Q1 2021 Lawson Products Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the Lawson products first quarter, 2020 one earnings call.
This call will be hosted by Michael Takeda Lawson products, President and Chief Executive Officer, and Ron Knutson Lawson products, Chief Financial Officer. During this call and they won't be providing an update on the business as well as covering revenue.
Relevant financial and operational information there will then be time for question and answers. Please note that statements on this call and in the press release contain forward looking statements concerning goals beliefs expectations strategies plans and future operating results and under.
Your line assumptions that are subject to the risks and uncertainties that could cause actual results to differ materially from those described in addition statements. During this call are based on the company and views as of today the company anticipates that future developments may cause those views to change.
Please consider the information presented in that light the company may at some point elect to update the forward looking statements made today, but specifically disclaims any obligation to do so this call is being audio simulcast on the internet via the Lawson products Investor Relations page.
On the company's website Lawson products Dot com and replay of this webcast will be available on the website through may 31st 2021 and I will now turn the call over to lots of products C E O make takeda.
Good morning, and thank you for joining the call. This morning, I'll comment on the first quarter and share some thoughts with you about 2021 and <unk>.
Additionally, I'll update you on the integration of parts master as well as some growth markets, which we will be investing and during the year Ron condition. Our CFO will provide a more detailed review of our financial results followed by your questions.
Overall, our business performed as planned and we're pleased with our progress.
Putting aside and a challenging week in February from a weather perspective, we're seeing good progress and returning to our pre pandemic growth and we're confident that we're on the path to returning to our pre pandemic levels.
On a consolidated basis, we achieved 13, 8% growth compared to the first quarter of 2020, including the parts Master acquisition.
Occurred on.
August 31 last year.
And five 6% growth as compared to the fourth quarter of 2020.
Parts of massive generated sales of $15 $7 million in the quarter, excluding barge Master core Walsh and average daily sales decreased by three 1% as compared to the first quarter of 2020.
This is due to the ongoing effect of the pandemic and the slow but steady return of customer demand to pre pandemic levels.
Since 2020 was such an unusual year due to pandemic related business disruption, we are primarily measuring our performance based on sequential monthly growth.
Monthly results are likely to experience normal variation.
However, our overall expectation is that we will see growth versus the previous month throughout the year, which should result in a significant increase in earnings as compared to last year.
The Lawson core business and achieve growth on that basis for 10 of the last 12 months.
Core loss and average daily sales for the quarter grew by nearly 6% as compared to the fourth quarter 2020.
The business achieved eight 8% adjusted EBITDA for the quarter.
As a reminder, our second and third quarters are typically the strongest from an EBITDA perspective.
Our core of Wassa and gross profit per cent continued to be and the narrow band, which we have come to expect.
However, gross profit percent was impacted by SKU rationalization, which we are undertaking as part of the parks Master integration.
We're keeping a large number of parts masters skus and we'll be making these skus available to our combined sales team.
The inclusion of nearly 9000, new products into the distribution centers as a result of the acquisition has not required the additional.
And that required additional people and the distribution centers. However, labor hours have increased and the short term to accommodate the infusion of these products.
Over the long term these processes will have a positive impact on inventory turns and cash flow.
Inclusive of this onetime charge Lawson core gross profit for the quarter was 58, 2%.
As compared to 59, 6% for the fourth quarter of 2020.
Now I'd like to take a moment to discuss the integration of parts Master.
We've made great progress and many aspects of combining Lawson and parts master and shortly the two organizations will be fully integrated.
Parts Master sales and earnings continue to exceed our initial projections and we are increasingly confident and our growth plans for 2021.
I'd like to again, thank our parts master and loss and teammates.
People across the board have been committed to this integration and have demonstrated a very high degree of professionalism.
Now looking at operations and our Dcs were focused on improvements and a few of our facilities.
We've embarked on modernization program of our Suwanee, Georgia distribution center, which will expand capacity through updating and antiquated conveyor system and warehouse management software.
