LAWS - Earnings call transcript Q1 2020 | Distribution Solutions Group, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Lawson Products First Quarter 2020 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 the business as well as covering relevant financial and operational information. Then there will be time for questions and answered. 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's 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 disclaim to obligation so. any statements company The specifically elect to made the some today do forward-looking This company's via website, Products' call simulcast Relations Investor Internet being the audio lawsonproducts.com. page is on Lawson on the website the through will on May XXXX. of be webcast replay the A XX, available

Mike CEO, conference over to I will now Products' turn the Lawson DeCata.

Michael DeCata

thank taking and the pandemic This additional by first actions the to more morning, forward. quarter joining Good you on results Knutson, details financial going call. regarding quarter our plans first Covid-XX Ron morning, provide for detailed first results our comment review the the our your followed will and followed and our of questions. I in will then, actions by we're response CFO

business result, customers continue government deemed pandemic. First, the employees, and safety by That was distribution said, our are and call a as open to of suppliers highest has the our network an during Lawson customers our health remained priority. the reps sales on essential and our and our

Every the team, Canada. our fully our distribution centers, of sales guidelines and by are their and and every and across out function functional supply. ability Health group has innovate. across be teammates demonstrated implementing nimble We dedication and CDC company, to the I the including the proud extremely the of am set the efforts area company bolt of corporate

their dedication. for and grateful are support We

have the corporate, the needed. as actions the remotely necessary Let Within supporting team taken. and examples equipment me working now of some we've provide is supplied largely we that

social gloves steps adding Our to well and and disinfecting distancing distribution as centers throughout. using PPE masks have as taken cleaning, extra maintain

service Lawson are reps to to known working continue that for. is sales provide and our diligently support customers high-quality Our

also we leveraging selective new phones function, customers. our schedule environment, customers' and at We a the customer website. win are our and continue to to basis reduced Despite service or locations visit continue we

large directly and who to service customers is support. landscaping our made have we to us of the reached One appreciation CEOs personally called out express a for in his for and have pandemic. and his appreciation continued president April Several the company service to on small this to of He bring of our example hydraulic the his to their express and executives to company support. our decision as during meet early supplier continued

our The and results, were middle sequentially we As of year-over-year all track increasing the far quarter the increasing both nicely. as through sales March. first key metrics were

began due economic we to experience pandemic half impact in March and April. of the the this to has However, second into continued weakness COVID-XX of

to our to immediately business. safety of ensure health customers actions response of well and we and pandemic, took employees, the COVID-XX support suppliers our as In impact the as

PPE Let few many of call wearing and communication sales distancing. we've representatives practicing the in already implemented. internet-based contact a locations me close fax, and customers cycle continues with remain that through in in-person phone, highlight our social initiatives albeit Lawson

to for pickup a offering our social customer distancing. Additionally, department orders remain maintain open role on after has support branches and and taken service Bolt reps. curbside customers sales to larger our

are in timely contact ensure to also We additional orders manner. suppliers out that are a as suppliers fulfilled with to in current as inventory well our reaching for

challenging access supply is to distributors, in more not been our product than past interrupted. PPE MRO other but for categories has to other Similar chain the

salary actions the taken numerous we've Board reductions. Directors weeks, period. of business during the additional past the to exempt employees Over taken All this manage and have

awards. We have also performance-based suspended several

will better DC actions include reducing capital getting suppliers. detail travel payment well in as and new discuss furloughed reducing we teammates. Ron no have expenditures discretionary XXX in addition, a and moment. Other actions In terms our greater as hires, from corporate

costs. These significantly our operating actions reduce will

as centers. I snap of urban working resume to our McCook center. perspective, customers. customers While of believe in the customers suburban enable and customers areas from being to distribution also soon operational are these will operations back operations are our In most we our ahead orders are an with Suwanee, rural suppliers now us Georgia and teammates, we're environment From as built versus likely our segmentation, distribution normal. gets urban reviewing our suspended back and customer to in our center

very We disruption customer from have this action. little seen

During needs. hard approaches customers' to sales this continue innovative and challenging developing has team worked our is time, our meeting to servicing customers

