Michael DeCata - President and CEO Ron Knutson - CFO.

Kevin Steinke - Barrington Research Brad Hathaway - Far View Capital Management Ryan Cieslak - KeyBanc Capital Markets.

Good morning ladies and gentlemen and welcome to Lawson Products' Second Quarter 2018 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 will open the call with an overview of the first quarter results.

There will be then time for questions-and-answers. This call is being audio simulcast on the Internet via the Lawson Products Investors Relations page on the company's website, lawsonproducts.com. A replay of the webcast will be available on the website through August 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 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 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 would now turn the call over to Lawson Products' CEO, Mike DeCata..

Good morning and thank you for joining our call. This morning, I will comment on the quarter and our overall progress. Ron Knutson, our CFO, will provide a more detailed review of our financial results. Then we'll take your questions. Our second quarter performance was strong and represents a continuation of a solid first quarter.

As planned, we grew organic sales and total sales. During the first quarter conference call, I indicated that our plan in 2018 was to build on momentum of 2017, especially as it pertains to earnings and leverage.

The second quarter is evidence that Lawson continues to strengthen its customer value proposition, penetration, and increasing productivity as we deliver more profitable growth. Now, let's discuss some of the details. Total sales grew over 20%. Our organic sales grew 7.5%. This makes the seventh consecutive quarter of quarter-over-quarter growth.

Every market segment grew. Our strategic accounts increased 14% versus the second quarter of 2017. Considering the 45% growth we achieved during 2017, we're extremely encouraged by the continued growth in this segment.

During the second quarter, we added 54 new locations within existing strategic accounts as part of our conversion process and we also signed 10 new strategic account agreements. We remain committed to our conversion process and are confident it will continue to help us drive additional sales growth.

Revenue in Canada grew 136% versus the second quarter of 2017 and nearly 13% organically excluding Bolt. Our government segment has improved every month this year and we grew by 6% year-over-year in the second quarter. Kent grew this quarter at a slower pace, but momentum is building.

In partnership with one of our largest Kent customers, we also recently implemented a cloud-based Procure-to-Pay called [Indiscernible]. Over time this will improve productivity for both our customer and Kent Lawson team. With these sales increases, earnings for the quarter were also favorable.

We achieved $7.7 million in adjusted EBITDA and incremental sales of $15.4 million. This represents a 21% leverage on a consolidated basis and over 40% EBITDA leverage on the MRO business.

Based on our solid first quarter leverage and the continuation in the second quarter, we're optimistic that we will exceed our previously stated guidance of 25% to 30% organic EBITDA leverage and sales in the second half of 2018.

For the quarter, we achieved adjusted EBITDA of 8.6% on top of 6.1% earned in the first quarter and compared to 6.0% a year ago. Ron will provide greater detail regarding our operating leverage and earnings in a moment. In this inflationary environment, we have also seen some cost increases from suppliers.

However, we managed our MRO pricing and realized other incremental cost reductions to maintain our gross profit margin. As we have mentioned previously, our MRO margins have achieved approximately 60% gross profit margin every quarter for almost six years.

This is a testament to our sales team, our sourcing and supply chain teams, our distribution center teams, who have all play a critical parts in achieving this consistency. It also reflects customers' understanding of our value proposition and that ultimately Lawson represents the lowest total cost solution to their consumable MRO needs.

From an operational standpoint, Alberta distribution center is fully operational. As you may recall, this distribution center is serving both Bolt Supply House and Lawson Kent customers in Western Canada. Essentially, it's two independent warehouses under a single room.

Customers have rewarded us with increased business as a result of local inventory and we anticipate strong growth in Western Canada from our Lawson and Kent customers in addition to organic growth from Bolt. Turning to our growth strategy. We continue to work on our three-part growth strategy. Growing our sales team.

This quarter we finished with 995 sales reps including 27 Territory Managers at Bolt Supply. We have also seen an improvement in sales rep retention. We will continue to focus on incrementally adding sales reps for the foreseeable future. Increasing productivity. This quarter, Lawson sales reps achieved 9.1% improvement in sales per rep per day.

This represents the sixth consecutive quarter -- quarterly improvement in sales rep productivity. Growth through acquisition. We continue to fill the pipeline with a broad range of acquisition opportunities, but remain disciplined acquirers. Speaking of acquisitions, the Bolt Supply business is on plan from a sales and EBITDA perspective.

