allocating quarter quarter the XX.X%, to $X.XX per gross year we the The diluted third organic percentage quarter XXXX. Fourth, $X.XX share Lawson was consistent earnings

and And borrowings quarter some generated a drivers million. million operations the fifth, less commentary. provide for the we from cash I’ll $X.X in discuss $XX.X and position net additional of of flows ended of cash, positive now some

This days. and We QX XX generated one day the $XX.X selling QX million of sales in of selling than quarter number days was as the additional same on XXXX XXXX.

from sales our third compared following. As year a the to ago, quarter benefited

stocked $XX.X of its quarter, sales items, relationships. customer an of generated dollars of million Supply demand increase US driven categories, the broad-based primarily and Bolt the development product across by in new First, XX%, favorable for newly

In set sales an record in fact, September. Bolt during Supply all-time

rep to increase day Second, productivity X.X% as X.X%. mentioned, with Mike quarter. by sales year improve, daily average sales per the MRO continued over an ago of MRO grew

reps, $XXX,XXX approximately for quarter, third, the the sales Bolt in QX X,XXX ended as in sales the We XX Managers business. And it incrementally XXXX. quarter including with acquired was Products Screw in Supply added Territory

profitably on On a productivity US our MRO daily ADS, Canadian retaining Lawson organic sales Bolt talents. in X.X%, up average rep improving excluding sales our sales basis, remains were and Supply, our focus Our X.X% force, while currency. sales growing were up local

core a sales accounts a Lawson continued business. and the From segment’s for average million; From X.X% the XX%, strategic Lawson a September, the basis, Lawson growing approximately million; $X.XXX a August, segment business; Government and our $X.XXX standpoint, up sequential X.X% growth Kent be million. quarter. in $X.XXX to strong, with X.X% in growth were were sales Automotive daily sales July

impacted of $X.X was Lawson for the Products’ Bolt Reported gross margin was profile sold, quarters XX.X%, gross margin the consolidated expenses million in despite goods into MRO was cost the classified and this margin inflationary prior service gross ago margins to year XX.X%, with than environment, Lawson by flat to Supply that the quarter of gross year, quarter. Screw addition the the lower were core Similar related segment. organic

we of XX%. efficiency operational initiatives fulfillment product our pricing in effective continue drive Through MRO processes, in and excess margins to

results. leverage as this sales efficiently expenses evidenced continue quarter’s infrastructure further existing to of We manage as our percent and operating total a by

ago quarter. quarter, million and general $XX.X decrease was The by $XX.X stock-based primarily for Selling, third compared administrative lower $X.X expenses compensation to year the driven a million. million of were

X.X% total However, our X.X% operating we were prudently excluding costs. a stock-based sales down expenses on managed as operating compensation, increase

nearly XX% operating lower sales and EBITDA Lawson of operating the growth the leverage MRO quarter, expenses. combination reflecting adjusted was for

operating the $X.X to the quarter of ago Our expenses. management adjusted a reported driven $XX.X million million to compared lower third year year $X.X XX% and quarter, by margin On a non-GAAP was adjusted was increase. EBITDA sales, operating increased an a ago, loss $X.X in million income million basis, of EBITDA compared adjusted for

per per excluding million for the quarter share. a income non-recurring nine adjusted $X.XX $X.XX a months the XX.X% for an ago puts quarter. $X.X at now quarter was basis, was improvement over On XXXX. adjusted earnings of This year diluted versus stock-based earnings items, share per our or for severance $X.XX, compensation, diluted and the year other the share $X.XX Net diluted first

our available cash continue improve We position. to

for positive activities quarter cash approximately $X.X from million. Capital drove in million less Cash were of expenditures $XXX,XXX. $XX.X flows quarter the a the of operating debt to position available

CapEx of full our expect be in for million to $X in We $X range million the to the year. XXXX

thoughts provide now some for the XXXX. of me remainder Let

a Current indicators show now industrial our in economy. economic sector slowing

in While seen initiatives. moderation to continue we some we internal our drive have growth through recent months,

monitor ahead of committed to actions to We tariff in we necessary continue that increasing inflation ensure and the costs. taking to trends stay are product

mind, in for to has exceeded XX% keep achieve quarters, milestone our selling and EBITDA that our than to three XXXX while QX two sales QX which QX operating results. XX% days XX% our impact fewer We’ve will MRO to is consecutive expectation QX, now leverage, naturally

into of with earnings and incremental drive XXXX, a to continue operating Moving sales. sales we our as initiatives percent will

now the I’ll it turn over operator questions. to for

Operator

you. Thank

will Research. Please from Barrington begin of We instructions] the [Operator proceed session. with now first question-and-answer Kevin the line question with question. comes Steinke Our your

Kevin Steinke

morning, Good Ron. Mike and

Mike DeCata

Kevin. morning, Good

Ron Knutson

morning, Good Kevin.

