Distribution Solutions Group Inc (DSGR) 2019 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Lawson Products First Quarter 2019 Earnings Conference 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'll open the call with an overview of the first quarter results.

There will be time for questions and answers at the end.

This call is being audio simulcast on the internet via the Lawson Products' Investor Relations page on the company's website, www.lawsonproducts.com.

A replay of the webcast will be available on the website through May 31, 2019.

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 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 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.

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

Good morning, and thank you for joining the call.

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

Ron Knutson, our CFO, will provide more detailed review of our financial results, followed by your questions.

Just 6 weeks ago, I reported that 2018 had the best results in 10 years.

I'm excited this morning to report that the first quarter of 2019 exceeded those great results.

Lawson continued to report strong sales and earnings growth in the first quarter of 2019.

The solid results reinforce success of our growth initiatives and effective cost management through lean and process reengineering.

Lawson has also taken advantage of share gain against the backdrop of healthy end markets.

As a result, we continue to deliver strong operating leverage and profitability.

On a consolidated basis, we achieved 8.2% adjusted EBITDA margin this quarter compared to 6.1% during the first quarter of 2018.

This represents an increase of 46% in adjusted EBITDA versus the first quarter of 2018.

This EBITDA incorporates the new lease accounting standard, which took effect this quarter.

Ron will comment on this further in a moment.

While the new standard did not impact our reported EPS, adjusted EBITDA would have been higher at 8.7% for the quarter and an increase of 54% versus the first quarter of 2018 primarily due to less expense being classified as depreciation.

We also achieved nearly 45% leverage within our organic MRO business on top of 51% leverage during 2018.

We are successfully executing our 3-part growth strategy of adding sales reps, increasing sales rep productivity and pursuing a disciplined approach to acquisitions.

As a result, the company is performing well, and we expect this trend to continue as our value proposition continues to resonate with customers.

Now let's discuss some of the details.

We achieved 8.2% sales growth on consolidated basis and 9% on an equivalent currency basis with sequential improvement each month during the quarter.

Areas of strength included strategic accounts, which grew nearly 10% compared to the first quarter of 2018, as well as government accounts, which increased by 24% versus the first quarter of 2018.

In the quarter, we benefited from our broad base of government business, including the Department of Defense as well as state, municipal and federal nonmilitary segments.

Our progress in the government segment this quarter has been achieved through a combination of dedicated military sales reps located at several bases and our sales force fully embracing the National IPA agreement, which enables us to win local and municipal business.

While this segment is up against challenging comps in the second half of the year, we expect continued growth in this segment for the balance of 2019.

Kent and our core business also experienced nice growth through the quarter.

Importantly, all segments achieved solid growth this quarter and all of our 12 product categories grew.

In local currency, our Bolt business in Western Canada achieved 16% growth this quarter, and the Canadian overall business achieved 12.6% growth.

Operationally, we made good progress managing our overall cost structure, particularly in the area of transportation.

For example, the opening of the Alberta distribution center has had a favorable impact on transportation expenses by positioning inventory closer to our Western Canadian customers.

We also recently installed new engineered standards in our McCook distribution center, which resulted in improvement in labor productivity, measured by items picked per hour worked.

Our commitment to continuous incremental improvement is a defining characteristic of our lean culture across the company.

In addition, through actions that we have implemented over the past few quarters, we've increased our customer retention by approximately 1 full percentage point.

This has been accomplished through the combination of a sharp focus on retention with our sales reps and district sales managers as well as the addition of several customer retention specialists located at headquarters to reach out directly to at-risk customers.

That trend continued in the first quarter, and we anticipate continued improvement for the balance of 2019.

Over the past year, there has been considerable discussion of labor shortages in the industrial market.

Customers have demonstrated to us that labor shortages, especially associated with mechanics, truck drivers, welders and maintenance personnel, serve to greatly increase the value of our service-intensive VMI model.

Considering labor productivity and opportunity costs, customers don't want to wait even 1 day to repair downed equipment.

Although we continue to see cost increases from suppliers, we anticipate moderation for the balance of 2019, and overall, lower cost increases than 2018.

We also continue to be successful managing our gross margins through pricing actions when necessary, improving our fulfillment process and working closely with suppliers.

In summary, our 3-part growth strategy is working.

First, growing our sales team.