For reps has which ago meet needs. our tools months rolled ago. Programs several continue out the to their customer specific offerings such developed traction, that example, mentioned we marketing marketing that sales enable as gain program our I hydraulics moment a team to customize that

accounts will We expect positive exit we have add continued develop produce to the new as relationships that and new situation. results we

over well two with of an up the the year second increased $XX last quarter March. EBITDA of million We X.X% starting contracted in sales the of leveraging the XX.X% versus in Considering of $XX.X sales sales and year-over-year was basis on costs first X.X% cost an performance Products Consolidated X.X% Lawson very performed million basis margin continued increase a and half by driven in primarily in March. nearly reduction results weeks the adjusted first to our Despite trends, in adjusted the decline until fixed expectations. for overall actions resulting by quarter XXX reflect reported and XX%. environment, flattish EBS These EBITDA versus line total points of our of ago, has sales the XXXX. our

customer see trailer and and who two in of two account achieved accounts included excluding two companies, quarter. last rental one growth oil three XX.X% sales and customers partners, decline did customer by several Strategic growth negatively equipment weeks success supply Strategic X.X% some growth and prices. March, we during oil gas the integrated companies. impacted other Despite the the were distribution truck

national accounts strategic Kent Our the with our to increase. continuing quarter Automotive grew for relationships X%

accounts this contracted the for quarter, by for based. broad by Bolt government grew X.X% Supply softness was the X.X% year-over-year Our quarter.

current are we strategy adjustments environment. growth three-part the on making based unchanged, our remains While

We finished the over to we and incrementally. will and long-term, sales reps reps with quarter add the sales continue XXX intermediate

have we dates start reps at Xst. for new July until deferred least However,

productivity day sales by on also though period Sales a focus continues productivity the sales contracted for during is on rep Our productivity per X.X% this improving a quarter. per challenge. rep rep basis

previous core this earnings products connectors. such we and label include tools on our However, training focus fasteners, in actions and calls, environment. that electrical mentioned abrasives, will private products continue cutting chemicals, during as These

completed dividends as pay term we our and also managers All this environment. have exit will training sales coaching distance which long

progress Well, current likely of front. our to acquisition the that aspects slow continue We some on process. the it's environment will M&A

environment as as I'm productive. conversations actions it. taken Our we entered results. exit to We're remain we've confident strong this ensure will the committed these

quarter our insight Now, I'll the well for Ron first action. over results turn as as more into the recent call to

Ron Knutson

I COVID-XX in or actions Thank some actions in environment. taken. impact date and morning of good key being to the economic provide you, that discuss Mike, of first the followed Then will quarter trends quarter we've everyone. first the I'll XXXX light and by of various the taken April takeaways from and

on results Finally, first discuss quarter and I'll detail the adjusted both our in reported basis.

takeaways. provide key now some me Let

second not into of sales with quarter, results impact continuing majority manifest until continued in the of economic the the and half our improvement our COVID-XX showed itself of softness the first March the did April. For the

supporting cost have we on effective several our approach has of implemented further core I'll efficiencies management March, to working which comment necessary cornerstone Second, been past operating operating proactively in for an actions of is aggressive and customers cost a broad-based years. our our and managing program a moment, liquidity the In further finally, and part while our began a philosophy. gain capital

million an quarter additional $X.X with cash million of ended facility. $XX and availability with credit under the our cash We of committed equivalents

to capitalized We actively continue are well opportunities very enhance financial further to position. and our pursue

the we quarter discussed, down into separate break two Mike periods. first As really

through January being of through from quarter. end mid-March the First, period the and X mid-March the say then second

contracted Consolidated the slightly the excluding the sales compared by weeks exchange sales X.X% for were by two in positive year driven the of to For a last March. the softer impact. quarter, foreign ago quarter

million for $X.XXX February Our for reported January, and daily $X.XXX million sales were $X.XXX average March. million for

we sequential the second the of two half March. until for can increase months As see first month-to-month you a generating were

details. me some further Let provide

side March X week business, from daily the March sales March On March to during of of of $X.XX $X.XX ending million. our with and the started at the $X.XX sales million MRO average a million. ending XX the approximately March little to XX soft MRO XX of of week compares This

March, of about ended at we running last the week sales. So of XX%

And in third quarter ADS the Both of similar more they compared weeks then their occurred week. hit the results March. week during As their decrease but the in first for draw to March. third March fourth of of March supplies the planned fact two

our the customer our Automotive our During customers in of of and for sales March, our specifically, segment. seen and two district our Kent end most sales weeks in to last by customer, territory look government the across strategic was we at we and types. as increases realized quarter core sales decline all declines business More broad-based Lawson

our increases and March for in quarter our except safety they currency. decline last ended realized From in slowdown year-over-year a across perspective, with the in Bolt, first the orders a during consistent X.X% our sales was increase week basis on specials category. products Despite sales the categories for category an of local our of pretty core

