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Operator
Good morning, ladies and gentlemen, and welcome to the Lawson Products first-quarter 2014 earnings call. This call will be hosted by Michael DeCata, Lawson Products Chief Executive Officer; and Ron Knutson, Lawson Products Chief Financial Officer. They will open the call with an overview of the first-quarter results. There will there be time for questions and answers.
This call is being audio simulcast on the Internet via the Lawson Products investor relations page on the company's website, lawsonproducts.com. A replay of the webcast will be available on the website through May 31, 2014. During this call, the Company will be providing an update on the business as well as covering relevant financial and operational information.
I would like to point out 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 are subject to risk and credit uncertainties that could cause actual results to differ materially from those described.
In addition, statements made during this call are based on the Company's 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 update the forward-looking statements made today, but specifically disclaims any obligation to do so.
I will now turn the call over to Lawson Products CEO, Mike DeCata. Please go ahead, sir.
Michael DeCata - President and CEO
Good morning and thank you for joining our call. We appreciate your interest in Lawson Products. There are three main areas that I would like to discuss this morning. Then I will turn it over to Ron Knutson for a more detailed financial update.
Our focus remains the same. The team's hard work is paying off. And that hard work has resulted in good first quarter and will set the stage for a very good year. First, our focus on growing top-line sales. Sales for the quarter, at $69.2 million, were up 3% over a year ago. Despite adverse weather in January and February, which impacted customers, ADS was up 3% versus a year ago, and nearly 2% over the fourth quarter. A special thank you to our sales team. During this period, they braved difficult conditions to service their customers.
We added sales reps during the first quarter. We ended 2013 with 806 sales reps. During the first quarter, we added an additional 30 net new sales reps. We are pleased with the caliber of candidates we are seeing. Our hiring and on boarding pilot last year has enabled us to enhance our processes and to improve the initial training on boarding processes.
As we have mentioned in the past, adding sales reps negatively impacts sales per rep, per day, in the short term but will have a longer-term positive impact. We are on track to add 15% to 20% net new sales reps during 2014.
We are also pleased to see improving productivity from our existing base of over 800 sales reps. Excluding the sales reps that joined us the past 15 months, sales of existing reps were up approximately 3%. I would also like to comment on our Kent automotive line, which primarily services automotive service shops and auto body shops. While Kent represents approximately 17% of our overall business, this segment is growing at double digits. And the Kent leadership team is doing an outstanding job servicing customers. Recently, Kent was the only external company listed on the GM technical services bulletin to provide components for the ignition switch repair and recall which you may have read about.
Next, I would like comment on operational improvements. We continue to see operational improvements in many of our daily metrics. Back orders, line service levels, and order completeness continue to improve. We continue to refine our operating and inventory processes with a focus on productivity and removing non-value added activities. The Lean Six Sigma methodology, which we have been utilizing since made-2013, is beginning to pay dividends. We continue to leverage data that we connect extract from SAP that previously did not exist. For example, we now provide sales on margin level data to district sales managers and region sales managers, again, which previously was not available. We continue to use and enhance our e-commerce to support sales rep productivity.
Third, I would like comment on our drive to continue to improving productivity and profitability. We are pleased with our financial results for the quarter. Gross margins have stabilized. The first quarter ended at 59.6%, up slightly over year ago, but in line with our expectations. We continue to believe that we can manage gross margins in the high 50s -- 50 percentile. Expenses continue to be controlled tightly. Total SG&A expenses were $43.1 million for the quarter. We will continue to evaluate opportunities to drive efficiencies.
Lastly, for some time we have been considering the best course of action regarding our underutilized distribution center in Reno, Nevada. The facility was doubled in size to approximately 230,000 square feet in association with the relocation of Rutland tools, a business unit which we divested in 2010. We have elected to sell the building and lease back approximately 105,000 square feet. This is likely to close during the second quarter.
Net proceeds of approximately $8.4 million will be used to pay down debt and fund our sales expansion. It is important to note that our distribution network and infrastructure is capable of significant volume growth, without additional investments in brick-and-mortar.
Lastly, we are confident that our value proposition remains strong. We are beginning to see broad-based growth from large and small customers alike. We are also seeing segment growth from Kent automotive as well as nonmilitary government and strategic accounts.
I would now like to turn it over to Ron Knutson for more detail financial update.