Including Bolt Supply, we finished the first quarter with 1,014 sales reps and plan to incrementally hire for the foreseeable future.

Second, increasing productivity.

This quarter, Lawson sales reps achieved 4.4% improvement in sales rep productivity versus the first quarter of 2018.

We measure this as sales per rep per day.

This productivity is being driven by many of the initiatives put in place over the past few quarters, such as the use of knowledge sharing process called MS Teams, the conversion process to win additional locations within existing strategic accounts and hiring of customer retention specialists along with a solid MRO market.

Third, growth through acquisition.

We have an active acquisition pipeline with a broad range of opportunities but will remain a disciplined acquirer.

To add color to our overall strategy, we are consciously working to build a more diverse and resilient customer base.

This includes our approach to diverse government business; geographic diversity, such as our Western Canadian expansion; the commitment to our private-label strategy; and our focus on opening new small accounts while concurrently focusing on expansion within existing strategic accounts.

We believe that servicing 70,000 diverse customers across many end markets helps us remain resilient.

The solid results we have achieved over the past 2 years, including this quarter, highlight the systematic and methodical execution of our strategy.

We feel confident in our previously communicated range of 25% to 30% MRO operating leverage for 2019 as we compare against challenging sales comps.

We are making good progress toward achieving and then exceeding our 10% EBITDA milestone.

Now, I'll turn it over to Ron for more insight into our first quarter financial results.

Thank you, Mike, and good morning, everyone.

As Mike mentioned, the first quarter of 2019 reflects a continuation of our strong 2018 results with favorable operating leverage and a significant improvement in adjusted EBITDA.

As I discuss our financial performance, I'll comment on both the organic Lawson business as well as the consolidated results that include both supply and also highlight the impact of Screw Products on the quarter.

Before I discuss our results, let me comment on the new lease accounting standard that we were required to implement in the first quarter that Mike referenced.

As a result of this standard, we are now required to include right-of-use assets and the associated liabilities for all operating and financing leases on our balance sheet.

As a result, we added approximately $10 million of lease liabilities.

Additionally, under the new standard, our McCook distribution facility, which was previously recorded as a financing lease and had already been capitalized on our balance sheet, was recharacterized as an operating lease.

While this did not impact our reported net income or earnings per share, it does require us to classify what historically had been recorded as depreciation expense as rent expense, and thereby, decreasing our reported adjusted EBITDA for the quarter by approximately $400,000.

Now let me share some of the Q1 financial highlights.

First, sales were $91.3 million for the quarter.

Consolidated average daily sales were up 8.2% versus the year ago quarter.

Second, our adjusted EBITDA for the quarter was $7.5 million compared to $5.1 million a year ago, an increase of 46%.

This is on top of the 59% that we realized through all of 2018 over 2017.

The improvement in this quarter was primarily driven by a $2.3 million improvement in our organic MRO business.

Additionally, the recently acquired Screw Products organization contributed $263,000 in EBITDA.

Third, consolidated gross margin was 53.6% and was in line with our expectations.

The organic Lawson MRO business segment gross margin percentage was 60.8% compared to 60.6% for the year ago quarter prior to the new method of allocating service-related costs into gross margin as we've discussed in previous quarters.

And fourth, we reported diluted earnings per share of $0.44 for the quarter compared to $0.13 in the first quarter of 2018.

I'll now discuss some of the drivers of the quarter and provide some additional commentary.

We generated sales of $91.3 million in the quarter on 63 selling days.

This was the same number of selling days as in Q1 2018 but 2 additional days over Q4 of 2018.

As compared to a year ago, our first quarter sales benefited from the following: first, Bolt Supply generated sales of USD 8.9 million for the quarter, an increase of 10.5% in USD driven primarily by favorable broad-based demand across its product categories and newly stocked items.

Second, as Mike mentioned, MRO sales grew 6.9% across all of our segments for the quarter.

As a result, MRO sales rep productivity, sales per rep per day, continued to improve with an increase of 4.4% over the year ago quarter.

And third, Screw Products added $787,000 in sales for the quarter.

We ended the quarter with slightly less than 1,000 Lawson Kent sales reps plus 28 territory managers in the Bolt Supply business.

Our focus remains on profitably growing our sales force, improving sales rep productivity and retaining our talent.