And we've added three Territory Managers to the Bolt Supply team. We're planning to grow the Bolt Supply sales team overtime. We also recently announced our plans to expand into British, Columbia by adding a branch in Surrey, a suburb of Vancouver.

This will enable us to consolidate our previously acquired warehouse in Surrey into a new and larger location which will serve both as a warehouse and branch. From an operational excellence perspective, we are pleased with operations and supply chain metrics. Recently we initiated a program to more closely manage our bins and cabinets.

This has resulted in a better return on those investments. We also lower inventory associated with organic side of our business, both in absolute terms and as a percent of sales, while maintaining our service level as sales continue to grow.

During our first quarter call, I mentioned that we recently established a program to win more share within existing customers. This plan is designed to enhance shared gain through the addition of more skews within existing customers. I am pleased to report that early indications are very positive.

Our sales reps work hard to expand share of wallet within both large and small existing accounts. For example, we recently won the hydraulics business in one of our largest strategic accounts. We earned this opportunity to win this business through outstanding service and the product categories that we were already servicing.

Looking forward, we've mentioned that sales comps for the remainder of 2018 will be challenging because we experienced strong growth during the second half of 2017. However, we're confident that we will sustain our overall operating momentum and EBITDA improvement will continue.

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

Thank you, Mike, and good morning everyone. The second quarter resulted in strong sales and a continuation of significant growth in our adjusted EBITDA as we continue to successfully execute our growth strategy. Our second quarter results reflect a full quarter of the Bolt Supply House whereas Q2 2017 does not include any Bolt Supply activity.

As I go through our financial performance, our comments on both the organic Lawson business as well as the consolidated results that include Bolt Supply. Now, let me share some of the Q2 financial highlights. First, sales were $90.4 million for the quarter.

Average daily sales were up 20.5% versus the year ago quarter and up 5.3% from the first quarter. Excluding the impact of the Bolt Supply acquisition, organic average daily sales increased 7.5% over a year ago. Second, our adjusted EBITDA for the quarter was $7.7 million compared to $4.5 million a year ago, an increase of 71%.

While the quarter benefited from the Bolt Supply House in the amounts of $949,000, our adjusted EBITDA was primarily driven by a $2.3 million improvement in our MRO business as a result of increased sales and associated operating leverage.

And third, our consolidated reported gross margin percentage under the new method of allocating certain service-related costs into gross margin as discussed in previous quarters was 54.4%. Excluding Bolt and the service expense reclassification, our loss in segment gross margin percentage was 60.4% compared to 60.2% for the year ago quarter.

I'll now discuss some of the drivers of the quarter in further detail. We generated sales of $90.4 million in the quarter on 64 selling days, the same number of days as the year ago quarter; while one more day than Q1.

As compared to a year ago, our second quarter sales benefited from the following; first, Bolt Supply generated sales of $9.8 million for the quarter. Second, actions we've taken to drive growth, continue to deliver as we realized positive sales grow in all of our segments for the quarter.

We continue to convert new locations for our existing strategic relationships.

In addition, our talent development initiatives are robust as we improve the onboarding process of new sales reps, drive more accountability to the field management, provide sales reps with forums to support product and technical questions, and investment in technology, and rewarding sales reps for growth.

As a result, sales per rep per day productivity continue to improve with an increase of 9.1% for the quarter year-over-year and up 4.1% sequentially over the first quarter.

We ended the quarter with slightly less than 1,000 loss in Kent sales reps, plus 27 Territory Managers in the Bolt Supply business with our focus remaining on sales rep productivity and rep hiring. Also the 7.5% organic Lawson sales increase was broad based within all segments growing for the quarter. On an organic average daily sales basis, U.S.

sales were up 6.6%, while our Canada ADS excluding Bolt were up nearly 13% in local currency. Year-to-date, consolidated sales are up 16.9% and in line with our expectations.

From a sequential average daily sales basis, the Lawson segment April sales were $1.235 million, May was $1.272 million, and June finished at $1.271 million or an increase of 5%, 6.4%, and 11.4% respectively.

