Distribution Solutions Group Inc (DSGR) 2018 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Lawson Products' First Quarter 2018 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.

They will open the call with the overview of the first quarter results.

Then there will be time for questions and answers.

This call is being audio simulcast on the Internet via 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, 2018.

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 the statements on this call, and then the press release containing 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.

In addition, statements made during this call are based on the company's views as of today.

The company anticipate, in the future, developments that 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.

I would now like to turn the call over to Lawson Products' CEO, Mike DeCata.

Good morning, and thank you for joining the call.

This morning, I will comment on the quarter and our overall progress.

Ron Knutson, our CFO, will provide a more detailed review of the financial results and then we'll take questions.

Ron will also discuss some of the revenue and expense reclassifications made this quarter.

We turned in another solid performance in the first quarter.

And after systematically working to improve every aspect of Lawson's operating processes, we see evidence that things are coming together well in 2018.

I've commented on several occasions that we have methodically worked to improve the company, our infrastructure, processes, technology training and productivity.

After several years of hard work, we started investing in growth, both organic and through acquisitions.

Without reducing our focus on growth, the next step is a more intense focus on delivering disproportionate earnings as a percent of sales growth.

We've also communicated that our business model is capable of consistently achieving 25% to 30% leverage on incremental sales.

We'll discuss this more in a few moments.

During the first quarter, our sales were up in every market and region, with the exception of the Northeast.

This is attributed to multiple Northeasters and what seemed like a never-ending winter.

Overall, our average daily sales increased 4% versus the first quarter of 2017 on an organic basis.

Our strategic accounts were up 23% for the quarter on an ADS basis and continued to show strong momentum.

Our Lawson segment gross profit percent remained strong at 60.6% versus 60.1% for the first quarter of 2017 before the classification of expenses into gross margin that Ron will discuss in a moment.

We have seen some slight cost increases from suppliers in the quarter.

However, we've been able to continue to manage our MRO gross margins over 60%.

As a reminder, our over 70,000 customers recognize that due to the knowledge of our sales reps, service intensity, which includes checking inventory levels on average every 8 days and superior private-label products, we provide the lowest total cost solution to their consumable MRO needs.

Including sales from Bolt Supply, our largest acquisition today, our sales grew at 15% on an ADS basis for the quarter.

From an operating income perspective, we achieved $5.1 million adjusted non-GAAP EBITDA versus $2.9 million for the first quarter of 2017, and $3 million for the fourth quarter of 2017.

The MRO portion of our business far exceeded the 25% to 30% leverage guidance.

Ron will dig deeper into this in a moment.

From an operational standpoint, as of Monday, we began shipping Lawson and Kent SKUs from our Alberta distribution center.

As you may recall, when we acquired the Bolt Supply House, we announced that we intended to reconfigure part of the Bolt DC to take advantage of some available space.

We now have co-located our Lawson distribution center within the Bolt facility.

This enables us to serve most Western Canadian Lawson and Kent customers within 1 to 2 days for core stock items versus the 5 to 6 days that it currently takes from Mississauga.

This new DC will be attractive for our existing Western Canadian customers and will enable us to attract new customers.

Turning to our sales strategy.

We continue to work on our 3-part growth strategy: growth of our sales team, increasing productivity and growth through acquisition.

In terms of hiring, we finished the quarter with 966 sales reps.

New sales rep retention and initial productivity continues to be a challenge.

However, we're making good progress in the quality of the reps that we're bringing on board.

When it comes to productivity, we're making good progress as well.

Our focus here is enabling our reps to improve their productivity through training, technology and knowledge sharing.

Sales per rep per day overall increased by 6.4% for the quarter.

Lastly, our most recent acquisition, the Bolt Supply House, is performing very well.

We're planning on adding sales reps to the Bolt team, and we're exploring geographic expansion into new locations to expand our footprint.

As a reminder, the Bolt Supply House has 25 outside sales reps and 13 branch locations.