Additionally, we're investing in our fulfillment process.
Cook and also which will also allow additional volume within our existing footprint.
Our bolt supply business continues to perform very well, achieving a nine 1% EBITDA for the quarter.
We're in the process of relocating our Calgary distribution center, which will double the square footage to support our continued growth.
As well during the quarter, we also doubled the size of our Saskatoon bolt store.
And a new location and its gotten off to a great start.
As I mentioned, a moment ago, all three primary businesses are doing well.
Now turning to sales stream.
Strategic accounts achieved good sequential progress.
First quarter sales grew 4% as compared to the fourth quarter.
Fourth quarter was up 11% as compared to the third quarter and the third quarter was up 22% as compared to the second water.
The manufacturing sector through our integrated supply partners.
Equipment rental and new strategic accounts were the primary drivers of this growth we anticipate continued growth through these markets and others.
We added 300, new strategic account locations on the Washington side of the business and 174 new locations.
We believe that the strength of our relationships with our integrated supply partners.
Is driving growth as they continue to bring us into their existing large customers.
This has the effect of enhancing their value proposition and leveraging our nearly 1100 sales reps, while contributing to Washington growth and profitability.
Sales and our overall government segment is up three 7% as compared to the fourth quarter led by increases in state local and educational we call sled.
As well as our federal business.
Our Kent automotive business was up 7% sequentially versus the fourth quarter.
One area requiring closer attention this quarter was our supply chain.
Some of our suppliers are struggling to keep up with demand due to many factors, including labor shortages and raw material shortages and transportation challenges.
We're also seeing some cost increases from suppliers, we will continue to take the necessary actions to manage our overall gross margins in line with historical results.
Our three part growth strategy remains unchanged, we ended the quarter with approximately 1100 sales reps and as in the past we plan to continue incrementally, adding reps and underserved territories.
Sales Rep productivity remains a key focus area through the pandemic.
We realized a three 9% improvement and sales per rep per day versus the fourth quarter of 2020.
Yeah.
Looking forward, we are focusing on.
New and exciting products and as part of the parts Master acquisition.
Deeper penetration into several underserved markets and the development of additional channels to market. These programs will enhance our value proposition and bolster our strong service offering.
Let me conclude my remarks by saying that and the first quarter results were in line with our expectations coming out of 2020.
We've become a stronger organization as a result of our three part growth strategy, including making accretive acquisitions, along with managing our cost structure.
I'm encouraged with our continued sequential improvement in sales and profitability and firmly believe that we're well positioned to continue this growth pattern in 2021.
We've managed the business well through uncertain times successfully making a large acquisition and continued to invest and the business that will benefit our future growth.
Long term labor demographics, and our operational excellence continue to make our value proposition critical success to our customers.
Now I'd like to turn it over to Ron for more information on our financial performance.
Thank you, Mike and good morning, everyone I.
I will first provide some key takeaways and business trends during the first quarter and I'll then discuss some of the details and provide an update on the integration of parts Master.
A few highlights for the quarter.
First consolidated sales improved by $12 5 million or 13, 8% over the first quarter of 2020 and also increased five 4 million or five 6% over Q4 of 2020.
Sales from parts Master for the quarter were $15 7 million.
Excluding parts Master organic average daily sales grew five 1% versus Q4, driven by increases in most product categories offset by a small decline and PPE products.
Second our adjusted EBITDA was $9 1 million or eight 8% of sales.
Excluding cards Master adjusted EBITDA improved by approximately 330000 over Q4 as we.
And you to sequentially improve our organic earnings.
And third we ended the quarter with $26 3 million of cash and cash equivalents and approximately $65 million of availability under our revolver.
As previously discussed we were deemed an essential business early in 'twenty, and 'twenty, which allowed us to continue to service our customers.
We continue to work remotely from a corporate perspective, while all of our distribution centers continue to operate.
As we reflect on the first quarter, we have continued to see improvement and many aspects of our business.