The 6.9% Lawson sales increase was broad-based with all segments growing for the quarter.

On an organic ADS basis, U.S. sales were up 7.3% while our Canadian ADS, excluding Bolt Supply, were up 8.9% in local currency or 3.4% in U.S. dollars.

From a sequential average daily sales basis, the Lawson segment January sales were $1.269 million; February was $1.302 million; and March finished strong at $1.320 million, an 11% increase over March 2018.

From a Lawson segment standpoint, strategic account sales were up 9.7% over a year ago quarter and represent approximately 15% of our MRO business.

We realized growth of approximately 24% in our government segment, 3.6% growth in our Lawson core business and 4% growth in Kent Automotive.

In line with our expectations, our reported gross margin for the quarter was 53.6%.

Similar to prior quarters, gross margin was impacted by $4.4 million of service-related expenses that were reclassified into cost of goods sold in addition to the lower Bolt Supply and Screw Products gross margin profiles than the Lawson segment.

Prior to the expense reclassification, Bolt Supply and Screw Products, the organic Lawson MRO gross margin was 60.8%.

Through effective pricing and operational efficiency initiatives in our product fulfillment process, we continue to drive MRO margins in excess of 60%.

We continue to manage total operating expenses as a percent of sales and further leverage our existing infrastructure.

Selling, general and administrative expenses were $43.4 million for the first quarter compared to $44.4 million a year ago quarter.

Excluding nonrecurring items, such as stock-based compensation and severance and the service costs reclassification, total operating expenses were up 2.5% to support our 8.2% sales increase.

We continue to control total operating expenses as a percent of sales and further leverage our existing infrastructure.

With the strong sales increase for the quarter and operating expense leverage, MRO Lawson adjusted EBITDA operating leverage was nearly 45% for the quarter.

Our reported operating income was $5.5 million for the first quarter compared to $1.8 million a year ago.

Adjusted non-GAAP EBITDA, taking into account stock-based compensation and severance, was $7.5 million for the quarter compared to adjusted EBITDA of $5.1 million in the year ago quarter.

Net income for the quarter was $4.1 million or $0.44 per diluted share, an improvement of $0.31 from a year ago.

And on an adjusted basis, we increased diluted earnings per share from $0.25 to $0.48.

Our net borrowings increased in the quarter by $10.6 million, which is typical in the first quarter as we fund higher capital on additional sales and made payments on 2018 incentives and other accruals that existed at the end of 2018.

Capital expenditures for the quarter were approximately $250,000.

We expect our CapEx in 2019 to be in the range of $2.5 million to $3 million.

Let me now provide some commentary for the remainder of 2019.

First, we are optimistic regarding demand given our trends over the past few quarters and our internal initiatives to drive sales growth and earnings.

Current economic indicators in our sector remain strong.

In addition, we expect to remain disciplined in our acquisition activity.

Second, our expectation remains that our MRO operating leverage will be in the range of 25% to 30%.

And third, we will continue to monitor inflationary trends.

We will take the necessary actions to ensure that we stay ahead of any increasing product costs to maintain our margins.

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

(Operator Instructions) Our first question here is from Kevin Steinke from Barrington Research.

I wanted to start out by talking about your comment about share gain within a healthy end market.

I guess, obviously, the nice growth you're putting up is evidence of share gains, but is there anything else you could point to or highlight that would give you confidence that you're taking share in the marketplace?

Yes, Kevin.

Thank you, Kevin.

It's Mike DeCata.

Yes, that's a great question.

And so one way we get at that is anecdotally we look at conversion as an obvious place.

In previous quarters, we've talked about our strategic accounts conversion process.

And so as a proxy for broad-based share gain, we look at picking up new accounts within existing strategic accounts.

And because of the nature of our consumable MRO business, all of our growth is always share gain.

Rarely would you find a customer that doesn't know what a nut and bolt or a fastener or an electrical connector actually do.

In order to operate your business, you're getting that stuff through some channel before you're doing business with us.

So any growth beyond just growth within an existing customer is share gain.

And again, a proxy for that would be our conversion process.

This last quarter, we didn't mention it in the prepared comments, but we picked up another 28 new conversion locations.

And interestingly, on top of -- in the fourth quarter, one specific customer brought us an incremental 56 new locations.

