Good morning, ladies and gentlemen, and welcome to the Lawson Products First Quarter 2020 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. During this call, they will be providing an update on the business as well as covering relevant financial and operational information. Then there will be time for questions and answered. Please note 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 disclaim any obligation to do so. 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, 2020. I will now turn the conference over to Lawson Products' CEO, Mike DeCata.

Good morning, and thank you for joining the call. This morning, I will comment first on the actions we're taking in response to the Covid-19 pandemic and then, our first quarter results followed by our plans going forward. Ron Knutson, our CFO will provide more detailed review of the first quarter financial results and additional details regarding our actions followed by your questions. First, Lawson was deemed an essential business by the government and as a result, our sales reps continue to call on our customers and our distribution network has remained open during the pandemic. That said, the safety and health of our employees, customers and suppliers are our highest priority. We are fully implementing the guidelines set out by the CDC and Health Canada. I am extremely proud of the dedication and efforts of our teammates across every functional area of the company, including the sales team, our distribution centers, corporate and bolt supply. Every function and group across the company has demonstrated their ability to be nimble and innovate. We are grateful for their support and dedication. Let me now provide some examples of the actions that we've taken. Within corporate, the team is largely working remotely and we have supplied the necessary supporting equipment as needed. Our distribution centers have taken steps to maintain social distancing as well as adding extra cleaning, disinfecting and using PPE masks and gloves throughout. Our sales reps are diligently working to support our customers and continue to provide high-quality service that Lawson is known for. We continue to visit our customers' locations at a reduced schedule or selective basis and we are also leveraging our customer service function, phones and website. Despite the environment, we continue to win new customers. Several CEOs of large and small customers have reached out…

Thank you, Mike, and good morning everyone. I will first provide some key takeaways from the quarter and or actions being taken. Then I'll discuss trends in the first quarter of 2020 and April followed by various actions that we've taken to date in light of the economic impact of the COVID-19 environment. Finally, I'll discuss in detail our first quarter results on both the reported and adjusted basis. Let me now provide some key takeaways. For the majority of the first quarter, our sales showed continued improvement and the economic impact of the COVID-19 did not manifest itself in our results until the second half of March with the softness continuing into April. Second, effective cost management has been a cornerstone of our operating approach for the past several years. In March, we began an aggressive program to gain further efficiencies and have implemented broad-based and necessary cost actions which I'll comment on further in a moment, finally, proactively managing our working capital and liquidity while supporting our customers is a core part of our operating philosophy. We ended the quarter with $4.1 million of cash and cash equivalents with an additional $88 million of availability under our committed credit facility. We are very well capitalized and continue to actively pursue opportunities to further enhance our financial position. As Mike discussed, we really break the first quarter down into two separate periods. First, January 1 through say mid-March and then the second period being from mid-March through the end of the quarter. For the quarter, sales contracted by 0.3% compared to a year ago driven by the softer in the last two weeks of March. Consolidated sales were slightly positive for the quarter excluding the foreign exchange impact. Our reported average daily sales were $1.447 million for January, $1.468…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question today is coming from Kevin Steinke of Barrington Research. Please proceed.

Hey, good morning, Mike and Ron.

Good morning, Kevin.

Good morning, Kevin.

Thanks for all the detail on the sales trends. You've seen second half of March going into April. That was very helpful. I'm just wondering as you move through April if you have this level of detail kind of on a week-by-week basis, have you seen any stabilization as the month progress?

Yes, I can jump in on that, Kevin. We've have seen stabilization throughout the weeks in April and as you can imagine, we're looking at the trend. Not only weekly, but on a daily basis. In our business, it can be a little spiky from time to time on a daily basis, but overall from a weekly perspective, it's been pretty consistent for most of the week of April. Mike, did you want to comment as well? I know just kind of jumped out of you.

We are seeing a consistency for the last couple weeks.

Okay. Yes, thank you, it's helpful. and then on the cost reductions obviously pretty aggressive actions $4 million to $4.5 million a month. I believe you said $12 million plus on a quarterly basis. How should we think about those costs being distributed across your -- the various categories, cost of goods sold, selling expenses, G&A expenses?

Yes, Kevin, this is Ron again. Most of those costs within both the selling in the G&A lines as we report them separately on our financial statements and certainly a portion of those expense reductions are variable relative to our sales coming down, but there is a significant portion of those expenses that are fixed as well and the actions that both Mike and I commented on really are across the organization. So the salary reductions and the furloughing and so forth, that's across the entire organization. It's not solely within just the sales organization, or just corporate, or just the DCs. So from a flow-through perspective, as to where you will see those, you'll see the reduction in expenses in both of those lines. The gross margin really don't include that much from an operating expense standpoint, it's more on the direct expense lines.

Okay, got it. And then, you mentioned you consolidated the Georgia distribution center into McCook. Did you see there is a permanent action going forward?

No, we don't Kevin. It's volume-based and again we seamlessly shift over because of volume and we did it with no customer disruption and as volume rebuilds, we'll bring back -- basically our intention is to bring all of our furloughed employees likely on an incremental basis. As things ramp up, the demand will ramp up and the need will increase.

Okay, got it. It's good that you have a pretty diverse customer base. You mentioned that more weighted to suburban locations for your customers which might come back sooner. But do you have any sense as you look at your customer base? I know you were deemed an essential business maybe like roughly how many of your customers or what percentage might be also deemed essential?