Let the implemented. that the my then results trends the the commentary me with comment we've items and that seen our and I'll we've adjusted April results and conclude with action comments quarter now reported on for on for

sales XX% approximately trending have in is the first weeks March, In half sales versus the business, the two similar our April March. decline at for First, currently distributors, lower average month April sales latter of resulting daily April the other of of a XXXX XX%. than to approximately MRO of versus of trended

are of results Supply of ADS trending we're the weeks down approximately For to a first Bolt ago. March, at compared seeing we two XX% XX% year with but as better approximately April

proactively our focused Mike environment. generating on in customers this and supporting revenue As we mentioned, challenging remain

that our We been this Mike customers our There customer while our to representatives, support success being environment service outreach, able email providing reps, continue as in already phone internal stories on with new has support many to our well additional visits have shared you. to reaching perform great website. of communication to locations out on-site as through customers and customers' some

Gross at versus a expected consolidated XX.X% year a quarter for margin same in ago. the the before at the XX.X% basis MRO unchanged with standalone a the On largely costs was quarter levels reclassification, with ago. in gross our margin for year quarter came XX.X% margin service

$XX.X quarter, million, were operating For $XX.X million the compared total a to expenses ago. year

This compares the stock-based recorded for of XXXX. the during million During $XX.X first with expense benefit declined compensation quarter. $XXX,XXX to the stock associated quarter a which of we primarily with quarter of the price the in benefit

stock-based X.X% compensation operating minimal expenses severance operating travel fixed we award million closely reduced or $X as and quarter. the awards as on in Excluding slightly our as trips and performance-based well sales total expense, expenses late decreased managed lower

stock-based the to a the ago the diluted Our compared $XX.X XX% $XX.X in quarter and a an quarter, reported quarter a million operating excluding $X.XX $X.X as compensation EBITDA was operating XX.X% compensation basis ago ago. severance, adjusted million of $X.XX income for were the of year X.X% the of On in adjusted benefit a compared income EPS first compared of non-GAAP for increase. million adjusted to at versus quarter income was basis, year million On adjusted sales inclusive operating quarter. for $X a This ago to results income year stock-based of an $X.X year percent quarter. million

approximately the for were $XXX,XXX. expense Capital quarter

the capital range be our to XXXX to million manage $X expenditures primarily maintenance we liquidity million versus in As for approximately $X remainder our previously guided of capital million. we expect for the $X of XXXX,

now taken specific will perspective. greater from a liquidity and we've of in the cost detail I comment that some actions

million run savings While With the first were the out in majority April effectively throughout and $X.X some month. be to the sales of current we've on rate average organization. benefits $X from realized actions, cost the million at go-forward these taken monthly will quarter the realized in

higher positions organization for all include many of rep addition, to well In awards; throughout individuals XX sales approximately eliminated deferring role consolidating limited board but to depending with compensation; end all furloughing eliminating center; including new not their of organization award we've our eliminating meetings. employees slower the in approximately non-critical salaried XXX Georgia and on Suwanee actions XX% following: operations are into salaries in XX% our the sales date; McCook from travel our distribution our performance-based facility trips markets; ranging reducing and start district as reducing and sales costs, terms as the capacity;

also balance sheet our liquidity. proactively and We managing are

capital vendor terms, our continue to past-due eliminated customer out community our payment to to for customer extended balances. we reached non-critical monitor manage and supplier credit have We and

cash quarter JPMorgan the $XX.X Chase. our and with equivalents led by million ended $XXX We million $X.X of additional an availability and facility million committed of under cash credit

As of facility level of had availability today we under same weeks essentially ago. from the four our

While take action date, further worsens. we've if environment are taken to prepared actions to we the

through environment to as out As we interim into this look these periods, we we it. manage strong coming as of entered

Before challenges about of every over additional weeks. our have it taken up have of the me past over difficult team let on environment. I this echo turn the the one we put comments for our is members them to questions, in commitment in strength teammates Actions stepping and pressure six Mike's that

organization. they difficult the we to leadership the necessary to that ensure to entered the decisions And humbling of it. team when in out this stronger committed to confidence We put it's lead but comes Lawson that than the make are

over of last directors entire one in their teams Lawson sales As and to commitment six for the Bolt tough said, you regional weeks. tougher!' get the Thank our the 'Let

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

Operator

you. Thank

question-and-answer will Steinke [Operator Our proceed. now begin session. Instructions] Barrington Please is Kevin from Research. today question first the We coming of

Kevin Steinke

Mike morning, good Ron. Hey, and

Michael DeCata

Good morning, Kevin.