From a Lawson segment standpoint, strategic account sales were up nearly 14% over a year ago quarter and represent approximately 17% of our MRO volume. We also realized solid 7.3% growth in our Lawson core business. From a gross margin standpoint, our performance was in line with our expectations.

Our reported gross margin for the quarter was 54.4%, which reflects the reclassifying estimated service-related expenses against gross margin in lower Bolt Supply margins. Prior to the expense reclassification and Bolt Supply, the Lawson segment gross margin was 60.4% compared to 60.2% in the 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 setup costs, partially offset by a continued shift towards strategic customers who typically have a lower gross margin percentage.

And as anticipated, the Bolt Supply business with gross margins closer to 40% lowered our weighted average margin percentage. There remains a significant focus in the marketplace around pricing and margin pressures. While we are seeing vendor cost increases, we've been able to stay ahead of it from an overall margin perspective.

Consistent with previous quarters, when we look at pricing to the same customers for the same product from a year ago, our gross margins have not been compressed. Selling, general, and administrative expenses were $43.6 million for the second quarter compared to $42.7 million a year ago quarter.

Prior to moving a portion of the selling expenses to gross margin as required under the new revenue recognition standard, total expenses were $46.7 million.

The increase was primarily driven by the inclusion of Bolt Supply in the amount of $2.9 million, higher compensation expense to support our sales increase, and $529,000 for a discontinued operation accrual related to a building site that we continue to own.

We remain focused on reducing total operating expenses as a percent of sales to further leverage the business. Our consolidated adjusted EBITDA leverage was at approximately 21% for the quarter. The percentage gets diluted by the inclusion of Bolt Supply in the second quarter of 2018 results, but not in the [Q2 2017 base].

However, on an MRO basis, our adjusted EBITDA leverage was approximately 40% exceeding our previously stated range of 25% to 30%. This was primarily due to the 7.5% organic sales growth, some non-recurring 2017 expenses, and managing our 2018 operating costs. Operating income was $5.6 million for the second quarter.

Adjusted non-GAAP EBITDA taking into account stock-based compensation, severance, and the discontinued operations accrual was $7.7 million for the quarter compared to adjusted EBITDA of $4.5 million a year ago.

Of the $3.2 million increase in adjusted EBITDA, the Lawson segment contributed an additional $2.3 million with the remaining $900,000 coming from Bolt Supply. Net income for the quarter was $3.2 million or $0.35 per diluted share.

This compares to net income of $7.3 million or $0.80 per diluted share in the year ago quarter which benefited from a non-recurring gain on the sale of a distribution center of $0.60 per share. Excluding the 2017 gain, diluted EPS improved 75% from $0.20 in last year second quarter to $0.35 this year.

From a balance sheet perspective, we ended the quarter with $16.1 million of borrowings, primarily created from the Bolt Supply acquisition. During the quarter, our borrowing position net of cash decreased by $3.5 million. We expect this decreasing trend to continue during the second half of the year. CapEx for the quarter was $776,000.

We expect our CapEx for the full year of 2018 to be in the range of $2.5 million to $3 million, down slightly from our previous guidance of $2.5 million to $3.5 million. Let me now provide some commentary regarding the remainder of 2018.

Although sales comparisons are more challenging in the second half of the year, we are optimistic about the second half of 2018 given trends over the past few quarters, current economic indicators in our sector, the impact of the Bolt Supply acquisition, and our initiatives to drive organic growth.

Second, we remain focused on improving rep productivity and pursuing accretive additions to our salesforce. Third, we have an active pipeline for acquisitions that is strategically focused. Fourth, we will continue to leverage our existing infrastructure to drive adjusted EBITDA.

Due to anticipated sales growth and some non-recurring costs incurred in the second half of 2017, we expect our MRO leverage in the second half of 2018 in the range of 35% to 45%, exceeding our previously stated longer term guidance of 25% to 30%.

And finally, we will continue to monitor inflation and the potential tariff impact on our business and take the necessary actions to ensure that we stay ahead of increasing product costs. I'll now turn it over to the operator for questions..

[Operator Instructions] Our first question comes from Kevin Steinke, Barrington Research. Please proceed with your question..

Good morning Mike and Ron..

Good morning Kevin..

Hi Kevin..