Approximately 70% of the order are shipped directly to customers.

From a broad-based operational perspective, we're pleased with our operations and supply chain metrics.

We've achieved improvements in back orders, line service levels, order service levels and DC labor as a percent of lying ship, while concurrently lowering inventory.

Looking forward, we continue to leverage our recent acquisitions.

Our acquired teammates have made significant contributions to our ability to service new market segments, and through their expertise, opened opportunities for us in areas such as job shop applications in the truck repair area.

We continue to pursue our acquisition strategy and fill the pipeline with potential acquisitions.

We're also keenly focused on winning more share within existing customers.

We recently modified our sales rep incentive plan to emphasize a share gain and the addition of more SKUs within existing customers.

As I think about our past earnings calls, I believe we have communicated a consistent theme.

The company is demonstrating a positive upward trajectory.

We've made huge progress revitalizing the company, starting with SAP and converting our independent sales agents to sales employees.

We've achieved operational excellence through Lean Six Sigma, evolving our culture to one focused on decision-making through analysis.

And now we're growing sales and generating additional earnings.

In my view, the company is strong, and we are beginning to demonstrate the leverage in our business model and attractiveness of our value proposition.

Now I'll turn the call over to Ron for a more insight into the first quarter financial results.

Thank you, Mike, and good morning, everyone.

As Mike indicated, the first quarter started strong with a solid sales increase and a significant improvements in our adjusted EBITDA.

Our first quarter results also reflect a full quarter of the Bolt Supply House, whereas Q1 2017 did not include any Bolt Supply activity.

As I go through our financial update, I'll comment on both the organic Lawson business as well as the consolidated results that include Bolt Supply.

Before I jump into our results, let me first comment that we were required to adapt a new accounting standard, ASC 606, on revenue recognition in the first quarter of 2018 that Mike referenced.

The company concluded that we have 2 separate performance obligations as defined under the standard with one being product sales and the second pertaining to our vendor-managed inventory services.

As a result, we've now divided our revenues and cost of sales into 2 separate categories and have also reclassified the selling expenses related to providing vendor-managed inventory services from selling expenses to gross margin.

Given how quickly we perform those services to our customers, the net impact on revenues, costs and operating income in the quarter was minimal.

Schedule 1 contained in our press release provide a before and after look for the quarter.

Now let me comment on some of the first quarter operational highlights.

First, sales finished at $84.6 million for the quarter, average daily sales were up 15% versus the year-ago quarter, and up 1.4% from the fourth quarter.

Excluding the impact of the Bolt Supply acquisition, average daily sales increased 4% over a year ago.

Second, our adjusted EBITDA for the quarter was $5.1 million compared to $2.9 million a year ago.

While the quarter benefited from Bolt Supply in the amount of $631,000, our adjusted EBITDA was primarily driven by an improvement of $1.6 million in our MRO business.

And third, our consolidated reported gross margin percentage under the new method was 54.7%.

Excluding Bolt Supply and the expense reclassification, our Lawson segment gross margin percentage was 60.6% compared to 60.1% for the year-ago quarter.

Let me now share some of the details.

As I mentioned, we finished the quarter with $84.6 million on 63 selling days, 1 less than a year-ago quarter but 2 more than the fourth quarter.

As compared to a year ago, our first quarter sales benefited from the following: first, Bolt Supply generated sales of USD 8 million for the quarter; second, actions we've taken to drive growth are getting results.

This includes converting new locations for our existing strategic relationships, improving the onboarding process of new reps, driving more accountability to the field management, providing reps with forms to support product and technical questions, continuing to invest in technology and rewarding reps for growth; third, improve sales from our reps with greater than 40 month -- 42 months of tenure; and fourth, continued strength in the MRO marketplace.

As Mike mentioned, the 4% organic sales increase was widespread throughout the business with all segments growing for the quarter.

On an organic ADS basis, U.S. sales were up 3.3%, while our Canadian ADS, excluding Bolt's, were up 7.6% in local currency.