Ron Knutson - SVP and CFO
Thank you Mike, and good morning, everyone. The first-quarter results demonstrate that our ongoing efforts to improve our core operations are benefiting our customers and driving positive financial results. While our cost management measures remain in place, our key initiatives in 2014 are built around growing revenues by expanding our sales team and investing in the productivity of our existing sales representatives.
Let me share with you a few highlights for the quarter. First, we added a net 30 direct sales representatives from 806 at the end of the fourth quarter, ending the first quarter at 836 direct sales reps. Off-line sales finished at $69.2 million for the quarter during which there were 63 selling days. Despite the weather challenges in many areas of the country in the first quarter, this represents an increase of 3% over a year-ago quarter.
Second, for the quarter, our adjusted operating income was $54,000, excluding severance, stock-based compensation, and the impairment charge taken on our Reno distribution center. This is compared to a loss of $709,000 from a year ago.
Third, our selling, general, and administrative expenses finished at $43.1 million compared to $43.3 million a year ago. This represents a decrease from 64.5% of sales a year ago to 62.2% for the current quarter despite increased SG&A from our hiring efforts and higher seasonal payroll taxes in the first quarter.
And fourth, we had two items impacting the quarter which are nonrecurring. First, we finalized the sales of our subsidiary, Automatic Screw Machine Products, in the first quarter, resulting in a gain on the sale, net of tax, of $1.2 million. Second, we were also successful in entering into a letter of intent to sell and lease back our Reno distribution facility, which previously also supported our Rutland tool subsidiary, which was sold in 2010. Since then we have been utilizing less than one-half of the facility. This transaction is expected to provide net proceeds of $8.4 million and will allow us to only least the portion necessary to support our MRO operations. Although this will result in a non-cash loss on the sale of $2.9 million, we will realize net cash proceeds of $8.4 million and will also realize operating savings over the term of the lease.
We finished the quarter with $69.2 million in MRO sales compared to $67.2 million a year ago and $65.7 million for the fourth quarter of 2013. The first quarters of both 2014 and 2013 included 63 selling days, while the fourth quarter of 2013 had 61 selling days. For the quarter, average daily sales increased 3% over a year ago, and were up 1.9% as compared to the fourth quarter. This represents the third consecutive quarter that our sales increased versus the same period from a year ago. Both the increase over year ago and over the fourth quarter was primarily driven by a higher average rep count and additional productivity from our existing sales reps. Our rep count has now increased for four consecutive quarters. We ended the first quarter with 836 sales reps, a net increase of 30 from the beginning of the year.
These new reps will have a positive impact on our average daily sales in 2014 in future years, as they build out their book of business. However, as previously discussed, adding new sales reps who initially bring down our sales per rep per day productivity measurement as the newly hired sales reps are in their early stages of building out customer relationships in their territories. We felt this impact in the first quarter with our aggregate sales per rep per day decreasing 1.3% from the fourth quarter. However, excluding those reps who joined us at the beginning of the prior year quarter, sales per rep per day increased nearly 3% versus a year ago and was also positive over the fourth quarter.
Over a longer-term period, adding additional sales reps will drive top-line sales. We have made great strides in bringing unqualified sales reps with previous selling experience and many with in-depth product knowledge. We are making early investments in them to ensure that they can ramp up quickly. As we move through 2014, we plan to aggressively add sales reps in underserved territories to reach our 15% to 20% rep growth goal by year-end.
From segment standpoint, strategic accounts now represent approximately 14% of our total volume and increased 4% over the prior year quarter, driven by a combination of signing new accounts and the expansion of existing relationships.
Our Kent automotive business was up nearly 16% as compared to a year-ago quarter, primarily driven by new business, although expansion of our existing relationships also grew nicely. Our Kent business now approximates nearly 17% of our total business. These increases were partially offset by a decline in our non-local and safe government segment.
From a sequential average daily MRO sales basis, January sales finished at $1.081 million; February finished at $1.086 million; and March finished at $1.129 million. Average daily sales has been trending up over the past two quarters. In fact, ADS in March was the highest it has been since February of 2012.
For the quarter, gross margin was 59.6% and in line with our expectations. This is up slightly over a year-ago margin of 59.2%, primarily due to the improve freight operations. We continue to focus on a managing our margins and taking advantage of recouping margin opportunities wherever possible. The focus on larger strategic customer relationships will continue to put downward pressure on our margins. However, we expect this to be partially offset by other procurement opportunities.