Sales continued to improve as does our sales rep productivity.
Most product categories realized sequential increases over the fourth quarter.
We continue to make great progress in this environment and continue our focus on driving sales and cost control and cash flows all while ensuring the safety of our team.
For the quarter, excluding the acquisition average daily sales declined by one 9% compared to a year ago.
On a consolidated basis average daily sales increased two 2% over the fourth quarter, which includes the negative impact.
The very difficult weather conditions and mid February debt hit a large part of the U S.
As Mike previously mentioned, we remain focused on supporting our customers and generating revenue in this environment, while ensuring the safety of our teammates.
We are performing on site visits to essentially all of our customers.
Yes, we see pandemic spikes in certain areas, we are continuing to offer additional support through phone outreach internal customer service representatives email communication and our website.
However, this is being done to a lesser degree than most of 2020.
As our customers have reopened for business and we are able to reassert resume most of our onsite service and many locations.
Our focus is to gross sales sequentially from month to month to month during 2021.
Consolidated gross margin for the quarter came in and at 52, 7% compared to 53, 7% a year ago quarter.
On a standalone basis before the service cost reclassification Lawson MRO margin was 58, 2% per quarter compared to 59, 6% and Q4.
During Q1, we recorded and 825000 nonrecurring increase to our inventory reserves associated with the rationalization of parts Master inventory as part of the integration process and a one time charge for PPE items in which the market dropped and sell.
On the price exceeded our cost.
These two items combined negatively impacted Q1 margins by approximately 107 basis points.
Higher net freight cost and a shift and sales mix drove the remaining decline.
For the quarter total operating expenses were $49 8 million compared to $30 3 million.
11, 7 million of this increase was due to a flip in the accounting for stock based compensation based on our stock price movement and the early stages of the pandemic a year ago.
The remaining of the increase was due to the inclusion of parts master expenses of $8 7 million and higher severance and employee acquisition cost of 569000.
Excluding these items adjusted operating expenses decreased $1.6 million per.
Primarily due to lower employee compensation on lower sales and lower travel related expenses.
Our reported operating income was $4 8 million for the first quarter.
And on adjusted basis non-GAAP operating income was $7 2 million compared to adjusted operating income of six 9 million and Q4 of 2027.
$7 9 million and the year ago quarter.
Adjusted EBITDA as a percentage of sales was eight 8% per quarter.
Parts Master contributed $1 7 million of adjusted EBITDA to the quarter.
And on adjusted basis, excluding stock based compensation and other nonrecurring items diluted earnings per share was <unk> 58 for the quarter versus adjusted earnings per share of 52 cents and the year ago quarter, and 60 cents and Q4 of 2002.
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Capital expenditures for the quarter were approximately 800000.
As we eliminated non essential capex to manage our cash flows.
We expect our total capital expenditures in 2020, one to be and the range of approximately $5 million to $6 million, including planned upgrades to our suwannee and mccook infrastructure to allow for increased volume and the future and.
Additionally, we will be relocating our Calgary distribution center to a new location with expanded square footage.
And as an organization, we continue to make investments and the business in particular and areas that have a direct impact on sales.
And while there is still some uncertainty in the marketplace. We continue to make investments in the business and balance our cost structure against our current sales trends.
We continue to place focus on improving our working capital.
And we ended the quarter and a net positive cash position of $26 3 million.
While we took on debt of 33 million and the third quarter of 2020 related to the acquisition of parts master from the sellers.
We ended the quarter with $64 4 million of availability under our credit facility.
Which is net of the $33 million letter of credit issued for the acquisition.
Keep in mind that we will pay the remaining 33 million purchase price for parts Master and the second quarter of 2021.
After doing so we anticipate that we will have approximately 90 million of availability under our credit facility to fund future growth initiatives and acquisitions.
As Mike and I. Both have stated previously we are managing through this challenging time with the expectation that we will come out of this environment and a stronger position and how we entered it.
The integration of parts Master in New York and debt into the organization is progressing as originally planned.