Kevin, we don't really track it that way. Certainly there are a great many trucking companies that are customers of ours, food production companies, manufacturers of all kinds. But up until this most recent circumstance, this environment, we would never have thought about that concept of critical interest drawn through companies in the past. So it's not part of our normal kind of customer database as to -- what that ratio of customers would be, but again a very large percentage of them are companies like trucking companies, food production companies, manufacturers of all kinds of products. Because it's all B2B, most of the B2B products, I would gather is -- I guess is the majority is not consumer related B2B product. Now, one exception is Kent Automotive where there is where you have an auto body repair. If it's discretionary, certainly, we would expect that to be a little softer going forward, where you can put off a minor repair until things get a little bit back to normal. That is the one area that's a little close to the consumers. It's still B2B, but it's a little more discretionary. But for the most part, more of our customers are probably toward the critical end of the world.

Okay, now that makes sense. Yeah that's helpful. And then encouraging that you mentioned you continue to win new customers. Do you think that can continue kind of during the worst of this downturn? How has the process changed for winning new customers? You think it could slow down materially? I wouldn't doubt that it would slow a bit, but just maybe a little about winning new customers in that process in this environment.

Yeah, so I mean everything is a little harder to predict with any kind of clarity these days. And this is a difficult environment and many of our competitors have been hurt in this environment. And so when I was referring to new customers, I was specifically referring to conversations we had with our field sales managers and they've talked about companies that they've been -- sales reps have been trying to open up as new customers for quite a while are all of a sudden reaching back out to us and reporting that existing suppliers aren't able to service them or in some ways -- in some places where they are more geographically remote are being underserved. This is part of the benefit of the critical mass of sales reps that we have. For us geographically remote is less likely than for some of them with a smaller number of sales reps. So, I think that's the underlying opportunity for us -- is to continue to service our existing customers, win share of wallet, win more share within existing customers, but again customers we've been trying to win over are all of a sudden a fair amount more receptive, especially where they're being underserved, and we picked up a number of new locations both very large from large competitors and small from small competitors across the spectrum. What happens in the future is a little hard to say but we fully intend to keep the customers we've won and to continue on the trajectory that we were on prior to this. We were -- underneath our core business is absolutely solid and a tremendous trajectory. This little sideways motion that we're in will abate, and we'll get back to the trajectory that we were on and we're going to end up coming out of this stronger, more resilient, more creative, more innovative with I believe better customer loyalty. Even then we went in which as you know with 92% revenue retention. It was already tremendous and it is certainly our aspiration and hope that we will have even better employee loyalty and commitment and our employees have just been extraordinary during this challenging time.

Okay, great. Yes that's an interesting market dynamic. It sounds like you're really well positioned competitively both within this environment coming out of it. So that's all I have for today. Thanks. Thanks for all the comment.

[Operator instructions] Our next question is coming from Carl Schemm, KeyBanc Capital Markets. Please go ahead.

Good morning. One question around, I think you mentioned you eliminated 40 sales rep positions just on underperforming areas. Was that at the end of the quarter or did that occur in April? Just trying to sense the timing there.

In April, late April.

And we are able, again this is one of the benefits of critical mass of sales reps, 993 sales reps. We are able to reassign those customers to existing sales reps to our inside sales people and customer service people, and we do not anticipate any disruption whatsoever in customer service or the service intensity that we're able to provide those customers.

Got it, thanks. What about just in terms of, I know you guys have focused a lot on retention, are you evaluating how well you're going to be able to retain sales reps at this point given that and you have the higher increase?

Yes.

Yes, this is Ron. I'll jump in. So, we have really through 2019, we were seeing some gradual improvement in our retention rates. And I would say that that really extended into the first quarter of 2020 as well and even into April. So albeit, our sales reps are our commission based as well as some of them have a salary plus commission, plus they all are incentivized. So we were -- I mean, we feel pretty good about the retention. I think we're certainly making moves to treat all of our employees fairly and we've seen tremendous engagement by our team as well. So what we've seen so far for the first quarter and even into April, during this difficult time is that our retention has actually gotten a little bit better.

Great. And then just kind of lastly on the sales rep side. I know you mentioned the higher increase going through July 1 potentially. Is that just dependent on maybe moving that forward or backward? Is that dependent on if the market conditions improve or is it -- or how are you kind of evaluating that aspect?

Yeah, it is a little bit of market conditions, but the real driver there is the ability of the district sales managers to ride along with the new hires and to start the intense training that is kind of a one-on-one thing that we have trained all of our district sales managers in distance coaching which will pay very long term -- pay long term very significant productivity benefits and the district managers' ability to touch more people of their existing teams, leverage their time more effectively. So, we're very excited about the commitment district managers have made to the distance coaching concept. But that's a little bit of a stretch for a literally brand new employee. You do want to spend one-on-one time in person with a one -- with a new employee. So it's more about that than availability of customers or markets or opportunity. It's more about the mechanics of training. And as soon as we can resume that and as you remember, it was continuous incremental increases of sales reps and we don't foresee that changing anytime in the future. Just is -- to a pause until we can get back with the thorough training that new employees need.

Got it. That's all I had. Thank you.

Thank you, Carl.

Thanks, Carl.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Mike DeCata for closing remarks.

Thank you, Donna. Thank you for joining the call this morning. Over our 68-year history, Lawson Products has faced many challenges, though none quite like this one. I am 100% confident that we will emerge better, stronger, and more resilient than we enter, this quarter, we demonstrated, that with flattish sales we can still deliver improved EBITDA and generate cash. More customers and potential customers are recognizing our value proposition, especially in these challenging times. This quarter, and more recently, we also demonstrated that we can be nimble and innovate, we're focused on safety of our teammates and we'll continue to take the necessary actions to remain in strong financial position. I would like to take this opportunity to again thank our teammates, their innovation has been tested and they continue to demonstrate their commitment to our customer, thank you again for joining this call. Have a wonderful day.

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