So, obviously, very nice results here. And you talked about that 35% to 45% expected adjusted EBITDA leverage in the second half. Can you maybe call out -- I don't recall kind of the non-recurring items that you had mentioned that might contribute to that leverage? That's one.

And then also is the better sales outlook also contributing to that expected leverage in the second half?.

Sure. Kevin this is Ron. So, I'll take maybe the second half of that first. And as both Mike and I mentioned, the sales -- excuse me the sales comps do get tougher as we move throughout the rest of the year. But given the growth that we've seen today and given our initiatives, we feel comfortable that we're going to see continued growth.

And I think as you know from a leverage perspective, we have the ability to leverage our infrastructure even with modest growth. And -- so -- maybe to answer the first half of your question, we did incur some what we would call kind of some non-recurring expenses in the second half of 2017.

We did have special incentive going from a sales perspective that's not really reoccurring this year. Then we also had some consulting dollars and a little bit higher incentive accruals in the second half of last year.

So, just being -- looking forward, seeing the trend on sales and knowing that we're up against some of these non-recurring expenses, we feel pretty comfortable with that 35% to 45% guidance, at least for the second half of 2018..

Okay, that sounds great. And you went through the average daily sales numbers for loss and loss by month as you usually do. You also called out the year-over-year growth for those ADS numbers by month which showed an acceleration in growth as you move throughout the month.

So, just wondering if you called it out for reason to show the acceleration? And what does that say about how -- what you're seeing so far in July in terms of the monthly ADS growth?.

Sure. So, this is Ron, again, the -- we saw a nice trend really throughout April, May, and June. Although we were up against a little bit lighter in June from a year ago, so it made the percentage look a little bit easier. Relative to July so far, I would say that there's really been no surprises in in July.

As I mentioned the comparisons do get tougher, but we're continuing to see positive demand from demand trends from our customers. So, again, no real surprises in July as we know feel pretty good about the second half of 2018 all-in..

Okay good. Mike talked about the strategic accounts adding new locations with existing accounts. And also called out signing 10 new strategic account relationships.

Wondering if you could talk a little bit more about those new relationships, how large they are at the outset? Or conversely how much room for additional penetration of those new accounts would you have as you move forward?.

Yes, great Kevin. Thank you. This is Mike. As most strategic accounts or conversion accounts which is new locations within existing accounts, they always start small. In that, you never walk into a customer and have to explain what a Bolt actually does. They're usually getting them somewhere. So, almost everything that we win is through share gain.

Having said that, we generally have to burn through the existing inventory of product that's at the customer's location before we begin to see the ramp of our business. Of the 10 accounts, they are pretty broad in their spectrum. One is a transportation company. One is an oil and gas company. One is a mining company.

Yet the kind of across the spectrum just like the rest of our strategic account; one is a recycle company. Time will tell whether these become really very large accounts or just kind of moderate stage of accounts.

The common denominator is multi-site where they value a single source supply and they recognize that we can be the lowest cost provider enabling them to keep their machines up and running. Let me take the other part -- the second sort of implication of your question. We continue to add new locations within strategic accounts that we already have.

We mentioned I think 54 new locations within our conversion accounts. There's tremendous runway ahead of us even converting existing locations within existing strategic accounts.

Generally, not always, but mostly, these are hunting licenses where side-by-side we have to go earn our way and our customers corporate organizations tend to help, but not usually in a mandate.

So, there is a very long runway of potential with very significant growth potential associated with existing strategic accounts just converting more locations. We feel great about our strategic accounts initiatives, our government initiatives but also not taking the eye off the ball relative to our local and regional accounts..

Okay, that's good to hear. You also called out improvement in sales rep retention. I know that's been maybe a bit challenging over the last few quarters.

So, can you just talk about that a little bit more? What do you think led to that retention if you might be at a bit of a turning point here? What's going on with the retention?.

Yes, I would argue that that our improving retention is about a lot of process discipline, many small actions, more intense training, district managers spending more time with their sales reps.

The knowledge sharing that we've spoken about, in the past, we call that Microsoft teams and it's a way of connecting all sales reps to all other sales reps so as rep -- by the way new reps certainly benefit from this, but even the most seasoned reps benefit from the ability to ask a question almost in front of a customer and get very, very quick response.