Since the acquisition parts Master results have continued to be strong.
And while we took a charge related to the integration of their product offering into the combined company.
We will be well positioned to service all customers with an expanded product offering in the future.
Let me close my comments on what we're seeing in terms of the supply chain and inflation.
Similar to others and our space many of our suppliers are experiencing labor shortages.
Transportation challenges and raw material increases debt undoubtedly.
It will impact us.
Over the many years, we've been able to manage our MRO organic gross margin percentage within a fairly narrow range around 60%.
Putting aside customer and product mix going forward, we plan to manage and that same range and we will take the necessary actions to preserve that margin, which supports our high customer service levels.
I'll now turn it over to the operator for questions.
Okay.
We will now begin the question and answer session.
I ask a question you May press Star then one on your Touchtone phone. If you are using a speaker phone. Please pick up your hand set before pressing the keys to withdraw your question. Please press Star and then two at this time, we will pause momentarily to assemble our roster.
Our first question and from Carl scheme with Keybanc. Please proceed.
Hey, good morning.
First just wanted to get a sense of.
And how the cadence per sales was on an organic basis through the quarter, maybe from January through February and March and into April.
Sure Carl So good morning. This is Rob can make sense. So let me I will comment on that.
If we look at the.
And they MRO business.
Overall versus Q4.
And we were up nearly 6% sequentially over and over Q4 and if.
And you look at that progression that we made and both Mike and I commented on this a little bit.
<unk> was it was a pretty strong month for us.
Fury stepped back a little bit.
You'll recall February was it was a pretty tough month and particular in the middle a couple of weeks.
And then we saw a sequential increase.
March over February and we're seeing sequential increase to date as well sitting here towards the end of April so.
So a step up in January we step back a little bit in February and then stepped forward again in both March and April and as.
And I look at the overall business on a consolidated basis.
As I compare April versus where we finished March.
And we're up.
Call it and in the mid to mid to low single digit range. So we're pleased with the with how April has performed so far to date.
And Carl this is Mike to that point.
One of the things I had mentioned in passing on my prepared comments was it's normal variation on a month to month basis, but we do expect.
And that every month will be on average and improvement over the previous month and increase over the previous month.
Got it that's helpful. Thanks and.
And.
So you kind of touch on you just mentioned.
You mentioned price, obviously kind of an inflationary environment.
And you.
Looking about maybe trying to maintain gross margin have you have you seen like what sort of level of.
Cost increase have you seen thus far and channel and and.
What are you doing in terms of our pricing actions how are the conversations going with customers.
Yeah. Carl this is Mike we are seeing some price increases from suppliers.
And we've experienced this in previous years and previous cycles.
And and where necessary, we do pass those cost increases along to supplier to our customers.
But it's but it is important to bear in mind debt with our average piece price of 94 cents and then remembering that an hour of downtime for the <unk>.
Piece of machinery can be thousands of dollars our customers and our service intensity again differentiates us.
Excuse me so putting all that together, we feel like our customers are far more focused on machine uptime, and then going from 94 to 95.
So we have had a very good and very long track record of being able to successfully pass modest price increases alone when necessary.
And underneath it all the combination of our service intensive vendor managed inventory.
With our differentiated product and then the macro overlay of real labor shortages that our customers are having makes our value proposition even more critical to their success. So when you put all of that together, we have really really high confidence and our ability both to maintain margin.
But to accelerate sales and increased sales and just everything about our value proposition is rock solid and more critical every day to our customers than it has been ever in the past.
Got it thanks and.
Maybe just transitioning to specifically the MRO gross margin I know you've talked in the past about sort of that 59% to 60%.
Range it looks like it dipped a little bit below that here in the quarter, but I'm just maybe for the rest of the year are you expecting I guess a fairly even.
Obviously.
For the rest of the year are fairly even.
59 to 60 or is there any seasonality and other factors that might influence and the other quarters to go below or above that.
Yeah. Carl this is Ron so so.