So those are all conversion.

We've brought on a new strategic account that is very, very promising.

Again, they all start small, but very promising in its initial ramp up.

So yes, all of those are a proxy.

Because of the large and amorphous market, highly fragmented market, it's a little hard to nail it down in detail at the local account level, but we believe that conversions are a good proxy for share gain.

Okay.

That makes sense.

That's good to hear.

And you've talked about the last couple quarters here your efforts to reduce customer churn, increase customer retention.

I'm just kind of wondering what led you to launch that initiative.

What you were seeing in the business?

And why, if it all, customers might drop off, and therefore, you have to make greater efforts at retention?

I mean it would seem to me that your service, your value proposition is quite strong so that would be a driver of retention in and of itself.

So maybe just any more comment on that initiative would be helpful.

Thank you, Kevin.

Well, certainly, you are correct that our underlying value proposition and the service that we provide, which enables our customers to maintain their machines and drive profits in their own operations.

If you're renting a piece of construction equipment or operating an injection molding machine, if it doesn't operate, you're not producing your product for your customer.

So at its core, our service is the most important thing that drives retention.

But having said that, one of the things we've talked about in almost every call is Lean Six Sigma.

So some time ago, we started examining and systematically going through all the processes of the company, and a while ago, we started doing analysis of customer retention and answering the question, why do we ever lose any customer?

And there are a number of reasons.

Sometimes customers go out of business, sometimes it's a one-off buy, that was hardly a customer that just needed some unique maybe private-label product once.

But some subsegment we discovered of customers that didn't do business with us anymore, they didn't do business not because they didn't like our service but because they hadn't seen a sales rep or our sales rep retired or left the company.

And so that normal churn, which was a small number, but we wanted to get at that.

So this process speaks to -- it's still a small number, but we want to retain 100% of the customers that want to do business with us.

And candidly, some of them got neglected.

This process is a systematic and deliberate way of never neglecting any customers.

And because at its core, it's an automated process to alert us if a customer misses a buying cycle, all of this has the effect of sharpening our focus with sales reps, with their district sales managers and us in corporate on every single one of the 70,000 accounts, and we look at them every single week.

So it's just a sharper analytical focus on running our business, and it's having a very positive effect both last year and a continuation of great progress this year.

So long and short of it is this is just underneath our analytical and the Lean Six Sigma processes paying dividends.

Okay.

That's good color.

You mentioned -- Ron, I guess mentioned at the end there you'll continue to monitor the inflationary environment and implement price increases where necessary.

But I think, Mike, you also mentioned that you expect more moderate supplier increases in 2019.

I mean are you kind of seeing the inflationary environment cool off a bit?

Or have the higher costs from suppliers mostly even passed on, and therefore, there's not as much to pass on?

Just any more color on those things you mentioned in the prepared remarks?

Sure, Kevin.

This is Ron Knutson.

So I'll comment on this.

So as you saw, we were able to really keep our margins -- our MRO margins at 60 -- in excess of 60%.

60.8% this quarter versus a year ago we were at 60.6%.

So we have seen -- we saw some inflation from our vendors or some cost pass-through really throughout 2018.

And we were able to effectively manage our way through that through any necessary pricing actions as well as efficiencies within our distribution network.

What I would say is we continued to see some increases in the first quarter of 2019.

However, it's our sense that, I would say, maybe not the majority, but a bigger piece has probably already come through, which kind of -- which is -- I think it leads to Mike's and my comment about the fact that we feel like it'll moderate a bit here over the remaining few quarters of 2019.

Although, as you know, I mean, we are in an inflationary environment.

So we are actively monitoring that, and again, taking the necessary actions where we can and when necessary to make sure that we maintain our margins.

I think if you look back over the last 6 to 7 years, our MRO gross margin percentage has been within a fairly narrow band.

And that's something that I think proves out the value that we're providing to our customers in being able to maintain that margin in a, what I would call, kind of a tough pricing and an inflationary environment.

And just to add to that, as Ron just mentioned, over the, call it 7 years where we've operated in a narrow range through up cycles and down cycles and sideways cycles, at its core, our value proposition is sound and important to our customers' ability to earn profits for their companies, which is the leverage of our value proposition as seen through the eyes of our customer.

Okay.

Great.

And wanted to ask too about the initiative with military bases.