I commented on one yesterday on the network. I think the turnaround was like six minutes. Pretty technical question and so it's a combination of training, knowledge sharing process. I think we're sharpening our focus on the nature of people we bring onboard.

Can't attribute it to one thing, but we will continue to work hard to hire the right people and once they're here, do everything in our power to make them successful so that they are with us five, 10, 15 years. That is the plan and we work hard to get there every day..

Okay. And sales per rep per day continues to grow nicely.

That's one of the key legs of your three-pronged growth strategy that improving sales rep productivity, so we can talk a little bit more what's going on there? What you're doing internally to drive that in addition to obviously the market being good right now?.

Yes, let me start with that and maybe Ron wants to jump-in in a moment. Same answer or similar answer to the retention question and that is all the things that come together. Programs to win more share of wallet within existing customers -- whether a large or small customers.

Operational excellence which differentiates us in the marketplace in the eyes of the customer. It's training of reps. It's again this knowledge sharing with hundreds of thousands of items and applications and 70,000 active customers, 30,000 shipped to locations per month. We see a lot of unique problems every single day and every single month.

And as sales reps' ability to solve those unique problems is a very significant part of our value proposition. The fact that we're so closely connected to the customer visiting them every week or every other week, all of these things coming together.

Now, I will say there is a backdrop; time utilization for the construction equipment rental industry is good, steady state, oil and gas is good, again, steady state. Broad-based economy over the road trucking miles.

As we see a steady state, but at a good place economic backdrop, it gives us the ability to go win share and demonstrate our value to our customers.

I think underneath of the deck a little bit of what you're seeing is sort of all of the actions and all the investments we've taken over quite a few years now coming together at a moment in time and it seems to be working quite nicely now..

Yes the only -- Kevin, the only thing I would add to that is it's -- in my mind. It's really a culture and a mindset change. And the message we're really sending to our sales team is that all sales reps must grow.

And Mike hit on a lot of these, but it's about accountability, it's about the fact that we have individual scorecards that our District Sales Managers can utilize to help our sales reps. It’s the [MS] teams, its retention specialists that we've brought onboard. It's the conversion process.

It's our training that now our sales reps are required to go through that we're rolling out. It's changed the quota-based compensation plan. So, it's really a culmination of many, many factors that we believe are all driving that rep productivity that we've been after..

Okay, that's helpful color. I guess lastly here on Bolt, $9.8 million in sales in the second quarter, up from $8 million in the first quarter.

Is that just kind of the normal seasonal trend you'd expect sequentially? Or are you seeing just the overall sales picture strengthen for Bolt in general?.

Yes. Yes, Kevin, so this is Ron. So, yes, typically their second quarter is a bit stronger than their first quarter. So, we did anticipate that that we would see a bump up here in the second quarter.

Although I would add that the Western Canada market has been has been relatively strong and are -- in fact, on the MRO side of the business, our Canada sales were up almost 13% over a year ago quarter. So, Bolt is seeing some nice increases.

They are -- not only they are up second quarter versus first quarter, but they've seen a nice increase versus where they were even over the second half -- I'm sorry over the first half of 2017. So, to Mike's point earlier, they are clearly performing on-plan and really at our expectations both in sales as well as in terms of EBITDA..

Okay, great. Thanks for taking the questions. I'll turn it over for now..

Okay. Thanks Kevin..

Our next question comes from the Brad Hathaway, Far View Capital Management. Please proceed with your question..

Hey guys, congrats on a strong quarter and the incremental margins and the guidance on that are really exciting to see. So, congrats on that..

Thanks Brad..

One question that you didn't mention on the call is how do you view the acquisition environment right now.

Are you still seeing opportunities continue to roll-up smaller players?.

Yes, we are -- Brad, this is Mike. Yes, we are filling the pipeline as we have. It's very much opportunistic. We feel great now about our ability internally -- our bandwidth. We've now done five acquisitions. We learned a lot from them and so we feel good about the pipeline and we feel more confident in our ability to more seamlessly integrate them.

Though I will say that every one of the five has done very, very well for us from an integration perspective. They range in size. We're looking at the larger acquisitions at the upper end of our range. But opportunistically there are still some very nice smaller acquisitions that make perfect sense.

The common denominator continues to be the same as it always has been. Consumable MRO type products, service intensive, and the ability to share knowledge and differentiate ourselves through all three of those sort of is the umbrella.