Selling, general, and administrative expenses decreased as a percent of sales from 64.5% a year ago to 62.2%, and were $43.1 million for the first quarter compared to $43.3 million a year ago and $40.1 million in the fourth quarter. We continue to tightly manage our on ongoing operating costs. The increase in SG&A costs over the fourth quarter was driven by higher recruiting and on boarding costs of our sales reps, higher non-cash compensation expense, severance, and seasonal payroll taxes.
Inclusive of the loss on the Reno transaction and a gain on the sale of ASMP, the net loss for the quarter was $3 million, or $0.34 per diluted share compared to a net loss of $3.2 million or $0.37 per share a year-ago quarter.
From a balance sheet perspective, we ended the quarter with $11.6 million of outstanding debt under our credit facility. The $4.4 million decrease from the year end of 2013 was primarily driven by proceeds received from the sale of ASMP offset by working capital needs to fund additional sales and lower accounts payable.
CapEx for the first quarter was $335,000. We expect our CapEx for the full year of 2014 to be in the range of $3 million to $4 million, primarily in maintenance capital for our distribution network and planned reprofiling on the least space in Reno.
In closing, we are very pleased with our financial progress over the past few quarters. In particular, we achieved strong sales performance in the first quarter driven by both adding new sales reps along with improved performance from our existing sales team. We are excited about the business, the progress that we've made, and our ability to improve the core operations of the business and execute on the initiatives that will drive our Company forward. I will now turn it over to the operator for questions.
Operator
(Operator Instructions) Jack O'Brien, CJS Securities.
Jack O'Brien - Analyst
Good morning. So just a couple of quick questions here. You guys continue to have success in building out your sales force. I was wondering if you could give us some more detail on the type of people you are recruiting now, retention rates, and improved productivity of new hires -- just a little bit more detail on that stuff?
Michael DeCata - President and CEO
Good morning, Jack. This is Mike DeCata. Thank you. We're seeing a broad spectrum of interest for mostly industrial salespeople. Some of them in the MRO space and some of them in the consumable MRO space -- the space we operate in -- but also other industrial salespeople from other companies that may not be strictly speaking in our space, but have a lot of industrial selling experience in selling to our kinds of customers. So we've been very pleased with the caliber of people we're getting, the frequency that we're getting.
We also recently, as a result of our sort of Lean Six Sigma process, we engaged the pilot last year that resulted in the addition of 49 sales reps during 2013. But that was really intended as a process to understand what works, what doesn't work, the on boarding process, the selection process; all of that was worked on last year with an eye towards a much larger number which we have talked about for this year. So a lot of that has come from process improvements.
One of the things that we did was we brought on an outside process called an RPO, recruitment process outsourcing. And they are helping us with the large volume of people that are now calling and contacting us, sort through the processing -- the initial prescreening. We've also engaged best practices internally which we believe will help retention.
For example, we ask candidates to do a day's worth of ride along with sales reps in advance so that way the candidate knows firsthand in front of the customer what the real experiences before an offer is made. We believe that this will first give us a higher caliber of candidate, but also will have an impact on retention because now the candidate knows exactly what they're getting into. So all of these things that we discovered in our pilot process last year. Ron, did you want to comment additionally on any retention numbers?
Ron Knutson - SVP and CFO
Yes. So, good morning, everybody, this is Ron Knutson. From a retention standpoint what we've seen in the first quarter is that we've gotten off to a pretty strong start relative to our total hiring. As we mentioned earlier, we're up a net 30 sales reps in the first quarter, and in the first quarter really those new reps that we've brought on are really just getting up to speed. So our expectation is that they don't create a lot of sales within the existing quarter, but we did see some nice benefit in the first quarter from the sales reps that we hired in 2013.
So those reps that we hired in the beginning of 2014, as we've commented in the past, those reps will really benefit us as we move throughout the rest of 2014 and then in particular in 2015 and 2016, as they build out their book of business. So our attrition rate is really falling in line with where it was in 2013. So, we feel good about the reps that we brought on as well is our ability to retain our existing sales reps.