It sounds like you now have reps dedicated to that initiative.

Just trying to get a sense of how large that opportunity is specific to military.

How much room you have to continue adding reps just dedicated to that initiative?

Maybe any more color on how you can continue to expand growth in that specific niche you've found?

Yes.

It is a continuous evolution there.

We have added a couple reps dedicated to military bases.

This last quarter, there were a handful of military bases.

Some of them with dedicated reps, some not with dedicated reps, and that continues to grow.

But the military is sort of a bigger picture of government.

We've talked in previous calls about our National IPA agreement, about our GSA agreement.

So both at the state, federal and local municipal levels, in addition to Department of Defense, they all represent opportunity.

And we like this idea of sort of diversity, which builds resilience.

Sometimes when one segment is down, maybe call it military is down, another segment is up.

At the moment, military is up, the others are also up, by the way.

But it's rather a disciplined approach on diversity.

We would like to be adding more dedicated military sales reps because the military processes are different, the nature of the customer is different even in personality.

And the requirements associated with being on a base are different than a normal nongovernment customer.

So all of these are areas of focus.

And candidly, it's a little dependent on finding really high-caliber people in that area.

We do see a lot more potential across the board in government, military in particular, but in all aspects of government.

And our National IPA agreement, which is not military, opens the door to thousands and thousands of local municipal entities from libraries to fire departments to Department of Transportation, your snow plow in your local town, National IPA opens the door to all of those potential customers and eases the purchasing process on the customer.

So across the board in government, we see significant opportunity.

And government itself is another area of diversity to balance strategic accounts, our geographic diversity, our private label.

So our whole effort here is resilience and diversity in our market and customers.

Okay.

Great.

Last one for me here.

Have you seen anything or heard anything from your customers about the demand environment?

I mean there continues to be some talk about maybe manufacturing cooling off a little bit, trade tensions, et cetera.

I mean from the numbers you're reporting, it doesn't seem like that's the case, but just maybe an assessment of your end markets and the overall health that you're seeing there?

Yes.

We continue to see real strength across the board in our markets.

In literally every single market that we're participating in, we're seeing strength.

So the short answer is we haven't seen any evidence yet of any change in that environment, which is really a continuation from 2018, which was at an elevated level.

We aren't seeing acceleration from '18.

We're seeing steady state from '18, but that was steady state at a very high level.

So we've seen no evidence.

As described by our results, across the board every geography, product categories, every market, strength across the board.

So we haven't seen any evidence yet of that.

But it's most important to say that we do well relative to our competition.

And as we've worked hard on operational excellence, we feel good about our ability to do well as compared to competition in any environment.

Again, we're a 67-year old company.

We've been doing the same thing for 67 years through a lot of up and down cycles.

I think the difference is that we are stronger today than we have ever been in the market.

Our next question is from Ryan Mills from KeyBanc Capital Markets.

Congrats on the quarter.

Yes, real solid performance on managing SG&A expenses.

I think they're about 45.4% of sales compared to about 47% last year.

Can you give some color on that execution?

I believe you said that Alberta DC probably gave a benefit, but was there anything else?

And then should we assume that low 45% SG&A as a percent of sales is the new run rate for the year?

Sure.

So, Ryan, this is Ron.

So I had in my prepared comments that on the 8.2% sales increase that we had, our operating expenses, all in, were up about 2.5%.

And as you know, a piece of our operating expenses are variable, in particular the commissions that we pay to our sales team on the volume that they sell.

Relative to the other -- the nonvariable items on the fixed side, I mean, this is really a continuation of what we've been working towards over the last few years and really trying to maintain those fixed costs to be relatively flat while at the same time, growing our sales and, of course, getting the effective leverage off of that.

So as I think about -- there were no real large kind of onetime benefits in the first quarter that stuck out.

I mean we had lower severance and lower stock-based comp, but that's blended into the 2.5 percentage points.

So -- and as we think forward over the next few quarters and over the next year, our strategy around holding those costs relatively flat will continue.

So I'm not seeing anything on the horizon that would change that dramatically.

Now there are certain items that are a bit more controllable more than others.

For example, it's a little harder to control sometimes health insurance costs and so forth, things like that.

But again, we're not seeing anything on the horizon that would indicate that those G&A costs would move dramatically.