Now having said that, that there's a fair amount that it's under that umbrella and I will say lastly that the more successful we have been and we like to use the management teams are the owners of the companies that we've acquired as references for the next one in the docket.

So, everything we communicate that we live up to and so there are no surprises for the owners and the integration process and we're very proud of the process we use both at the very first discussion a long way a year or two into the integration that we're completely consistent in what we say we're going to do versus what actually happens are the same thing.

So, we're feeling great about the pipeline..

Okay, great. And are you seeing any more competition from other players. I mean on their second quarter call, [MSC] who owns [Indiscernible], obviously one of your competitors, mentioned that they had an appetite to acquire more in the Class C space. So, are you seeing kind of more competitive intensity when it comes to potential acquisitions..

We really aren't. Let's say there is competition, but we're not changing competition. Whether there are smaller acquisitions or larger acquisitions, we have to go out there and earn the interest of the seller. I think our values, our culture, how we go about things does differentiate us.

Of course we have to pay a fair price like everybody else would have to do. But very often decisions are made solely based on the purchase price, but that plus what's going to happen after the acquisition.

And I think we clearly differentiate ourselves in the eyes of potential sellers based on our track record of people we've actually already acquired. So, seems like it's a steady state from a competitive environment..

Okay. Excellent. Great. Well, thank you very much and congrats on the good results..

Thank you, Brad..

Thanks Brad..

[Operator Instructions] Our next question comes from Steve Barger, KeyBanc Capital Markets. Please proceed with your question..

Good morning Mike and Ron and congrats on the quarter. This is Ryan on for Steve..

Hey Ryan..

Hey Ryan..

Yes, just wondering if you can give an update on the pricing environment.

Are you starting to see inflation come through at a more rapid pace? And if so, what steps you're taking to manage that?.

Yes. Let me jump into this. This is Mike. I'll jump into the first part of it and Ron can fill out a few more details. We are seeing cost increases from suppliers. We've been able to manage that well. It's certainly a dynamic environment, then moderate and rational price increases.

We're also seeing some capacity constraints from suppliers; that's driving price a little bit and just general inflation. We see some labor shortages being talked about from our suppliers. So, it seems like underneath it all it's just a general inflationary environment. Now, we have been able to keep on top of that.

And let me say again that we've gone almost six years with a very narrow variation in our gross profit percent. A lot has happened in six years and we look at this number on a quarterly basis. We've added very significant growth in strategic accounts.

A lot has happened in the broader world and yet through it all including this quarter, we've been able to maintain our margins.

I would argue that is in large part because our customers recognize that we are the lowest cost solution in our ability to improve the productivity of their machines and their mechanics and enable them to produce on a consistent basis rather than waiting a day or two for an interruption of a downed machine.

Underneath that, makes us more and more valuable and customers have been willing to work with us even in this environment to help us with price increases where appropriate..

Okay. Good. And that leads up to my next question. Real nice gross margin performance at the legacy business. And I know a lot of that's due to the initiatives you guys are taking there.

So, I'm just curious how much more opportunity or levers do you have to pull for those benefits to continue to outweigh the mix headwinds from growing strategic accounts?.

What we -- as we have in previous years, again, this is Mike, there are a lot of forces in play. We continue to work on global sourcing. Our suppliers have worked very well with us. our customers have worked well with us. We are not trying broadly to raise prices.

That is not what we're doing opportunistically or I shouldn’t say that is more out of necessity and in small ways, occasionally, we have to. But for the most part, the combination of operational excellence Lean Six Sigma, all manner of initiatives, we're working hard to keep it where it is. We are not trying hard to do increase it..

What I would add to that, Ryan, is that we're really going after additional gross margin dollars versus the percentage. And it's been great that we've been able to manage that percentage and keep that number north of 60%.

But as exhibited this quarter, I mean we threw out significant gross profit dollars, which really helped the overall profitability for the quarter. So, I agree with all of Mike's comments and our expectation going forward is that we would be able to remain in the next 60 ish percentile range.

But I would say that getting additional dollars is really our main focus..

Absolutely..

Okay. And then it's nice to see an increase in sales rep this quarter.

How should we think about headcount going forward, the single digit range per quarter kind of a good run rate?.