Kevin Steinke

congratulations the here. nice results Hey, really on

you in know, far thus talk and nine target continue incremental to XXXX that of You operating XX% obviously leverage the to months the XX% first about here. you’ve exceeded

is to tightly driving been mean than I strong incremental exceed target XX% why you that XXXX to just costs thus Anything more in that you’ve you Six costs of outperform leverage? year. Sigma trying that a really that highlight Lean this XX% reducing there could were I far or that’s know been sense to have you costs? get XXXX. operating there in expected some helped to non-recurring able But able you manage goal

Ron Knutson

Ron I’ll question. is that so Knutson, Sure, this take Kevin,

combination a many investments that lot and it’s of we’re the that of we’ve over activities think years. the I the of doing made lot a a past

our have to XX% and we both us, prudently do growth I overall prepared feel the able here focus and costs. that exceed said it’s for to I been think sales all XX% the And first managing in our operating nine comments, to year. margin, on managing comfortable We that Mike in of range, continuing really for as months about albeit

percent into we look as a our as but guidance, sales. continued to continue of incremental to manage So the again, XXXX, that’s stated business we drive earnings

level feel that XXXX we where about been into same so again, for guidance. XXXX looking we’ve So good with and of far

Kevin Steinke

maybe EBITDA got Okay, adjusted two on And but too the state you XX% anything, where margin if what just right know quarters thoughts margin goals think it a time case get that that is go that higher are do exceeded XX%? about your now consecutive can when margin you you and beyond could thinking long-term for here? it’s I goal early it. to maybe goal, from think about maybe here, you’ve the that start is to

Mike DeCata

you Mike is this Kevin, for Hi, DeCata. the Thank question.

XX% destination been So continue we’ve certainly a drive all to I was say best and certainly can that the will ability. we that milestone, our that saying the along to higher not a of

prepared in to four costs. the his continue quarter are structurally we us and trying As through our quarters. Ron third, But drive growing our comments, than and mentioned on number will first and top different second is next line, step share gain that so to drive for managing fourth

to the process penny We’re Six find and to commented day extremely targeting Sigma on analytical cost but there has company management customers, there and That’s pleased and process higher on Lean also few both are process penny across and opportunities orientation to quality and in improvement, with forth. and us of internally how our relative embraced that enabling team here a governments a employees. enables the life those line work for so reengineering our so top and targeting grow reengineering a we’ve every

new all efficiently and together, our the been and we’ve through goal say and what this say again is effectively more every number incremental path. to Again, long you a more a destination, ready a is we’ll that numbers, is the it’s improvement on run with at set more When it’s very company day. for pass certainty, not a profitably, can I’ll not I to more. Continuous but time put continue

Kevin Steinke

enough. fair Right,

Okay.

now, you I that Products know mentioned Yeah it good. got right you of small pretty integrated McCook Okay, to Screw to, and facility that piece that’s SAP. business a in mentioned relation the but so into you your sounds on

think you or could that do what do drive growth are more maybe you looking business you now with that, with to do So there? to what

Mike DeCata

like but again. was of assembly, It’s is of is great sort Kevin, it means end, things this kitting, And Mike acquisition, to modest question. an assembly a a it Yeah, a small value-added components.

a it us and into becomes so growth. And exercise for learning that itself springboard business a platform to market

of that VMI, many of the in value-added service-intensive customers form for great our coatings again, physical looking fasteners a services we assembling more VMI. or And deliver than are value-added, the together or and labor

So it becomes a growth. springboard to other

distribution kitting cabinets. in customers with of for channel has center that working building our always partners, partners preassemblies business are open We and they’re now Products to done Screw and additional integrated in and bids McCook

a labor So that’s something McCook. that Sigma Six of and we have the number applied years at Lean processes quite for and

with now cost do McCook, more the integrated Screw So more a that even Products is that business lot and into service to it opens effective kitting. the door products

and of Screw we’re at where now. right Products. similar strategies and is optimism everything a and that of So acquisition our to deliberate, growth organic way systematic, growth relative Screw the likely of to do in sort else the our as got and The we Products that’s are We’ve and growth Screw methodical future great Products we Screw for platform beginning. Products

Kevin Steinke

up and following right acquire? you’ve hiring And there of does at to size you’re moves that, the in look range with types now, and general facility made some perhaps like Maybe acquisitions the interesting. pipeline and on potential that you’d a what that’s credit businesses the yeah looking and of just the like Okay, Brian. maybe you mentioned deals

Mike DeCata

So again, this is Mike.

what except looking at, continuation what larger. of is at we’re So we have looked a

and we’ve successfully, because which like largest Supply solid far but their six have those has very, acquisitions. the of being their doing Bolt of along done been all feel integrated highlighted better. just performance, We We now them performance recent very very we’ve

acquisitions. feel our about legs to sea ago, down the to integration we we talked five test with skills. acquisitions, have now do sort And We’ve and four, that our path our paradigms get started confidence. desire larger originally, confidence done we now of smaller this So years we when three, now and substantially