Michael DeCata - President and CEO
Jack, one last comment on this subject and that is that as our processes have improved, our fill rates, back orders, and all of the other operating processes, we've seen benefits across the spectrum. We've seen more share of wallet from customers. We've seem more customers -- customer growth. But we've also seen people come and be attracted to us. They all sort of self reinforce in that the better you do, the more attractive you are as a supplier to our customer base and also as a potential employer.
Jack O'Brien - Analyst
All right. That's great. And then one second question. You guys talked about some of the success you are having with your strategic accounts on the call, as well as some of the other guys. I was wondering if you could speak about the continuing improvement you guys are seeing in your ADS and some of the drivers of sales growth from a broader group of clients?
Ron Knutson - SVP and CFO
I will take that one, Jack. This is Ron. You know, as I think both Mike and I mentioned in our prepared remarks, we're seeing some nice growth both on the strategic side as well as the Kent automotive side. And really it's a continual focus of ours to gain additional customers that we can service multiple locations. If you look back for our Kent automotive business, that business has been growing double digits for the last couple of years and now actually exceeds strategic accounts as well as far as what they make up as a percentage of our total business, which is about 17%.
So it's a concentrated effort with both of these teams to identify and prospect new customers and certainly we feel like we can service these multi-location customers, given the locations of our sales reps throughout the US. So both of these areas will certainly be a continued focus of ours. It does put a little bit of downward pressure on the gross margin line, but we still feel like these are two areas of the business that can help us grow the organization.
Michael DeCata - President and CEO
And, Jack, we've also mentioned in the past that our strategy has not changed relative to our desire to attract small customers and large customers. As our processes have improved we feel very confident that as we make promises to customers about the nature of our value proposition we feel highly confident that we can deliver on those promises. Having said that, the well-informed customer that we have that may be a large account that grows with us substantially is very positive reinforcement because a long-term relationship knows our strengths, knows how we go to market, knows will be do well. When we see that kind of the customer growing, when we pick up share of wallet from that kind of a customer that's a well-informed endorsement of our value proposition. We especially appreciate that kind of positive reinforcement.
Jack O'Brien - Analyst
All right. Great. Thanks for taking my questions.
Operator
Stan Berenshteyn, Sidoti.
Stan Berenshteyn - Analyst
Hi, good morning. Filling in for Matthew Paul. So just one question, based on the disclosure of the net sales reps that have been increased, could you just discuss the sales rep turnover in the quarter and how that compared to historical levels?
Ron Knutson - SVP and CFO
Sure. This is Ron Knutson. On an aggregate basis, Stan, we hired 63 new sales reps in the first quarter, and we had 33 reps that left the organization. And that was pretty much in line with our expectation. If you look at most sales type organizations, you will see a 14% to 18% annual turnover rate. So we've kind of built our plan expecting that we will have some turnover. What I would say though is that the sales reps that decided to leave the organization, the volume that they created -- it wasn't as though we lost a lot of large writers of business. So the lost volume, although we don't like to lose the volume or the sales reps, was not significant to us in the first quarter.
So our focus is on not only retaining our existing sales reps, but then also in the hiring process making sure that the reps that we hired in the first quarter can ramp up quickly and start generating a significant amount of sales in 2014 and 2015 and beyond. So hopefully that answers your question.
Stan Berenshteyn - Analyst
So this is pretty much in line with what has been seen in prior quarters, prior years?
Ron Knutson - SVP and CFO
It is. It syncs up pretty close to what we saw on a quarterly basis in 2013.
Stan Berenshteyn - Analyst
Okay. Great. Thank you.
Michael DeCata - President and CEO
Stan, also as we've evolved our on boarding process -- we spoke a moment ago about the attraction of new sales reps and the hiring process. We've also put a lot of effort, again, along the Lean Six Sigma lines, around the evolving the initial training, the initial weeks on the job and that has had -- first, it's changed versus last year. It's improved and we believe it will have a positive impact on the initial ramp up of sales. Now time will tell how much, how measurable it is, but we certainly believe that our on boarding process and our initial training process will pay dividends. And it will continue to evolve because it's likely that we will continue to grow our sales reps beyond 2014.
Stan Berenshteyn - Analyst
Sure. Certainly looking forward to seeing how that will play out.
Operator
(Operator Instructions) Beth Lilly, GAMCO.
Beth Lilly - Analyst
Good morning. I was wondering, Mike and Ron, could you talk about the progression of the business model over the next several years? You've got this rep count growth goal and just how that plays out in terms of your EBITDA margins or your operating margin, because you've made it clear that you think a high 50s gross margin is kind of where the business model will shake out. But as you look out over the next couple of years, how does this affect your operating and EBITDA margin?