And as we mentioned.
The major movement this quarter that brought the margin down.
Was it related to the.
The 825000 that we recorded in Q1 on and MRO basis ended at 50 58, 2% as we're thinking about gross margins.
So that was impacted by about 100 basis points, a little bit over 100 basis points from from that recording so puts us back to $59 three.
We're pretty comfortable there.
We can maintain that level of margin for us.
2021 develops and I would say that our business is a little bit more seasonal in terms of the sales volume and certainly connected to the number of business days within a quarter.
But the margins typically don't vary that botched the gross margins typically don't vary that much by by quarter. So.
Putting aside that debt.
Inventory reserves that we recorded this quarter, we're pretty comfortable that we'll be able to manage.
Back in that.
Hi, 50 percentile range.
For the rest of the year.
Great and then I guess last one for me and I can jump back in line is just.
You briefly mentioned this in the prepared remarks, I believe but in the past you've talked about adding sales reps and underserved territories just curious.
Maybe if youre looking at the things today versus pre pandemic and into the pandemic, just curious where you see those underserved territories today, what geographies verticals product categories or other areas.
Do you see the greatest opportunities to ramp up head count on and what kind of cadence are you looking at there sure.
Sure Carl this is Mike so two parts to that.
The first part is with the infusion of all of the new parts Master sales reps.
We still have our three of our growth strategy is unchanged, it's add reps its sales rep productivity and growth through acquisition.
That second leg sales rep productivity.
Huge opportunity for us going forward is now that we've got this infusion of.
A large number of sales reps.
Those sales reps are going to have access to all of the Lawson core products all the Lawson products by the way. So are the Washington sales Rep have access to all of the parts master products and they are highly differentiated products. Many of the parts master products very high margin highly differentiated.
<unk>.
The real growth opportunity and the very short term is enabling 1100 sales reps to win share of wallet within existing customers and because of new product offerings.
Combination of the two product families.
Both teams should see acceleration and their.
Top line growth relative to sales reps, there will always be untapped territories.
What are the things that I mentioned in passing again in my prepared comments is some investments and growth initiatives.
Well, we're not prepared and great D to go into great detail at this point because we are just beginning this work, but sort of and interesting data point that I found eye opening was there are about 42000 ZIP codes in America today, we transact and about 20000 and Zip.
Coach.
And the reason that half of the ZIP codes have no transactions is that they're very geographically remote theres not enough business density within any rational drive time for our sales rep. So looking at channels to market looking at what while this business has a dense it's still a lot of <unk>.
Business. So there will always be opportunity to add physical sales reps and one of our growth initiatives is to pursue geographically remote territories, where it is not cost effective to add sales reps. So all of these things still fit within the three par growth strategy.
But we will continue to add reps and it's kind of random as business grows even in the very dense east coast Theres still opportunities to add reps and geographically remote areas. There is opportunities to add reps at some point and the most geographically remote areas. The question is is that the most cost.
Effective way to serve a customer so far again, we are serving about half of the Zip codes and America.
Great. Thanks. Thank.
Thank you Carl.
As a reminder, it is star one on your telephone keypad, if he would like to ask a question we will pause for a brief moment.
Okay.
Yes.
Yeah.
Our next question is from Kevin.
Stankey with Barrington Research Associates. Please proceed.
Hey, good morning, good morning, Mike and Ron.
Good morning, Kevin.
Good morning, I was.
Curious to learn more about.
Your goal to your focus on growing sales on a non.
And please sequential basis and.
Throughout 2021.
And kind of what gives you the confidence you can achieve that given typical seasonality and potential disruptions from the pandemic, even though that seems to be receiving somewhat.
Supplier challenges et cetera can you just talk a little bit more about that and maybe how your growth initiatives might contribute to you being able to achieve that.
Kevin Thank you I'll start us off with debt so.
And factors that go into that confidence.
As I just mentioned with Carl the the infusion of new products for the parts master folks and the loss and folks.