With can the adjacencies. space confident feel and the that resources resources, between resources that our integration have we substantially very multibank acquisitions our deal own and very we we that larger internal after in we in financial Brian, and near go have

value-added, but Not space. sort to to number of big large vendor there a to sticking characteristics of in that parts, a close we differences large in pipeline and being small our in, but managed is of is say where from we’re the are, pretty companies business service-intensive which consumable; kind knitting, the inventory;

It’s and very $XX disciplined. huge, highly a market acquisition fragmented we run argue billion are of some would think never run we we out targets, will will and but of I never customers, out

aren’t company we’re the where in quite because back We from our day. we growth pushing every good and just our leverage very that are operating ones very going about in organic right, and feel disciplined

me let do the to that provocative. discipline us, are accretive sense to the strategic are but do that urgency the gives the acquisitions that and terribly say, right without make So luxury to ones us

pipeline the we bring feel So that but to orientation, we feel that’s resources great of and to about our kind the pipeline. about now great bear on available

Kevin Steinke

guess relation a know you the to quarter yeah great. sequential comments maybe weeks far just few in but here, Okay, on but the economic little broader you’ve in in seen industrial on your to, a slowing of just basis, slowing I and indicators? reacted the a maybe it’s maybe lastly growing moderation obviously just businesses still a how said economy, past bit I in year-over-year, a what thus still

that really, there, but the a meaningfully? to guess wanted your thoughts you I overall things slow of in plus XX-year or know here I if grow a long, do history contraction you think just we to continue you deep more think along, just get environment. continue and operating a on would to have how maybe there’s you need lot you’d see know muddling how I

Ron Knutson

Sure, is this Kevin, Ron Knutson.

is, I say, consistent performance first a few of weeks quarter would of with seen relative say really, continues the what I Supply take say first we part month. to three we’re third Again, call I I’ll the where so weeks have I would saw nice the October, And we’ve that. it. Bolt operating. to would it, So into

cycle the we as his little bit seeing And economic in so prepared relative something for and are this it’s that as comments. a forth, as into some a we to I of look on Mike overall XXXX moving XXXX, comments well made think And at softening.

account into would help be can a process initiatives internal our that examples area, overall as I the we’re bit business, government we is of those adding feel continued that, our what the investment dampen would say the what there, conversion internal resources force, our on strategic on focus initiatives, though But our little economic side. sales within seeing

we mind feel good about We our again, So we’re good going fuel keeping growth. help initiatives. beyond think that, in us, that a growth shorter to we forward. internal the actions feel our QX being those internally taking drive but for that about quarter will Again,

Mike DeCata

Yeah, the that would great every Kevin company. as We echo processes, about of This at the and every control, taking, our teammates strong of toward actions part I activity is that department continuous in the every our day well. the every their and improvement we’re feel Mike. function, world we orientation

and that customers more is, our One is it proposition does excite more every me more thing to critical more becomes my day. value view and valuable that

Tuesday of President talking week. customer week, customer a are Sales, Just that shop was a we managers, in desperate of about had of they same of the at this end, Senior labor, mechanics, welders, form relative with a supervisors, our who thing the the conversation Vice echoed for last especially visit how parts yesterday who was President to I on had he large

kind the them week. letting figuratively a of sales of week, customers as over every them because about long the employee, so speaking like minutes balance there term, for them product, do we’re never as overstuffing And never between I’m down, out out. never it’s letting the letting bin, our run think here, of So rep their us run XX not

machine again, dollar few their thing is our large the big customers their or down average And with wants piece or last injection being our a excavator piece price for their of part. equipment of molding $X.XX, one

proposition a So more believe the very And that’s and the demographic conversations critical these long factors, time macro customers every many the come. across valuable combination Lawson and of by day more to echoed for value spectrum. of with makes all I

Ron Knutson

Kevin, the continue to I that adding retention individuals, drive investments into we continue reps to certainly so also sales would organization just sales, specialists, and inside to forth. reps sales make are add we and add

to drive economy continue if little as even will top help investments So, the into a organization slows we bit, the make line to sales.

Kevin Steinke

that’s color. great questions. all taking the Thanks Okay, for

Mike DeCata

Thanks, Kevin.

Ron Knutson

Thank you, Kevin.

Operator

session. back question-and-answer Thank you. any turn to [Operator Mr. for closing to Instructions] over the DeCata remarks. This Mike I’d concludes our like conference

Mike DeCata

had XXXX. began Michelle. great margin the and positive Lawson quarter. Sales, leverage Thank in call for joining that Thank today. you continue another EBITDA, the Products late gross you, trends all

operational taken confident years. the the positions commitment team that We’re coming years, past company in the to Lawson with that the has excellence, actions prosper along over few the to our

their prosper. Share Thank teammates. customer that We service speaking appreciation customer place the retention customers enabling ability our knowledge and gain forward XXXX. increasing today. a great to special you value their to like would to I’m to XX,XXX highlight grateful and work that joining I profitability. the improve for for call and day. customers in their again thanks to to our the look extend you Have is with dedication and

Operator

has you presentation. conference The now for Thank attending today’s you. Thank concluded.

disconnect. now You may

Distribution Solutions (DSGR) 25 Oct 192019 Q3 Earnings call transcript