Ron Knutson

Kevin. morning, Good

Kevin Steinke

all the the trends. detail for Thanks sales on

the March helpful. progress? any basis, April second of you this a going into That as month was seen half stabilization kind very detail you wondering seen move of week-by-week have as you I'm April. on You've level of have through if just

Ron Knutson

consistent basis. little can it in and to but weekly, In we're on Not week stabilization at daily that, overall a from April time pretty can spiky the of from weeks of for I it's a Kevin. time have been perspective, but most We've in as looking our weekly April. business, trend. you a throughout daily seen on can Yes, jump imagine, be basis, the the on only a

to just comment Mike, you. did jumped want of I of out you kind know as well?

Michael DeCata

We last weeks. are couple seeing the a for consistency

Kevin Steinke

expenses, on costs Okay. said I cost cost then plus quarterly million the million on pretty distributed $X.X G&A reductions Yes, to -- the thank should believe your selling basis. you, month. we it's obviously you and $XX expenses? of How a actions think various those $X categories, sold, being helpful. million a aggressive across about goods

Ron Knutson

there we Most again. are and G&A relative and significant that variable the to a Yes, the portion statements costs on a expenses Kevin, of this is report I across our our sales both those as well those in separately are reductions coming really them within those is portion organization. certainly on that financial the both Ron the of down, selling and commented fixed are lines as but expense actions of Mike

the so So the organization. forth, just DCs. organization, solely sales the or and just furloughing entire reductions and just It's salary that's the not across corporate, within the or

in much The more expense both gross expense margin operating a in expenses don't see to that you'll reduction from from those will So it's standpoint, of an include direct those, perspective, really flow-through on the see where as the lines. you lines.

Kevin Steinke

it. you consolidated McCook. Did Okay, into then, a you action is see going distribution Georgia And forward? you there got the mentioned permanent center

Michael DeCata

is on we to volume-based and did and of we basically bring rebuilds, an disruption back employees volume basis. with -- No, shift we'll of our our It's don't seamlessly over as Kevin. no furloughed and again intention it bring volume customer because all likely we incremental

need demand increase. As ramp the ramp things and up up, will the will

Kevin Steinke

got good you that have base. diverse Okay, It's pretty customer a it.

an at or be business base? of back many your you suburban customers to weighted locations your might do roughly any like I more have might you come know essential sooner. percentage customer sense how were maybe But your that look what which essential? you customers mentioned deemed for also as You deemed

Michael DeCata

environment, many the really that concept most manufacturers circumstance, way. customers all production in don't interest of through great companies, there have never track until this would companies we of we that recent it critical companies But are ours, this Certainly Kevin, thought a drawn are about of food kinds. that trucking up past.

to that our products. guess manufacturers companies part of trucking them be, customer what would not but of products, of of very related consumer it's I customers large like as is are ratio So a all kind of again it's database percentage -- normal of would kinds all production BXB majority food BXB I gather not of BXB, the is Because is product. companies, companies, -- most the

we That get an is auto body off would certainly, a Now, a Kent forward, critical for to one It's normal. little exception still to have it's If softer the that's more a a that the you area close world. customers you probably discretionary. the be things repair consumers. expect is to little put the a discretionary, there back are of BXB, toward is bit most going of where where until little more minor part, end the but our one it's where can repair. little Automotive But

Kevin Steinke

process Okay, that new Yeah that downturn? that worst to winning that continue little has slow win I about slow new this the doubt this process the environment. you You customers. you helpful. you during continue can winning maybe in bit, it makes materially? but it changed new And wouldn't for now think Do of How customers? a that in encouraging mentioned down customers then that's sense. of would think kind a just could

Michael DeCata

kind environment have this so these to and clarity Yeah, harder predict And difficult in hurt everything of is many been of days. our mean this little competitors with I is any a a environment.