That's a part of it we're seeing evidence of debt and our strategic accounts one area that we've spoken about is our continuing growth and strategic accounts one subsegment within strategic accounts is our relationship with a growing number of integrated supply partners and the integrated supply.
Partners.
And they generally have on site presence at large factories and and.
Yet even with that on site presence. They believe as we do that bringing us in enhances their value proposition. So someone's still gotta be at a large factory every week counting inventory, putting away fasteners, putting away electrical connectors and small quantity chemicals and the.
Integrated suppliers are generally not optimized for that kind of work. They are optimized for on site MRO, but not service intensive vendor managed inventory and certainly not with our products. So that is another sector thats growing.
Likely even more so now than we first build a plan that with a likely infrastructure investment that there'll be more growth and construction equipment. So a myriad of market segments.
Sub segments of governments across the board there are a lot of encouraging things happening.
Debt some of them are structural.
Some of them have to do with specific customers and specific markets and lastly, just the macro drivers of a lot of pent up demand and the marketplace. I mean people stay at home for a year and couldn't spend money. So we expect that our customers will be ramping up across our 85000 active customers.
Across the board there'll be ramping up production and the more you run your machine the more of the maintenance to the machine has to happen so that combined with our.
Continuing labor shortage and the part of our customers makes our value proposition even more critical so it'll be interesting to see over the next couple of years if customers that are currently sort of in sourcing.
BMI or BMI, but inventory management of consumables, where they're more and more of those companies turned to outsource consumables to companies like us I believe that will happen we will see over the next couple of years, whether the market the available market expands for us.
But I certainly believe it will and our operational excellence gives us great encouragement that we're able to win share within existing customers and existing markets. So when you put all of this together we are very very confident and the business plan that we've built which is a continuous incremental step up every month upon.
Upon month for quite a while to come.
Okay by the way.
And one other little thing.
For the for <unk>.
Recently, we've crossed over and important milestone to us we're very excited about crossing over a $100 million per quarter.
No.
It's just I mean, just.
And number but it's a nice big round number and it's an important milestone for us that combined with the structural cost savings that we put in place and part during the pandemic, but also as a result of technology we've embraced.
We see.
And structural cost savings.
Every quarter that were put in place last year, Ron I'm sure will want to jump in and talk more about those but you know and.
So many different dimensions, we feel like the great companies and great position from an infrastructure perspective from a cost perspective, and most important and our value proposition.
Is really resonating with customers large and small.
That's great that's helpful commentary.
And.
So where do we stand in terms of the.
Parts Master integration and you know you did the rationalization of the <unk>.
Products as debt.
Inventories that does that part of it done and what would more.
Are you looking to do as you move forward with the integration.
Well, we're a long way again this is Mike a long way into the integration and feeling like if theres anything about US you will come to know us, we're very systematic and methodical and how we do things lean six Sigma is now fully embraced as part of our DNA and so and a systematic way we are knocking down work streams.
Our integration team and the parts Master integration team have done an incredible job of managing a large number 57 work streams that we're all going on and parallel.
And to get fully integrated seamlessly with no bumps on the road.
We are mostly through I think we are through the inventory.
<unk> positioning that we talked about the number of skus that will be coming over and the number of skus that will not be coming over that work is pretty much behind us. So we're a long way into that now we get all the benefits and so far there have been no bumps on the road. We're very pleased with how the process is going on and we're extremely optimistic.
A mistake as we're coming closer to the end of that process that it will continue to go as smoothly as it has gone from pretty much September one through today.
And so.
But do you directly to answer your question, yes, the inventory work is pretty much behind us.
Mike just to add on on top of that I. Just had this in my prepared remarks, but Kevin you'll you'll recall that we do we do have a payable of $33 million that will make here in the second quarter.
And so I really want to make sure that everybody is aware of that and.
From.
From a cash position and from a balance sheet perspective, getting through that payment for which the majority of that will just be paid with with cash that we have on hand already our availability under our credit facility.
