Q4 2019 Earnings Call

Good afternoon, ladies and gentlemen and welcome to system stinks fourth quarter 2019 earnings call all participants will be in listen-only mode. Should you need assistance, please signal the compound specialist by pressing the star key followed by zero, I would now like to turn the conference over to Mike smog of the Plunkett group, please go ahead.

Thank you, and welcome to the system X fourth quarter 2019 earnings call today's call will include formal remarks from very little in chief executive officer and tex Clark senior vice president and Chief Financial Officer. We will not be hosting a live Q&A session at the end of today's call. If you should have any questions on the results, please contact the Plunkett group or systemax contact details can be found in the press release issued today. And that's just a Max. Com.

Today's discussion may include certain forward-looking statements. It should be understood that actual results could differ materially from those projected due to a number of factors including those described under the forward-looking statements option and under risk factors in the company's annual report on form 10-K and quarterly reports on form 10-q. I would like to highlight the non-gaap metrics that are included in today's press release the company believes that by excluding certain recurring and non-recurring adjustments from comparable gaap measures investors have an additional meaningful measurement of the company's performance off. This call will include a discussion of certain non-gaap Financial measures, which we will identify as such the company has provided a Reconciliation of these non-gaap Financial measures to their most directly comparable gaap measures in today's discussion and press release. The press release is available on the company's website and will be filed with the SEC and a form 8-k

This call is the property of and is copyrighted by systematic think I will now turn the call over.

2mr Bari Whitman

Thanks, Mike. Good afternoon everyone and thank you for joining us today in 2019. We made significant progress in the execution of our customer-centric strategy and strategic growth pillars off generated almost nine hundred and fifty million in Revenue delivered 66 million of operating income and had strong cash flow generation of $63 from continuing operations for the year. We were able to modestly expand our gross margins despite an ongoing challenging trade environment while increasing our operating income inclusive of making Investments to support and drive future growth in the fourth quarter. We generated Revenue growth of 2% in line with many of our industry peers and significantly expanded our non-gaap operating income by 23% highlighting our efforts to proactively manage our cost structure even as we funded strategic Investments such as the expansion of our distribution Network.

A year ago, we embarked on a multi-year strategic roadmap to grow customer engagement and generate operating leverage from current operations Investments. We also championed a stronger customer-centric a culture across our entire organization. Our strategy prioritized initiatives supporting six core areas. We believe we can win. These are delivering a differentiated customer experience off Innovative branded and private-label products providing Rich Emerald knowledge and Technical expertise driving operational excellence propelling Talent financial management and Technology Innovation and pursuing potential Acquisitions to drive synergies and expand capacity customers and product growth.

we made progress in each of these areas, but

Past year and delivered on a number of important projects including the expansion of our distribution Network, which is allowed us to improve service levels and will support our growth.

Next the launch of our new Global industrial website which delivers a significantly enhanced customer experience and self-service capabilities.

Three the creation of a customer process to solicit analyze and address customer feedback in real-time and finally investments in new leadership and talent to drive and execute our strength. Our entire company has made substantial progress and the journey around the customer experience. And today we are delivering higher service levels and greater end-to-end transaction transparency to our customer. We have more work to do but it's clear our strategy is relevant and resonating and we continue to drive it.

As we begin twenty-twenty we see our customer focus strategy accelerating. We will continue to invest in our sales growth by strategically adding selling resources throughout the year and extending our 1-month sales model two more accounts wheel drive sales efficiency and Technology by adding new data-driven tools that support our sales agents and increase our productivity and Thursday. We plan to expand our product offering in a series of new and existing categories. We will continue to grow our private label assortment which provides both high quality and great value to our team will help us better meet the needs of our customers.

We recently launched a new digital.