-- able been sales been referring And a referring are managers remote conversations existing aren't reps back ways reporting customers, as they that is and sales critical open service was of benefit more reaching the to about some they've them so field to sales that I to being for a we of geographically that quite in up of part the reps some -- out are new I our with underserved. places while and where all This customers had they've or us trying specifically new in we was when to companies suppliers have. to are of talked have mass sudden

geographically less smaller For of than remote reps. for number with sales likely them us of some is a

all that's win been think existing service wallet, customers of win customers, So, I within for to amount picked us opportunity over continue being we've is our number -- we from to up a especially competitors the receptive, customers, sudden and but more are fair share win new share to and of of where across trying competitors large both more spectrum. from the they're again large underserved, a small a locations existing very underlying small

in sideways a won were to employee and our continue employees even we during fully that been and were it hope on and our prior the the trajectory is our future will happens up the more to and tremendous abate, little end as know resilient, this commitment creative, tremendous in believe with I retention. on back you already more extraordinary revenue and better better Even we've this customers was keep solid that more What with we innovative on just that but went underneath hard stronger, motion this. get to coming we trajectory then of is aspiration to -- we little It which certainly the have is to say going out loyalty time. intend we to loyalty. trajectory. We challenging in that and XX% absolutely and we're customer business have core we're This will and a we'll were

Kevin Steinke

well coming like market Yes It it. Okay, within environment competitively an of interesting really this that's sounds great. out positioned you're both dynamic.

Thanks So all comment. Thanks. that's for today. all the I have for

Operator

Please from next Carl Our KeyBanc Schemm, coming instructions] Capital ahead. Markets. [Operator question go is

Carl Schemm

sense think question mentioned One underperforming I the XX Was the rep positions there. around, on areas. did just sales occur eliminated morning. you timing to in that that or trying end April? of at Good you quarter Just the

Ron Knutson

late April, In April.

Michael DeCata

benefits this reps. sales of reps, able, critical of mass are sales is XXX of one we the And again

service disruption to We are sales reps customer provide not those those service to intensity and inside customer whatsoever any or the in to and our able that sales we're people, to anticipate customers customers. we service existing able reassign do people

Carl Schemm

just you're point guys how to Got have are of, it, be about you sales you this on a know What increase? thanks. retention, have well that given you going reps terms at evaluating retain the in I and able lot to higher focused

Michael DeCata

Yes.

Ron Knutson

I'll Ron. Yes, jump this is in.

well improvement really gradual we have and that through some our April. into into I rates. first say we retention XXXX, would that really the of quarter seeing were And So, as extended even in XXXX

So are our reps albeit, as have are they plus plus salary our incentivized. some a commission, commission as based well of all sales them

So about -- good mean, feel I were the retention. we pretty we

well. I tremendous treat all think we're and engagement certainly employees fairly making seen our team moves as we've our to by of

time So that bit what into this April, first we've little seen retention gotten a has and so far quarter better. is for actually the our even difficult during

Carl Schemm

conditions And the maybe if just how on going you aspect? that through it market of dependent of Is the or lastly evaluating rep kind Great. I increase improve or higher on Is dependent moving that is that that kind mentioned are know sales just forward side. the then -- you or potentially. X on July backward?

Michael DeCata

coaching people of significant pay Yeah, of intense in more kind the little of training all ability we of their along term bit their ability our market the to real ride long to the a very that district and one-on-one teams, pay effectively. time it driver which is and distance very hires more district managers is benefits start trained the is managers' productivity new have conditions, will the to sales there term that with -- touch long leverage existing managers but thing district sales of the a

a little employee. So, new we're for very commitment But brand coaching of a district made have bit the literally excited to stretch the about a that's concept. managers distance

to in employee. with a with You -- person new do one-on-one spend want one time a

sales in resume changing don't of opportunity. more about about the customers continuous the you or that as availability that that it as And was increases of we foresee reps of and or more future. anytime we can mechanics remember, it's and So markets than incremental It's training. soon as

get is employees back until can a training the we pause -- thorough with Just that need. to new

Carl Schemm

you. all I it. Thank Got That's had.

Ron Knutson

Thank Carl. you,

Michael DeCata

Carl. Thanks,

Operator

conference concludes Thank to would back This for like to DeCata the over Mike you. our turn closing question-and-answer remarks. I session.

Michael DeCata

you, challenges, Thank will Products am I history, quite though Lawson XX-year faced call this none morning. confident for XXX% better, joining you like we has stronger, emerge and Over that one. Donna. Thank the our many this more resilient proposition, customers we demonstrated, deliver these than sales are quarter, potential challenging enter, this flattish in value still we EBITDA improved generate can More we recognizing that and cash. especially our and with customers times.

This we recently, continue take demonstrated we're we quarter, nimble of position. and safety more and and teammates also on remain strong that focused the can to innovate, to actions be our in we'll financial necessary

their this like teammates, would their I innovation commitment Have tested again been take wonderful our for again this thank and joining customer, day. a call. they to you to demonstrate opportunity our has continue to to thank

Operator

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

You disconnect. may now

Distribution Solutions (DSGR) 2 May 202020 Q1 Earnings call transcript