We'll be close to $90 million once we get through that payments because the letter of credit effectively goes away because we pay the balance of the.
Via cash that we are currently sitting on so to Mike's point earlier I mean, we are we are on a and a great position to continue.
<unk> continued to reinvest back in the business.
And to fund future acquisitions, and it's exactly why we set up that facility.
We did.
On a year plus ago, probably 18 months ago. So so we feel really really good about the overall financial strength of our balance sheet and it gives us tremendous flexibility going forward.
Great.
And where you're able to measure.
Kind of the impact of that.
They're challenging week in February due to weather just kind of on the.
Overall sequential growth.
And the first quarter versus the fourth quarter.
We.
We did look at it cabin and and what I would say is that.
Sequentially, we were growing every week up until that up until that that week and then and then we stepped back.
And I didn't I didn't do the calc in terms of the entire quarter.
But kind of putting that week aside.
And I've mentioned earlier on Carl's question around the sequential growth that we stepped back in February.
And I think excluding that week or week and a half we would've been slightly positive for the month of February.
Versus January as well so.
But.
But overall for the quarter, we still feel we still feel really good about.
Even the rebound that we saw kind of post that week or a week to 10 days and then where we're March finished and and as I commented earlier, where April is trending so.
A little bit of a blip there in the middle middle of the quarter, but.
Seem to seem to recapture it pretty quickly.
Great.
I think you mentioned that the Kent automotive piece of the business was up.
7% sequentially and the.
First quarter.
And I think that's been one of the more economically sensitive.
It's a the business just based on miles driven and what have you. So are you.
Is that business kind of back on a nice uptrend. It seems like it is but what are you seeing or is it.
It seems like it's kind of really starting to get on that.
And kind of path of rebounding.
Yes, Kevin.
I think it is on a nice trend, but its on a nice trend for two reasons first I think as miles driven continue to creep up that will certainly you have a sort of a driver effect, but the other thing that is even more exciting to us is we're winning share we're picking up customers, we're winning locations and.
And.
And environment and a market that is so fragmented.
It's an easy thing to say and a hard thing to do but we shouldn't be able to pick up share no matter what the market is doing through our operational excellence and our sales reps and our superior product and differentiated service proposition. So again, it's in highly fragmented markets you should be able to grow no matter what the market is doing again.
A very easy thing to say and a very hard thing to achieve but a big part of our success and Kent is yes existing customers getting back on to a trajectory that makes that debt they run before.
Also our ability to win new customers and new locations.
Within existing customers. So we're pleased on both fronts.
As it relates to Kent.
Okay, good and.
Okay.
Selling expenses as a percentage of sales were up.
Year over year, and the first quarter you mentioned some of the factors.
Behind that reinstatement of normalized selling activities.
Higher parts masters selling expenses as a percentage of sales.
Should we kind of think about this.
Selling expenses.
And more of the run rate.
Or you.
Growing off that first quarter level as we move throughout the year.
How should we kind of think about that that line item.
Yeah, So so Kevin.
As you are aware, there's a certainly a piece of those debt expense that is that is variable.
And for.
For the quarter, and we were all in and about 23% versus 22%. So.
It.
What I would say.
If you strip out the variable piece of that being that the commission portion of it because that is the most quite closely tied to sales.
As you look at the the.
Other expenses that we've taken out.
And within that line.
And we're down probably about a half a million dollars and our and our selling expenses again, putting aside the variable components.
And comparing Q1 versus Q1 from a year ago share.
So as I look at as I look at the first quarter of 2021, I think that's a pretty good trend from a from a go forward standpoint.
And those savings that we realized throughout 2020.
We were able to put those.
Basically and from a permanent standpoint.
And there is areas that.
The comparison becomes a little challenging because though.
For example, travel related items and travel related expenses.
And really dropped in 'twenty for most part in 2020.
From April through the end of the year and.
Certainly as we resume more of our sales activities and those will increase versus where we were a year ago.