Okay.

And then March average daily sales up 11%, I believe, Ron and Mike.

Was that a surprise to you, it's pretty strong, I thought?

And do you have any anecdotal comments from either your sales reps or your customers that drove the performance of -- in March?

And could you talk about April trends so far?

Sure.

So I'll take the first piece of this, and then maybe Mike can jump in.

So it wasn't necessarily a surprise.

I mean it was certainly a great month for us.

We picked up about a percentage point just given the timing of Good Friday.

So on a more kind of comparable basis, 10% versus 11%, but still a really nice month.

And as we look at that month on a stand-alone basis, we really saw a continuation of what Mike commented on for the full quarter and really sales increases in all categories as well as all end segments.

So really a continuation.

As we see the first couple of weeks, first few weeks coming in here in April, what I would say is that overall trends here in April have been relatively consistent with what we saw for the first quarter.

I do think it's important to note that the sales comps do get tougher as we move throughout the year.

And I know Mike talked a little bit about the government business, in particular the comps on government get tougher as we move throughout the year.

But April has started out to be really strong, consistent -- kind of consistent with what we saw in the first quarter.

Mike?

Yes.

And the only thing I would add is, operationally, we feel like -- again, we've talked about conversion, we've talked about our ability when necessary to pass costs along to customers.

Underneath it, as customers work hard to service their customers and service their orders, machine uptime is so critical to the success of our customers that they recognize that waiting a day or 2 for a replacement part, there's real opportunity costs to that, whether it's the construction equipment rental industry or a factory or an over-the-road trucking company.

So immediate availability of product, especially the consumable product that we primarily service, enables their mechanics to be more productive, enables their service shop people to be more productive, which enables them to service their customers.

So underneath it, we feel great about the state of the market, but we also feel great about the technology we're employing, the alignment of our sales team with our processes.

Just across the board, it feels like we're hitting our stride on all cylinders.

And it just feels very good in our ability to execute in addition to the state of the market.

And for Screw Products, did you say it contributed $263,000 to EBITDA for the quarter?

It did.

Yes, that's correct, Ryan.

On about $800,000 of sales.

So really coming in a little north of 30% EBITDA, which was really in line with our expectations.

Could you give a little bit more color on the margin profile for that business?

30% EBITDA margins is pretty impressive.

It is.

And yes, when we took a look at that organization, we felt like it was a nice fit to complement our other pieces of the business.

And their overall -- their gross margins, let's say, really run closer to 50%.

So it's -- so they do run a little bit less than our MRO -- our organic MRO margins.

They do not provide the necessarily VMI services so much that our sales reps on the Lawson side of the business do, but they do add value into the -- into their customers through some kitting and so forth and those types of processes on kind of the front end.

So it's a pretty lean organization.

Again, margin -- gross margins closer to 50% and a pretty lean cost structure, allowing us to achieve that 30%.

So again, not a surprise to us.

Our expectation is -- was that, that was going to be the case.

And we're fairly -- we're still pretty early in the integration of that organization into Lawson.

So our expectation is that piece of the business we'll be able to grow as we move throughout 2019.

Nice acquisition there.

And then just a couple of more questions for me.

Working capital stepped up about $7 million, and a lot of that was driven by accounts receivable.

Some of your larger peers talked about customers extending payables.

Are you seeing the trend?

And then how should we think about working capital as we go throughout 2019?

Yes.

So this is Ron again.

So it does -- for us, the first quarter typically is a heavier use of cash, and certainly, a piece of that is just looking at the sales.

And if you were to compare our December sales, which had fewer days versus our March sales, just on the MRO side of the business, we're up about $5.5 million.

So we're funding a piece of that.

Relative to DSOs, I would say that we're not seeing a real expansion there.

We're still kind of in that 42- to 43-day range, which has been pretty consistent.

Our past dues are down versus where we were a year ago.

So no, I wouldn't say that we're experiencing anything, any major movement there from a cash flow standpoint.

Typically, what'll happen for us is we'll see a little bit of a spike here in borrowings in the first quarter, and then that will move its way down as we move throughout the second and third quarters and into the end of the year.

And a last question for me.

Sounds like demand has been generally broad-based, but can you provide any color on the oil and gas end market?

Yes.

This is Ron, again.