Marketing strategy that we expect to accelerate new customer growth and strengthened retention through new Innovative Promotional and loyalty programs in regards to customer experience with a competitive Advantage by addressing our customers growing expectations around service and delivery this includes our goal of achieving a hundred percent customer promise take delivery on orders and the rollout and enhancement of new digital self-service tools and functionality. Finally. We will continue to streamline our fixed and variable cost structure using Automation and process improvements that will deliver improved on Thursday in conclusion of Advantage Thursday. We have a strong platform and will continue to make targeted investments in our business and our people that we believe will enhance our competitive position and support our future growth.

I will now turn the call over to text.

I will now address our performance in more detail and would like to know that we have the same number of selling days in the fourth quarter and full-year of 2019 as we did in the year ago. In the fourth quarter Page Avenue increased 2.1% on both a gaap basis and an average daily sales constant currency basis over Q4 of last year. Revenue was approximately $222 which took in the US of a 1.9% while Canada grew 5.4% in local currency on an average daily sales basis product categories generally had mixed results in the quarter with connect you to strengthen key categories such as safety packaging and janitorial and maintenance where we are making investments in our offering and subject matter expertise. We did see significant softness and heating as a result of the dead of winter weather which has continued into q1 of 2020.

Gross profit for the quarter increased to seventy-five million dollars up from $73 last year gross margin was 33.8% up 30 basis points from the prior-year walk in line with our expectations sequential performance was soft and reflects our historical product mix shift in the fourth quarter as well as increased promotional efforts in the. Our gross margin performance continues to highlight of active management of our inventory purchasing and pricing to address tariff increases. We do not expect any impact from the recent tariff reductions in December and remain focused on maintaining our gross margin profile further. We are monitoring the coronavirus situation in China and possible future supply chain impacts, but have not experienced any material disruptions to date selling distribution and administrative spending in for the quarter was 60.6 million or 27.3% of net sales relatively flat as percentage of sales last year maintaining sdn a leveraging.

Thank you.

primarily the result of improved

Advertising efficiency lower variable compensation and general Optics discipline, which allowed us to absorb the incremental cost structure of our new Dallas operations. We continue to optimize the performance package or National Distribution Network and expect to see improved leverage in our operations as we move through 2020 gaap. Operating income was fourteen point four million dollars and operating margin improved ten basis points from the year-ago quarter non-gaap operating income was 15.2 million dollars an increase of 23.6% and a non-gaap operating margin Improvement of 120 basis long as Barry noted softness in the short-term will not impact our decisions to continue investing in our business that a long-term specifically initiatives that will enhance our growth profile and strengthen our ability to do an exceptional customer experience total depreciation and amortization expense in the quarter was 1.1 million dollars Capital expenditures for the fourth quarter were zero point seven million dollars and 6.9. Yo,

and for the full year

Total free cash flow from continuing operations was four point seven million dollars in the corner and sixty three point four million dollars for the full year in 2020. We currently expect total Capital expenditures the range at 3 to 5 million jobs primarily comprised. I mean, it's related Capital. Let me now turn to our balance sheet. We have a very strong liquid balance sheet with a current ratio of 1.9 to 1 as of December 31st, we had approximately 97.2 million dollars in cash and cash equivalents essentially no borrowings and over 144 million dollars. They're working capital further. We have approximately $71 of excess availability on a $75 credit agreement the strength of our balance sheet and our cash flow generation allows us to continue to invest in our growth opportunities explore strategic m&a and return Capital to shareholders wage as a result. Our board of directors has increased our quarterly dividend to fourteen cents per share of common stock an increase of approximately 17% We anticipate continuing a regular quarterly dividend in the future wage.

In addition we announced today.

Special cash dividend of $1 per share. I would note our cash position at year-end does not reflect payment of our quarterly or special dividend. This concludes our prepared remarks. If you have any questions about five quarter 2019 earnings, please contact Mike smargiassi at the punk group or investor and media relations adviser or system that's directly contact information can be found on the earnings release issued earlier today. Thank you for your continued interest in systemax.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.