But we still plan to have pretty significant savings for example in that category.
Versus if you were to compare the 2021 and forecast versus 2019 so.
Again, so I think that the.
Comparisons are going to be a little bit more challenging as we move forward.
Even into future quarters, just because a lot of those activities have now resumed.
And we've got at least on the expense side.
Really low numbers that we're up against as we move into Q2 and Q3.
Okay got it and last year.
I assume you know you didn't mention it but are you still have confidence and the ability to drive those.
The 25% to 30% incremental adjusted EBITDA margin goal.
As you move throughout the year.
Yes, Kevin. So this is Ron yes, we are.
And we would we provided that guidance and the past of being able to get the operating leverage of 25% to 30%.
And we're comfortable with that guidance on a on a go forward basis as well.
So it's.
It's the reason that we focus so heavily on driving top line sales.
And as Mike mentioned and hitting our milestone this quarter was it was really important to the organization driven by our three part growth strategy that we started.
And it years ago and.
And this this quarter is a reflection of all of that so.
But yes, we're yes, we're still comfortable with the with that operating leverage and and.
And driving incremental improvements to our overall profitability.
Primarily through top line sales growth.
Okay. It sounds great.
Kevin Lee would probably also be a little bit remiss, if we didn't mention that.
And we don't generally talk that much about facilities.
Got you.
In the prepared comments, we talked about doubling the size of our Calgary facility moving it as well doubling the size of a large store that bolt has bolt is doing a great job this quarter and has been all along.
And as well with really very modest capex investments, we will be increasing over time, it doesn't happen and the step function, but over time, we will be increasing the lines picked capacity of our mccook distribution center by 75%.
As well the small investment, we're making to update conveyors and warehouse software warehouse management systems, and Suwanee and all of that with very very modest cash.
Capex investments.
Give us a tremendous boost and our capacity again further enabling growth through acquisition.
So we're excited about that because with a very modest input.
Net huge capacity growth, which further enables our ability to continue to grow through acquisitions on and of course organically.
Great and have you kind of size.
Much additional.
Revenue you can handle with the their capacity, you're adding or how much you can handle additional revenue can handle currently and what you are adding on top of that.
Yes, Kevin.
And I would say just just within the Mccook facility.
Certainly we will get some additional capacity out of <unk> as well, but but.
We anticipate that there was an incremental capacity north of $100 million of.
Throughput.
Throughout our DC network, so to Mike's point and puts us and a great position. These.
These investments allow us one to bring and the parts master activities.
Into our into our existing infrastructure.
And then even even putting that aside still gives us tremendous opportunity tremendous growth capacity going forward. So.
And.
And and Swati for example, I mean, that's that's pretty antiquated equipment right now that we're replacing so.
So that'll be a nice upgrade for that facility as well.
Yes.
Great. That's good to hear thanks for taking the questions.
Thank you Kevin Kevin.
This concludes our question and answer session.
Like to turn the conference back over to Mike to Haden for closing remarks.
Thank you.
Thank you for joining the call today, we have gotten off to a great start in 2021.
Actions that we took last year, both those and response to this pandemic as well as other growth initiatives that debt.
Are paying dividends and will result in both sales and earnings growth.
We've achieved a new milestone and crossed over the $100 million threshold and sales for the quarter.
As the impact of the pandemic begins to recede.
We expect to continue the benefit from new technologies that we've embraced during this time as well as structural cost reductions within operations, while maintaining our focus on growth.
We have once again demonstrated to our customers that even under the most difficult circumstances. They can depend on us to keep them running.
Our threep our growth strategy is unchanged the.
And the addition of sales reps sales rep productivity and growth through acquisition continues to be the foundation that we're building the company on the line.
Lastly, our teammates are committed to growth and excellence and everything we do we are grateful every day for your professionalism and commitment to our values.
We look forward to speaking with you on the next call have a wonderful day.
Conference has now concluded and thank you for attending today's presentation you may now disconnect.
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Okay.
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