From a loss-in-segment standpoint, strategic accounts average daily sales were up 23% over a year ago, and now represent approximately 14% of our organic volume.

We also realized solid ADS growth of 4.5% in our Lawson core business, fueled by a 6.4% improvement in sales per rep per day.

From a sequential average daily sales basis, the Lawson segment January sales were $1.252 million, February was $1.203 million, and March finished at $1.185 million.

Lower sales in the Northeast, primarily due to weather, moderated our March sales.

As Mike mentioned, we ended the quarter with slightly less than 1,000 Lawson Kent sales reps in 25 territory managers in the Bolt Supply business.

As we've said in the past, adding sales reps in rep turnover negatively impacts our earnings in the short term due to the upfront investments.

However, it will ultimately help drive our total revenues and allow us to further leverage our infrastructure.

We will continue to focus on our sales rep team during 2018, both in terms of productivity and rep hiring.

We will balance those efforts with other priorities to drive the highest return to the company.

From a gross margin standpoint, we achieved expected levels.

Our reported gross margin for the quarter was 54.7%, which reflects reclassifying estimated service-related expenses against gross margin and lower Bolt Supply margins.

Prior to the expense reclassification and Bolt Supply, our organic gross margin was 60.6% compared to 60.1% in a year-ago quarter.

The increase in Lawson's gross margin percentage was primarily driven by improved efficiencies in our product fulfillment process and lower customer set-up costs, partially offset by a continued shift towards strategic customers, who typically have lower gross margin percentages.

There continues to be a lot of focus in the marketplace around pricing and margin pressures.

Consistent with previous quarters, when we look at our pricing to the same customers for the same product from a year ago, our customer -- our gross margins have not been compressed.

While we are starting to see some vendor cost increase, we've been able to stay ahead of it from a margin perspective.

Our customers understand the value of the service in premium products that we provide and understand that there is a premium for our offering.

As discussed in the past, our plan to increase strategic customer relationships and to pursue more greenfield sales territories will put downward pressure on our gross margin percentage.

However, these initiatives will increase our gross margin dollars.

And as anticipated, the Bolt Supply business with gross margins closer to 40% lowered our average -- our weighted average margin percentage for the quarter.

Selling, general and administrative expenses were $44.4 million for the first quarter compared to $44.2 million a year-ago quarter.

Prior to moving a portion of selling expenses to gross margin, total expenses were $47.8 million.

The increase was primarily driven by the inclusion of Bolt Supply in the amount of $2.8 million and higher stock-based compensation and severance expense.

Excluding Bolt Supply, stock-based compensation and severance, total operating expenses were down slightly, a nearly $1.8 million of additional organic sales.

We continue to drive down operating expenses as a percent of sales, creating an opportunity to further leverage the business.

Our consolidated adjusted EBITDA leverage was at approximately 23% for the quarter.

But this was impacted by including Bolt Supply in the calculation for the quarter.

On an MRO basis, our adjusted EBITDA leverage far exceeded our previous stated range of 25% to 30%, primarily due to some nonrecurring 2017 expenses, including the Fairfield Distribution Center closure.

Operating income was $1.8 million for the first quarter.

Adjusted non-GAAP EBITDA, taking into account stock-based compensation and severance, was $5.1 million for the quarter compared to $2.9 million a year ago.

Of the $2.2 million increase in adjusted EBITDA, the Lawson segment contributed an additional $1.6 million with the remaining $0.6 million coming from Bolt Supply.

Net income for the quarter was $1.2 million or $0.13 per diluted share compared to net income of $857,000 or $0.09 per diluted share in the year-ago quarter.

The first quarter of 2018 includes income tax expense, which negatively impacted our fully diluted earnings by $0.07.

The company did not have tax expense year-ago quarter due to the reserves on its deferred tax assets.

From a balance sheet perspective, we ended the quarter with $17.9 million of borrowings, primarily created from the Bolt Supply acquisition.

Our borrowings are typically at the high point at the end of the first quarter and then decrease for the remainder of the year.

CapEx for the quarter was $652,000.

We expect our CapEx for the full year of 2018 to be in the range of $2.5 million to $3.5 million, primarily in maintenance capital for our distribution network, the build out of the Alberta distribution center and continued technology enhancements to improve our customer-facing processes.

Let me now comment on a few items as we look into the remainder of 2018.

First, we are optimistic about 2018, given our sales over the past few quarters.

Other economic indicators in our space are Bolt Supply acquisition and actions that we are taking to drive organic growth.

Second, we will continue to focus on improving existing sales rep productivity, pursuing acquisitions and moderately adding to our sales force.

Third, we will be monitoring inflation and taking the necessary action to ensure that we stay ahead of increasing product costs.

And fourth, we will continue to leverage our existing infrastructure to drive adjusted EBITDA.

As demonstrated over the past few quarters, we firmly believe that we are well positioned to leverage our existing operating costs to achieve additional profitability.

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

(Operator Instructions) Our first question is from Steve Barger with KeyBanc Capital Markets.

This is Ryan on for Steve.

Yes, just wanted to dig into the sales reps down 17%, I mean, down 17% sequentially.

I mean, can you talk about -- give a little bit more color on the trouble you're having there with the retention?

And should we think about heading into 2Q that, that number should increase?

And can you maybe talk about the tenure of the reps who left this quarter?

Yes, sure, Ryan.

This is Mike DeCata, thank you.

So the net reduction of '17, I wouldn't say it was so much trouble as I would characterize it more as refinement.

We brought on a number of people, and we've got sort of a trajectory we expect them to be on, both of the sales trajectory but also a number of calls, cold calls, product demos and a whole range of lean Six Sigma-oriented processes we expect them to be following.

When they're on that track and progressing, as we had hoped, then we are feeling good about their future.

When it's -- when we're off that track, we're a little more disciplined in, let me say, inviting people to leave.

And that's a lot of what you are seeing.

We have seen a slight improvement in retention, not enough for us to get wildly excited about yet, but nonetheless, a little encouraging.

Relative to the second part of your question, we would expect the numbers to tick up.

And let me say, over the very long term, they will continue to tick up, kind of indefinitely.

Probably not at the pace you saw a few years ago, but in such a huge fragmented market, and our belief, let me say with certainty, that operationally, we have superior operational excellence.

There will be always untapped markets in the U.S. and Canada, untapped territories for us to add sales reps to.

So the long-term trajectory would be continuous incremental gains in our sales force, both acquired sales reps as well as sales reps that we hire kind of organically.

And we feel good about that process, and we'll continue on it.

But we feel good about where we are.

Good to know.

And then just going to the consolidated gross margin, 54.7%, should we think of that as the new run rate just for modeling purposes?

Sure, Ryan.

This is Ron Knutson.

So yes, we -- from a consolidated impact having Bolt now included into our gross margin percentages as well as the -- our reclassification of some of the selling expenses kind of that 54% to 55% is what we're looking at on a go-forward basis.

And that really still has the MRO segments, kind of the legacy reporting right at that 60-ish percent level.

Okay.

And then going to the Bolt Supply House revenue, I think it contributed $8 million this quarter, it's roughly flat sequentially.

I thought I'd be expecting a little bit of a pickup given the improvement we're seeing in demand trends.

Can you kind of talk about that sequential pattern you saw this quarter?

Sure.

So typically for Bolt Supply, their Q1 is generally a bit softer from a historical basis.

And I think it's primarily -- the spring is a little bit typically kind of trails, where some of the other quarters fall.

For example, when we look at where they performed in 2017, their second quarter sales were up substantially over the first quarter.

So -- and we're seeing some increases here already when we look at the April activity versus their first -- versus the first quarter.

And I would add to that is that they sequentially were improving February over January and March over February as well.

So we're starting to see those numbers pick up here in -- month by month.

And just add a little color to that.

As a frame of reference, the markets we serve are pretty diverse in Western Canada, agriculture facilities and supportable oil and gas, trucking industry.

And then when we talk about the walk-in business, approximately around numbers 30% of walk-in that's not shipped, that is as much trades, electricians, roofers, construction projects.

So to Ron's point, first quarter is a little softer for those folks as well, and that's why we see these seasonal trends.

Okay.

Just a couple more for me.

Looking at your inventory to kind of flat relative to 4Q '17 with demand trends improving, do you feel comfortable with your inventories right now?

Or should we expect some inventory build there?

We do feel comfortable with where we're at.

As we look out into the remainder of 2018, we are not anticipating that we would see any incremental build.

We feel good about where we -- some of the reductions that we made during the quarter from a total inventory carrying perspective.

And I would add to that is that none of our customer metrics that we look at relative to order completeness or line service or back orders, we do not see any negative impact on those as a result of us managing the dollars a little bit tighter.

In fact, we actually saw some improvements there.

So yes, Ryan, we feel good about where we're at, and we continue to look at how do we increase our turns throughout the organization.

Okay.

And then 1 last question for me.

Going back to the supply price increases inflation, it seems like the commentary you gave is a little bit more significant than in the past couple of years.

So my question is, do your sales reps feel comfortable having that conversation with customers being that you really haven't seen much inflation in previous quarters?

Yes, we've armed them with the facts and the information.

The cost increases we're seeing are extremely modest.

But you're right, compared to zero in previous years, there is a little bit there, completely in control.

But as I think about it from the customer's perspective, there are a couple of forces working here.

The predominant forces are as time utilization increases on factory equipment over the road trucking, construction equipment, so on and so forth.

As the whole economy gets a little bit better, the last thing a customer wants is downtime because of a small consumable MRO item.

93% -- $0.93 is the average piece price of what we're selling to our customers, of course, obviously a broad range.

But imagine running a large piece of equipment, the last thing you want is to wait an extra day of downtime, precisely at the time when you yourself are being stressed for more production on behalf of your end-use customer.

So I would argue, in this environment, what's leading, to some extent, to the inflation is demand.

And that demand translates all the way through to the end user with our manufacturing or over the road trucking customer in between, come back and say it again.

At this time, our value proposition is even more critical to the marketplace than it is when times are a little bit slack from the utilization perspective.

(Operator Instructions) Our next question is from Kevin Steinke with Barrington Research.

One of the follow-up on -- you talked about the severe weather in the Northeast, is there any way to maybe separate out the magnitude that might have headed on your organic ADS growth for the legacy Lawson business?

Yes, Kevin, it's -- this is Ron.

It is a little difficult to do so.

And we've looked at the trends in the Northeast for the districts that we think were affected.

And we did see some negative trends.

But I think, also, it was compounded a little bit by the timing of when good Friday fell.

And that fell in the first quarter of this year versus in 2017.

It was in the second quarter, I think, it was April 14 last year and it was March 30 of this year.

So it gets a little muddy.

It's probably the best way to explain it.

But we do feel that there has been a negative impact.

And certainly, when we do look at the trends in that region, we did see a little bit of a falloff in the -- during the March time frame.

And what I would say is that those same regions are now picking up in April.

So yes, difficult to put a precise number on it, but certainly, the trends were moving a little bit negative for us in March.

And now we're seeing them turn back positive for us.

Okay.

Good to hear that things are turning back positively in those regions in April.

And just following up on that, what have you seen for the company overall here for in terms of growth through the first part of April here?

Yes, pretty solid.

As you know we don't go out and give any formal guidance.

But I would say solid increases, pretty consistent with what we saw in the first quarter over a year ago.

So again, we feel like we're continuing down the right path.

We're seeing some nice kind of mid-single-digit growth here in the first few weeks of April.

And as evidenced in the first quarter, being -- us being able to leverage a lot of that into additional EBITDA dollars as well, we would expect that trend to continue also.

Okay, great.

Yes, I know throughout 2017, you called out the benefit of the rebound among your oil and gas customers.

That was a nice tailwind for you throughout last year.

As we move forward, I guess, the comps will get a little more difficult on that.

But is it -- are you able to call out kind of any sort of benefit or impact one way or the other on the first quarter?

And what you might expect going into 2Q and the remainder of the year from oil and gas?

Sure, Kevin.

This is Ron again.

So you're right.

The comps do get tougher as we move throughout the year.

So I mean, that's a combination of oil and gas just, plus other organic growth that we realized.

Within the oil and gas, and again, we define this as SIC code, it's how our customers are classified.

Their -- the first quarter of '18 was relatively flat with the first quarter of '17.

So we really didn't see, as you mentioned, historically, we'd called out some of that growth if we saw a bump up.

So it kind of flattened out for us a little bit in the first quarter versus even where Q3 and Q4 were at the end of last year.

Although, we had, what I would say, some pretty significant strategic customers that were growing at an accelerated pace in Q3 and Q4.

And we'll get some of that business back as well just from a volume standpoint.

But oil and gas softened up on us a little bit, looking at it sequentially Q4 to Q1.

Yes, Kevin, this is Mike.

And let me just jump in and say that, for oil and gas [conserving] the very significant, and we're thinking of specific customers here, very specific gains that we made, flat for the first quarter, we were really good.

We feel like we're -- yes, and let me just say this broadly, beyond oil and gas, we feel like we're in a good place, not the very significant gains that happened between '16 and '17, but sort of a steady state kind of a rate, I'm talking about the market now, across multiple segments, geographies and product segments.

We feel like it's not the step function it was between '16 and '17.

But nicely elevated at the '17 levels.

Now the challenge for us is to go win share, and we're all about taking share and fully servicing -- like customers, we talked about national digital accounts as an example.

Conversion is a reflection of taking share within existing relationships and picking up new locations.

But other activities to pick up new product categories and SKUs within existing, nonstrategic accounts, all of this is a reflection of a good economy that's good as it was in '17.

And now there's real opportunity for us to differentiate ourselves based on our service intensity of product, and so on and so forth.

So we're feeling very good, both about oil and gas, and the gains we've made there and holding onto them.

But as well more broadly than that.

Okay.

And following up on that, you just talked about your focus on share gain within customers and conversion of a -- within strategic accounts.

And I believe you said in your prepared comments, you recently modified incentives for sales reps to reward share gain.

So can you remind us how recently you made that change?

And what you expect to accomplish out of that?

Or what you're seeing from that so far?

Yes, that was a very recent change.

And what we're trying to do here is, if you look at any customer, any kind of a location, there might be 6, 7, 8 product categories that we are servicing that customers' needs.

But there might be 1 or 2 other ones, maybe not our most important product categories that the customer is buying from someone else.

Again, I'm not talking about our sweet spot being fasteners, electrical connectors or abrasives and cutting tools, but adjacent products for us.

And we are now putting real emphasis through our sales reps and encouraging our sales reps, including through commission changes, to go pick up that incremental business.

And part of the underlying logic of this is the real confidence that we have that because of our operational metrics, order of the delivery cycles, back orders, fill rates, so on and so forth that we are doing and can do a far superior job in servicing the customers' needs than anybody else can.

So for the products that we service for our value proposition, which is a fairly narrow consumable MRO value proposition, candidly, we want a 100% share of our customers' business, and we believe that anything less than that is a disservice to the customer.

Customer is not well served if we're not servicing 100% of their needs.

And so we're trying to enable our sales reps to push harder to pick up all the little incremental stuff that they might walk past today.

But it's a very -- excuse me, a very recent change.

Okay, great.

That's helpful.

And I guess, just lastly here, Ron, I think you touched on a couple of times here.

But is there anything that should prevent you from continuing to get those 25% to 30% incremental adjusted EBITDA margins on organic growth?

Or is that kind of the expectation going forward?

Sure, Kevin.

So it is definitely the expectation going forward.

And we clearly saw that in the first quarter with increases in our -- with a 4% increase in our Lawson business, we were able to show quite a bit of leverage coming through $1.6 million of additional EBITDA and about $2 million of incremental sales.

So we feel good about how much of that flowed through to the bottom line.

As we look into the next few quarters, we're not seeing anything that would prevent us to achieving our 25% to 30% stated goal.

Certainly, as we mentioned earlier and you mentioned, our sales comps get tougher.

But we feel like we have the expense structure within the organization at the right stage that with the sales increases, we can realize a lot of that coming through.

So no, I'm not -- we're not coming off of the 25% to 30% at all at this point.

Okay, great.

And that's on -- would that be on total sales growth as well and including Bolt?

Yes, it gets -- yes, so it gets a little complicated with adding Bolt, and it's just because they were -- they're not in the historical numbers.

So we look at it kind of separately at this point on the MRO side, making sure we get 25% to 30%.

And then, on the leverage side, and then really managing Bolt Supply's EBITDA percentage separately.

And I think that's probably the right way to look at it, especially since Bolt was not in the prior year.

When we start lapping those numbers then it'll -- that leverage calculation will bake -- will make more sense on a consolidated basis.

We have a follow-up question from Steve Barger's line.

I just had a couple of more questions.

Last quarter, really, we talked about potential branch openings at Bolt.

Can you talk about where you are at with that right now?

And to piggyback on that, now that you began shipping Lawson and Kent SKUs to the new DC, do you plan on putting some of that product within the Bolt branches?

Yes, Ryan, thank you.

This is Mike DeCata.

Couple of things.

Yes, we are exploring bridge expansion into underserved locations and cities in Western Canada, not ready to announce anything just yet but we are working toward that and committed to it.

We are also, by the way, I think I mentioned in my prepared comments, we're also adding sales reps to Bolt locations in addition to sales reps for Lawson, Kent, Western Canada locations.

So that combination is an infusion, an investment in future Bolt growth.

Sort of as a frame of reference about that, the distribution center that I had mentioned is a little bit more than 40,000 square feet.

And we're using about 14,000, 15,000 square feet of it to bring in Lawson.

And Kent SKUs products in addition will likely bring in about 15,000 items and another 6 or 7 item -- 6,000 or 7,000 items from Matic all into that Alberta distribution center.

So when you put all of this together, we're feeling good about our future growth in Western Canada.

And again, we've said the Bolt team is just doing a great job for us.

So kind of that's where we are, and we are working to -- we'll get new branch locations, predominantly in Western Canada.

Okay, and then just 1 housekeeping question.

The 34% tax rate, should we assume that going forward?

Yes.

Yes, Ryan.

That's a pretty good rate on a go-forward basis and that's a blended rate, certainly between our Canadian operations.

Our state, as part of the tax reform, they introduced a tax for -- on foreign companies with as far as earnings exceeding their tangible investments, which we're subject to.

So yes, we're -- that 33% to 34% is a pretty good rate on a go-forward basis.

Ladies and gentlemen, we have reached the end of our question-and-answer session.

I would like to turn the call back over to Mike DeCata for closing comments.

Thank you, Sherry.

Thank you for joining our call and for following Lawson Products.

Our revitalization efforts and investments are coming together well in 2018.

As we have mentioned, we have challenging top line comps in 2018, but a stable market combined with operational excellence and a strong team enabling us to win share and grow this year.

Our goal this year is to build on momentum of 2017 and to accelerate earnings as a percent of sales.

The first quarter of the year demonstrated our leverage and focus.

Lastly, I'd like to thank our teammates.

I appreciate their commitment to excellence every day and then everything they do.

2018 is going to be a very good year for Lawson Products.

Thank you, again, and have a wonderful day.

Thank you.

This concludes today's conference.

You may disconnect your lines at this time, and thank you for your participation.