So I would say relatively flat versus a quarter ago.

I think it was actually down maybe a point or 2. But no -- I would say, no major movement.

Certainly, we have about 4% to 5% of our business within kind of what's defined SIC code defined oil and gas industry.

So down a little bit, but nothing dramatic.

And certainly, that's an industry that we have some great customers in, some larger customers as well.

And so we see a little bit of fluctuation in their purchase volume, but nothing unusual.

And it doesn't seems like it's market related.

It's specific actions and specific customers, timing of projects and so on and so forth.

It feels like it's more customer-specific than broad-based.

Some up, some down.

(Operator Instructions) Our next question here is from Brad Hathaway from Far View Capital Management.

Congrats on the great quarter.

I just wanted to dig a little deeper on the share gain.

Yes, that seems like a really exciting opportunity for you, and I'd love to understand a little more kind of qualitatively why you think you're taking share.

And how big an opportunity you see that to be?

Thank you, Brad.

It's Mike.

Appreciate the question.

Yes, share gain, broadly, I guess I would characterize it in 2 ways.

First, underneath it, opportunity costs really drive share gain.

And again, I'm speaking a little anecdotally here.

We're in the business of providing time to customers, machine time, machine uptime, time utilization, whether it's the construction equipment rental industry or running your factory or your over-the-road trucking or military, the availability, uptime of an Abrams tank.

Now it's all about time for us.

And so underneath it, as we're able to improve the productivity of maintenance mechanics and welders and service people, their companies prosper by putting machines back in operation sooner.

So underneath it all, that's the business that we're in.

Now our ability to realize share gain has as much to do with operational excellence, Lean Six Sigma, order complete, back orders and product availability, knowledge of our sales reps in solving problems when a customer comes and says, I've got this unique problem I've never seen before, how do I solve it?

So it's the combination of the knowledge.

And we've spoken about knowledge sharing tools and software and culture that we now have along with reporting that looks at availability, our -- where we have products that we're servicing one customer that should be applicable to a similar kind of customer, heat maps and things like this.

All of these tools are being brought to bear on more broadly and compressively servicing customers.

And again, bear in mind that our average piece price is still $0.94.

So if you're running any shop of any kind, whether it's a construction equipment rental branch or a large factory, you don't want your very expensive machinery down even for 1 day waiting on a $0.94 part or a $5 hydraulic fitting or electrical connectors.

Lighting, for example.

If you're over-the-road trucking company, the Department of Transportation sees lighting failures as serious an issue as anything on the roads of America today.

So all of these are things that enable our customers to drive their profitability.

And I feel like operationally, we're doing a far better job than we have ever done in comprehensively servicing the needs of our customers, and our customers know that improves their profitability.

So underneath it, that's where share gain is coming from, operational excellence and process, and we're adding sales reps, of course.

And just a follow-up on -- I mean how big an opportunity do you see for share that you don't have now that you think should be yours?

It's a huge, huge fragmented market.

We are never going to run out of customers, ever.

It's, by some measures, $15 billion, $20 billion market for consumable MRO, which is itself a subsegment of what many report as a $150-plus billion broad-based MRO market.

Now we don't participate in the broad-based MRO market, but our small subsegment is still $15 billion to $20 billion and it's highly fragmented.

So as customers recognize that we are the lowest total cost provider in large part because of the service we provide in addition to our 60% private-label products, which are designed for the unique needs of the maintenance mechanic, that combination enables us to continue to win more and more and more share.

And again, I'll say it again, we will never run out of customers to take share.

This concludes our question-and-answer session.

I'd like to turn the conference back to Mike DeCata for any closing comments.

Thank you, Matt.

Appreciate that.

Thank you very much for joining us today.

Lawson Products had another great quarter.

Sales, EBITDA, gross margin, leverage, all continue the trend that we began in late 2016.

The company is performing better than it has in a very long time.

Our continued focus on cost management, our 3-part growth strategy, capacity within our distribution center network and a strong culture of operational excellence is pointing the way to continued improvement.

I would like to thank all of our teammates.

They continue to enable 70,000 customers to operate their equipment and prosper.

Beyond our differentiated value proposition, our culture is strong and the most important component of our success.

Thank you, again, for joining the call today, and we look forward to speaking with you again in July.

Have a great day.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you, again, for your participation.