Michael DeCata - President and CEO
Beth, we have communicated in the past and we have stayed with it that it is our belief that we can get to a 10% EBITDA margin over the next couple of years. Certainly that's our aspiration. When we look at the fragmented nature of the customer base and the opportunity we see no shortage of growth potential. Analysis that we did last year in looking at ZIP Code and county-level opportunities have dictated where we've try to hire and attract sales reps. That is continuing this year and will likely continue next year. We believe there's opportunity for us --growth in Canada as well.
So, we see broad-based growth. The initiatives we've taken around cost management are unchanged, and we will continue to examine everything we can to drive ourselves to be more productive. So across the board we're optimizing the Company and to the extent we can refine the ramp up process for sales reps they will become more profitable more quickly. Ron, did you want to share?
Ron Knutson - SVP and CFO
Beth, one of the items that we monitor very closely is our adjusted EBITDA. If you look at the last few quarters, excluding items like the Reno and the non-cash comp and the severance and so forth, really, truly look at it from an operating standpoint -- the first quarter of 2014 as a percent of sales ended at about 3.5%. That is a little bit lower than where Q4 was of last year. Although the seasonal payroll taxes, now that our sales reps are employees, incrementally was about $1.2 million of additional expense for us in Q1, versus Q4. So that deflated our EBITDA percentage -- actually took us from a little bit north of 5%, again down to about 3.5%.
So as we look forward, we still are confident that we can get to the 10%. Part of that will be a little dependent upon how aggressive we are with adding new sales reps and how far out we take that process into 2015 and 2016 into future years. There is an initial investment, in particular in the first year as the sales reps are building out their business. We understand that and we're forecasting that to take place.
So there is a little bit of a net investment in the first year, but in the second year is really when the sales reps become accretive to our bottom line as a percent of sales. So, again, it's a little bit dependent on how aggressive we are in adding more sales reps, but we're still comfortable and confident that we can get to that 10% number.
Beth Lilly - Analyst
Okay. The other question is the Reno distribution center, the proceeds, will you use the proceeds to pay down debt?
Ron Knutson - SVP and CFO
We will, yes. We will take the $8.4 million, pay down our existing line. We do need to do some reprofiling within the Reno facility so we'll utilize a piece of that, a fairly small piece of it. But the rest of that will go to pay down debt and put us in a position where we can continue to expand our sales team.
Beth Lilly - Analyst
Okay. And in my last question is, so are there any other non-core assets of any other distribution centers or anything that you're looking to sell?
Ron Knutson - SVP and CFO
You know, we always think that -- a lot of the last few quarters we back had some type of nonrecurring charge or a nonrecurring event. You know, at this point, we're comfortable with our overall capital structure. The Reno facility just made so much business sense. We had -- clearly we had an underutilized asset. We were only utilizing less than one-half of the square footage, and it just made good business sense to do this. And we'll see operating savings on a go forward basis as well. So it's not our intent at this point to do anything else with the other facilities or any other -- the non-core operations piece, ASMP certainly was the last piece of that. So I think going forward it's focus on our core business, on the MRO business.
Beth Lilly - Analyst
Okay. Terrific. Thank you very much.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Michael DeCata for any closing remarks.
Michael DeCata - President and CEO
Thank you again, Maureen. And thank you for joining our call. Let me say again that we're very confident in our ability to grow the Company. We've seen great progress over the last several quarters, and we're optimistic about future quarters. We added 49 sales reps in 2013. We added an additional 30 sales reps in the first quarter of this year. We're committed to adding between 15% and 20% more reps based on our beginning number of 806 sales reps.
Investments that we've made in the past in SAP and McCook, the web, the conversion of independent sales reps to become sales employees -- all of these things are having a very positive impact on our current performance, and we're very optimistic that that impact will continue and accelerate.
I've mentioned in the past that all of the executives at Lawson make sales calls every single month. This has given us firsthand understanding of the nature of our value proposition. We've had firsthand discussions with customers and sales reps and all of this gives us great confidence in the validity of our value proposition and the fact that our improving execution will continue.
Thank you again for joining our call this morning. We look forward to speaking to you in the future. Have a great day.
Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.