Yes. As we've said for the last, kind of, a year and a half or so, you'll see a consistent, but very moderate trajectory upward. There are untapped territories as we grow. There is more work per rep and at some point; you've got to divide up territories as they see appropriate.

So, a moderate continuous increase in sales rep headcount offset by our sharp focus on accountability. We work very hard to enable our new sales reps, and of course, our seasoned ones as well, to be successful if they can be then they have a very long and prosperous career with us. But it's not for everybody.

It's hard work, a lot of positives, a lot of gratification that our sales reps get from their customers every day. But the long and short of it is you'll see more of the same going forward. So, increase in numbers..

Okay. And then going to your Alberta, D.C. now stocking Lawson and Kent products, I think you said in your prepared remarks you saw some growth in that region within those product lines.

Would you be able to break out the growth from existing customers to new customers or is that just too early to tell right now?.

I think it's a little too early to tell. We are seeing -- we had customers in Western Canada and we had a lot have sales reps in Western Canada. The challenge they had in the past was along the delivery cycle. Now, at the Alberta, D.C., they have a very short order delivery cycle and we are being rewarded from the existing customers.

And it's a little early to see a material increase in dollars from new customers. We're quite confident that we will pick-up new customers at an increasing pace and we're also very, very pleased with existing customers giving us a lot more business.

Of course, we're dialing in the inventory, the needs in Western Canada -- the inventory needs in Western Canada and the mix of products is a little different than Eastern Canada. So, all of that is being sort of lined out as we speak..

Okay. And then just a couple more for me. Last quarter I believe oil and gas was flat for you. It sounds like it was this quarter as well.

Can you maybe give a little bit more color on what you're hearing from customers in that end market? And what's driving the flat, is it just more so just tougher comps?.

Again this is Mike. It is tough comps, yes, for sure. No doubt there. But I'm fairly confident that because of operational excellence, we are beginning to win more customers and more share of wallet within existing customers in the oil and gas and energy sector.

So, longer term, we feel very good and I'm not speaking about market so much and yes, very tough comps, but underneath that we are differentiating ourselves in the marketplace and I'm very optimistic that we will pick-up more oil and gas customers and more share of wallet over the longer term with existing customers.

And again I'm not so much speaking to a market. That seems pretty steady state..

Yes, Ryan, as defined by SIC code, it still represents about three and a half of our overall business and kind of flattish second quarter versus the first quarter and down a little bit versus a year ago. But to Mike's point, we saw a pretty nice increase in that sector in Q3 and Q4 of 2017.

So, we are up against tougher numbers as we move throughout the rest of the year..

Okay. And then last one for me. Tax rate was about 29% this quarter and about 34% in 1Q.

Looking forward how should we think about the tax rate?.

Yes. Overall, I think for the year, we're sitting at about 31% and we feel like that's a pretty good rate. The first quarter rate -- the effective rate was a little higher just because we have some fixed items within there and our pretax income was lower, so it drove the percentage up slightly.

So, 31%, I think on a go-forward basis is a good rate to use..

Thanks again guys and congrats again on the quarter..

Thanks Ryan..

Thanks Ryan..

Our next question is from Kevin Steinke, Barrington Research. Please proceed with your question..

I just had one follow-up here. You had mentioned wanting to open a new Bolt branch outside the Vancouver area.

Do you have a timeline set for when you might launch that new branch?.

Yes, Kevin, this is Mike. It's probably early fourth quarter..

Okay. Perfect. Thanks..

Thank you..

Ladies and gentlemen, we have reached the end of the question-and-answer session and I would like to pass the call back to Michael DeCata for closing remarks..

Great. Thank you. Thank you for joining the call today. Lawson Products had a great quarter. Sales rep productivity was up 9.1% and this is the sixth consecutive quarterly increase in productivity. We achieved 40% organic leverage on our Lawson MRO business.

The Bolt acquisition is doing great and we added over $900,000 in EBITDA which is why we do acquisitions. And excluding the sale of a building in the second quarter of 2017, our EPS was $0.35 per share up 75% over the prior year's quarter. Lastly, I'd like to thank our teammates, our customers, and our suppliers.

We're optimistic that the remainder of 2018 will be very strong for Lawson Products. Have a great day and thank you..

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation..