Good morning ladies and gentlemen and welcome to the Lawson Products Second Quarter 2019 Earnings Call. This call will be hosted by Michael DeCata, Lawson Products' President and Chief Executive Officer; and Ron Knutson, Lawson Products' Chief Financial Officer. They will open the call with an overview of the second quarter results.

There will then be time for question and answers. This call is being audio simulcast on the Internet via Lawson Products' Investor Relations page on the company's website lawsonproducts.com. A replay of the webcast will be available on the website through August 30th, 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 contains 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 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 will now turn the call over to Lawson Products' CEO, Mike DeCata..

Good morning and thank you for joining the call. This morning, I will comment on the second quarter results and our continued progress. Ron Knutson, our CFO, will provide more detailed review of our financial results, followed by your questions.

We are thrilled to communicate that for the first time since the second quarter of 2010, we had surpassed our previously stated milestone of 10% adjusted EBITDA. As a team, we continue to make significant progress toward this milestone over the past few years.

And without transforming the company, a process that started before I arrived, this would not have been possible. We are a much stronger company, both financially and operationally than we've been in years. This puts us in a great position going forward.

In the second quarter, sales were strong increasing 6.3% including 4.4% increase in the Lawson MRO segment. In addition, operating leverage, and profitability trends were very favorable. Our adjusted operating income improved by 31% versus a year ago quarter as we efficiently manage expenses and leveraged our infrastructure.

We continue to deliver strong operating leverage and profitability. The 10.1% adjusted EBITDA achieved this quarter, which takes into account stock-based compensation severance in the new lease accounting rule, compares to 8.6% during the second quarter of 2018.

The Lawson MRO segment gross margin was 60.5% for the quarter before incorporating the new revenue recognition standard as compared to 60.4% for the second quarter of 2018. Our gross profit percent has been maintained in a very narrow range for over 6 years.

Our ability to maintain this gross profit percent over that length of time, especially considering the competitive environment, significant growth in our strategic accounts and recent inflationary pressures reflects our value proposition and the extraordinary service that our sales team provides to our customers.

Customer retention also continue to improve during the quarter. With our sales growth and continued focus on cost management, we continue to exceed our previously stated guidance of 25% to 30% operating leverage having achieved nearly 34% this quarter within our MRO business.

This is on top of the 45% leverage achieved in the first quarter and over 51% last year. I'll let Ron dig into the financial details. But I'd like to highlight a couple of areas that we're especially pleased with for the quarter.

First, government accounts growth accelerated sequentially to 38% compared to the second quarter of 2018 on top of 24% increase in the first quarter. In 2019, government strength has been broad base, including state, municipal, federal, non-DoD, as well as our DoD business.

To put this into context, during 2018, we had one month breaking $3 million in government sales. During 2017 and 2016, we had zero months breaking $3 million. Year-to-date, we've exceeded $3 million in five of six months. Our government business is benefiting from dedicated process improvement efforts.

For example, we improved the order fulfillment process for our large DoD orders resulting in 40% reduction in the cash -- quote-to-cash cycle. We also added regular presence to several additional army bases as well as adding a Sales Manager dedicated to state and local government business.

Second, we continued with our convergent process for strategic accounts, which we've discussed in previous calls. During the second quarter, we added 74 new locations within existing strategic accounts, bringing the total year-to-date to 144 new locations. We also added eight new strategic account customers.

From a sales perspective, our strategic accounts were essentially flat versus the second quarter of 2018. However, this was driven down by two oil and gas customers who experienced unusual operational slowdowns. Excluding these two accounts, strategic accounts grew 17% versus a year ago.

Third, Bolt Supply had a strong second quarter with sales growth of nearly 18% in Canadian dollars. We continue to be pleased with the Bolt acquisition. Finally, we implemented a restructuring of our product management marketing in red areas of the company. This action was taken to provide better alignment within our supply chain and sales functions.

We believe that this structure will enable us to more efficiently and effectively service our customers. Beyond sales, EBITDA and leverage, we continue to make progress in achieving operational excellence in all aspects of our business.

Over the past several years, I commented on a broad range of process improvements which have been facilitated by Lean Six Sigma in our teammates across the company. Our supply chain team has continued to improve the inventory process.

Line service levels, back orders, inventory turns and single shipment order complete matrix have all achieved record levels during this quarter. This results in lower freight costs and improved customer service. I had mentioned in the past that one of our goals in embracing Lean Six Sigma was to improve quality of the work life for our teammates.

An example of this can be found in our inventory planning department. In 2015, our inventory forecasters managed 40,000 forecast exceptions. This required four full-time people to manage exceptions.

Today, two people manage 13,000 forecast exceptions, enabling us to redeploy resources to other initiatives and achieving an all-time high in forecast accuracy. This is one of many example of reducing non-value added work, improving the quality of work for our teammates and reducing our total expenses as a percent of sales.

Our three-point growth strategy continues to deliver. First, growing our sales team. Including Bolt Supply, we finished the second quarter with a 1,010 sales reps and planned to incrementally higher for the foreseeable future. Sales rep retention has also continued to improve. Second, increase in productivity.

This quarter, Lawson core sales reps achieved 3% improvement in sales rep productivity versus the second quarter of 2018. Our average daily sales also grew by 4.4% versus the second quarter of 2018. Third, growth through acquisition. We have an active acquisition pipeline, however we remain selective. We remain committed to growth through acquisitions.

We are also in the process of adding dedicated resources to our acquisition process.

In conclusion, we are extremely well positioned to further drive business through our compelling value proposition, commitment to continuous improvement in all aspects of our business, and a disciplined approach to capital allocation, including executing accretive acquisitions.

We feel confident in our previously communicated range of 25% to 30% MRO operating leverage for 2019 as we come up on challenging sales costs. Lastly, there's been a discussion in the market about the softening industrial economy. As demonstrated by our average daily sales, we achieved a sequential increase in ADS.

While the ISM has come off its highs from a year ago, it is still showing growth, but at a slower rate. We believe the actions that we've taken to improve sales growth, manage operating costs, and achieve process improvements will go a long way towards driving growth in the current environment.

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. As Mike mentioned, the second quarter of 2019 reflects a continuation of our strong results with solid execution, favorable operating leverage, and continued improvement in adjusted EBITDA.

Congratulations to the entire Lawson and Bolt team for their efforts as we continue to drive additional profitability and value to our shareholders. Let me now share some of the second quarter highlights. First, sales were $96.1 million for the quarter.

Consolidated average daily sales were up 6.3% versus the year ago quarter or 7.1% before the foreign currency impact. Second, our adjusted EBITDA for the quarter was $9.4 million compared to $7.7 million a year ago, an increase of over 21%.

Importantly, our adjusted EBITDA margin for the second quarter of 2019, excluding the impact of the new lease accounting standard adopted earlier this year, exceeded our stated 10% goal. Third, consolidated gross margin of 53.1% was in line with our expectations.

The organic loss in MRO business segment gross margin percentage was 60.5%, effectively consistent with the year ago quarter prior to allocating service related costs into gross margin. And fourth, we reported diluted EPS of $0.14 for the quarter, compared to $0.35 in the second quarter of 2018.

On an adjusted basis, diluted EPS increased nearly 59% to $0.62 for the quarter. I'll now discuss some of the drivers of the quarter and provide some additional commentary. We generated sales of $96.1 million in the quarter on 64 selling days.

This was the same number of selling days as in the second quarter of 2018 and one additional day than the first quarter of 2019. As compared to a year ago, our second quarter sales benefited from the following. First, Bolt Supply generated sales of 11.1 million in U.S.

dollars for the quarter, an increase of 14% in USD, driven primarily by favorable broad base demand across its product categories, promotional events in newly stocked items. Second, as Mike mentioned, MRO sales grew 4.4%.

MRO sales rep per day productivity continue to improve with an increase of 3% over the year ago quarter and sequentially up 2.7% over the first quarter of 2019. Third, Screw Products added $720,000 in sales for the quarter. We ended the quarter with a 1,010 sales reps including 28 territory managers in the Bolt Supply business.

Our focus remains on profitably growing our sales force, improving sales rep productivity and retaining our talents. On a Lawson MRO organic ADS basis, U.S. sales were up 5.3% while our Canadian ADS, excluding Bolt Supply, were up nearly 2% in local currency.

From a sequential average daily sales basis, the Lawson segment April sales were $1.298 million; May was $1.307 million; and June finish strong at $1.347 million.

From a Lawson segment standpoint, strategic accounts sales were flat for the quarter, primarily related to lower sales from two large customers in the oil and gas sector who experienced operational related slowdowns. Excluding these two accounts, strategic accounts grew 17%.

We also realized growth of approximately 38% in our government segment, 2.3% growth in our Lawson core business, and 2.9% growth in Kent Automotive. In line with our expectations, reported gross margin for the quarter was 53.1%.

Similar to prior quarters this year, gross margin was impacted by $4.5 million of service related expenses that were classified into cost of goods sold in addition to gross margin profiles at Bolt Supply and Screw Products that are lower than our Lawson segment.

Prior to the service related expense classification, Bolt Supply and Screw products, the organic Lawson MRO gross margin was 60.5% compared to 60.4% in the year ago quarter.

Through effective pricing and operational efficiency initiatives in our product fulfillment process, we continue to drive MRO margins in excess of 60% against the backdrop of a challenging inflationary environment.

We continue to efficiently manage our total operating expenses as a percent of sales and further leverage our existing infrastructure as evidenced by this quarter's results. Selling, general and administrative expenses were $49.4 million for the second quarter compared to $43.6 million a year ago quarter.

The increase was solely driven by additional stock-based compensation of $4.8 million due to an increase in our stock price and $1.4 million of additional severance expense as we further align some of our supply chain and sales functions within the company.

Lawson MRO adjusted EBITDA operating leverage was nearly 34% for the quarter, reflecting the combination of sales growth in operating expense leverage. Our reported operating income was $1.6 million for the second quarter compared to $5.6 million a year ago. The year-over-year decrease was solely driven by additional stock-based comp in severance.

On an adjusted basis, non-GAAP EBITDA was $9.4 million compared to adjusted EBITDA of $7.7 million in the year ago quarter, a 21.3% increase. Net income for the quarter was $1.3 million or $0.14 per diluted share. On an adjusted basis, diluted EPS was $0.62 for the quarter versus $0.39 a year ago quarter.

This puts our year-to-date adjusted EPS per share at $1.10 compared to $0.64 in 2018, a 72% increase. Our net borrowings decreased in the quarter by $7.6 million, primarily driven by $8.2 million of cash flow generated from operating activities. Capital expenditures for the quarter were approximately $700,000.

We expect our CapEx in 2019 to be in the range of $2 million to $3 million compared to our prior expectation of $2.5 million to $3 million. Let me now provide some thoughts for the remainder of 2019. We are optimistic regarding demand, given the trends over the past few quarters and our internal initiatives to drive sales, growth and earnings.

Current economic indicators in our sector indicate growth, but at slower rates. However, we continue to build momentum in certain segments of our business such as government. We also expect to remain disciplined in our acquisition activity. Second, our expectation remains for 25% to 30% MRO operating leverage in 2019.

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

[Operator Instructions] Thank you. We will now begin the question-and-answer session. [Operator Instructions] Thank you. Our first question comes from the line of Ryan Mills with KeyBanc. Please proceed with your question..

Good morning guys and congrats on the quarter..

Good morning Ryan..

Yes, just wanted to start with the free cash flow. It's down year-to-date. How should we think about the performance in the back half considering the growth you're seeing in Bolt Supply and the Screw Products acquisition? And then similarly, working capital has been picking up.

How do you feel about working capital at this point in the cycle and should we expect that to be a user or source of cash in the back half of 2019?.

Sure. So Ryan, this is Ron Knutson. I'll take that question. So, on the free cash flow, as we highlighted in our prepared remarks, on the second quarter, we created about $8.2 million of cash flows from operating activities and we had about $700,000 of CapEx in the quarter.

So, real positive move in the second quarter allowing us to pay down a big portion of our debt that was outstanding at the end of the first quarter.

So, when we think about the remainder of the year, I would say that typically the third quarter is stronger for us in both terms of earnings or I would say more similar as it is with the second quarter in terms of both earnings as well as free cash flow generation.

Typically, the first and fourth quarters are generally not quite as strong for us primarily due to either items such as payroll taxes which hit us in the first quarter or fewer selling days which is the case this year as well on the fourth quarter, 61 selling days in Q4.

So, we certainly expect to continue to create positive momentum throughout the remainder of the year to throw off additional cash flows..

Okay. And then the 14% growth for Bolt Supply, that's pretty impressive considering some of your larger peers continue to experience declines in Canada.

So, could you talk a little bit about what's driving the performance there?.

Sure. This is Ron again. So, I'll take that one. It's -- they've really hit a nice stride here over the last I would say three quarters, when you look at their overall topline results. And more specifically on this quarter, I would say it's attributable to some promotional events that we ran.

They currently operate with 14 branches as well as some additional skews that we put into inventory and really just solid execution all around. So, we're really pleased with the acquisition we made and we're extremely pleased with the level of confidence that we have in the team at Bolt Supply really to drive overall results there.

So, it's been a great quarter for them. We'd love to see that 14% or 18% in local currency on a go-forward basis as well, but they're really on a nice stride right now. We don't see any indicators that would cause any dramatic shift one way or another, but again, feel really good about the team's performance there..

Yes, real nice performance there. And then going to SG&A cost, really a solid control right -- cost control there.

Are actions being taken internally or is it just reflecting two consecutive quarters of sequential sales rep declines? And then how should we think about sales reps additions or reductions for the back half of 2019?.

I can take the first one, Ryan, its Mike DeCata. So, we will continue to incrementally add sales reps for the foreseeable future. As we mentioned in previous calls, we now have very sharp focus on sales rep performance.

And we want to make sure that sales reps are tracking on the trajectory, not only relative to sales, but new accounts and all the other sort of precursors to revenue growth and territory expansion. So, that's what you're seeing a little bit of this, our focus on sales rep -- initial sales rep productivity.

So, that will continue to creep up indefinitely and that's what you're seeing. Also the more successful we get this sales reps to be initially, the better the attrition. The lower the attrition and the better the overall retention, and that enables more and more sales reps to march further down that path.

And we still have the situation where it's a kind of a bimodal distribution where there is higher initial turnover and very, very longer term turnover. Once a sales rep has been with us, call a three or four years, the turnover goes to like 10% or less, whereas initially it's a challenging job to work your way into.

Ron, do you want to take this apart?.

Sure. So, Ryan, really I mean, we're really pleased with the overall performance for the quarter, and I would say, it's a combination of both the sales increase, but also really never taking the eye off of our operating expenses.

And if you look at the quarter, excluding the stock-based comp and the severance, we were basically flat in OpEx versus a year ago on a 6.3% sales increase. So, again, we continue to focus on both sides of that equation, certainly getting that additional leverage in driving down our expense to sales ratios is certainly goal of ours.

So, yes, so we're real pleased on both sides of the equation this quarter on sales as well as controlling our operating expenses..

Ryan, this is Mike again. Let me close it off with a comment on Lean Six Sigma. And that is that since 2013, we've worked hard to examine and we will continue indefinitely to examine every process and sub processes of the company. And as a result, our G&A headcount is actually down from 2012 or 2013 through today.

And after the initial benefits that were larger, our longer term benefits beyond quality of work life which is important for our team, the ability to hold cost -- G&A costs, while we grow topline and the example I gave, two examples around Lean Six Sigma being the process reengineering associated with a large Department of Defense orders.

And then secondly, forecast accuracy freeing up people to work on other things. Those are sort of the long-term grind it out incremental improvements that you can count on every day and over a long time, they add up to real dollars..

Very helpful. And then last one from me and I'll hop back in the queue. The balance sheet is pretty solid at this point following some debt reduction. So, just an update on your M&A strategy will be helpful.

Do you feel comfortable making more meaningful acquisitions at this point in the cycle with the moderating growth?.

We absolutely do for several reasons. You mentioned the balance being one of the reasons.

Also our confidence based on our track record of the previous six acquisitions that we've done and how well we've integrated those and tested our paradigms around what to integrate, what not to integrate, and how to do it and at what rate to integrate, all of that has given us confidence in our own teammates.

So, we would like to be doing larger acquisitions, more meaningful ones. And of course, you saw the results we're getting from Bolt which was meaningful and continues to be a real contributor in a meaningful way. So, yes, we are very committed. We are in the process of adding resources there and feeling good about the pipeline.

But I have to say, we are very disciplined. We're committed to growing through acquisition, but they have to be the right acquisitions..

Yes. Maybe just talk real quick about the multiples you're seeing out there.

They're still elevated at this point?.

All over the spectrum, depending upon the size of the company, the sophistication of the company. For the ones that are a very close match, one of the metrics we look at is the revenue that each of the sales reps that we're acquiring generates.

It's a little interesting side note that between Bolt and the other acquisitions we've made, we've acquired about 50 sales reps and retained, practically speaking, all of them which is an incredibly effective way of acquiring and hiring sales reps.

But as well, the multiples for those small-small companies are far lower than it is for broad based with tremendous infrastructure companies. We're seeing again a broad spectrum of multiples. .

Thanks for taking my questions and again, congratulations on the quarter..

Thank you, Ryan..

Thanks Ryan..

[Operator Instructions] Our next question comes from the line of Kevin Steinke with Barrington Research. Please proceed with your question..

Good morning Mike and Ryan..

Good morning Kevin..

Good morning..

Hey Ron, you commented that June finished strong, so yes, the quarter ended up on a strong note.

Can you just talk a little bit more about what have you seen thus far in July in terms of growth and demand trends?.

Sure. So, I think, Kevin, you know that we don't go out and formally publish our monthly numbers until the end of the quarter. But what I would say is through the first call it three weeks here of July, we've continued to see growth both in the MRO business or I should say the loss in MRO side as well as on the Bolt side.

So, again, it's -- we're three weeks into the month here. And you're right, June ended on a pretty high note for us. But we've continued to see growth here in the first few weeks as well..

Okay. And on the flat strategic accounts sales, obviously you attributed that to a slowdown in two oil and gas customers.

I guess is this -- they're related to slower activity in drilling? And I know that space can be a little unpredictable, but have those accounts kind of given you any sense of what they might be expecting in the back half of the year?.

Yes Kevin. They are not market related. They are budget related. And one of them, I guess you can tie it to the Permian Basin takeaway capacity being one of those sort of heating items. The other one is literally environmental permitting and stuff that is short-term project based.

And we're already beginning to see a little uptick from the one in particular. But it's also interesting, I mentioned in my comments that we picked up eight new strategic accounts. Well, one of them was in oil and gas as well. So, again, this is not market related.

It's -- our strategic accounts team is actually growing pretty nicely both in adding strategic accounts, but also the conversion process picking up. Well, 144 year-to-date is really nice progress. Again, we believe that because we are the best there is in our little narrow space. But from the customer's perspective, we ought to have a 100% share.

And we keep communicating that if you're not doing business with us, then you're dealing with lesser service and less frequent and less intense service than we're giving you. So, we really want a 100% share of everything we can get..

Kevin, I would just add to that that both of these customers had really, really strong second quarter 2018 numbers that we were up against.

So, as Mike indicated, we've already seen these customers come back a little bit from as you look at the sequential trend, but we were up against really tough number specifically on these two customers from a year ago..

Okay. That's helpful. And obviously the 17% growth in strategic accounts sales excluding those customers is an indicator of the success you continue to have in that space, I guess just driven by conversion of existing account locations and addition of new accounts.

Is that fair to say?.

That's correct..

Okay..

And any new one across the spectrum manufacturing, integrated supply, environmental, broad based..

Great. You commented that customer retention continued to improve.

I don't know if you could give us a sense of the magnitude of improvement there and maybe how much more room you think you have to continue improving customer retention?.

Yes. That is the -- the increase has been a slow consistent increase. We've added resource. We put a lot of work into it. But it will become harder and harder and harder. We're nearly 92% retention and there is just normal churn in some of that. Customers go out of business and there are a lot of reasons for it.

So, incrementally, it'll get harder and harder and harder to go from 92% to 93% to 94% for many reasons completely out of our control. But we will continue to work at it and we could see tremendous growth of in new customers, share a while within existing customers.

But once we have a customer, again short of them going out of business, we're working hard to retain all of them. But it will become harder and harder to go further..

Sure, of course. Yes, it makes sense.

So, the restructuring actions around product management marketing, could you just give us a little more detail on what you hope to accomplish there and how that's going to help drive growth going forward?.

Yes, the short answer is alignment. Just -- I mean it's really a positive for us. The teams feel great about it. And it really is about alignment. That's -- it's as simple as there is. And we're already seeing communication alignments and just -- it's just simple as that really..

Got it. Okay. So, you mentioned in the process of adding dedicated resources to evaluate acquisitions.

I mean, can you just talk about maybe the headcount you're adding there and what do you hope to accomplish through that addition of dedicated resources?.

That's a little bit premature at the moment. It would have been a news to come there at some point. But I don't want to go into too much detail there. But acquisitions M&A is a very real component of our strategy. It has been for a while for part Bolt strategy.

And as we become more and more confident, both in the success of the acquisitions we've done and the integration and our own support infrastructure internally I'm talking about, we are ever more committed to growing through acquisitions. And we feel like we've got the balance sheet to do it. So, that really is our focus.

But again, it is our intention to bring in dedicated resource to do that..

Okay. I guess lastly from me, a lot of momentum in the government sector for you and you've talked about adding some resources and military bases and so forth.

I mean how much more momentum or growth opportunity do you see in the government space and will you continue looking to maybe add resources dedicated to that particular market?.

Sure. Kevin, this is Ron. So, I'll take that one. So, as both Mike and I highlighted, really, really positive results within our government business. And it's not just this quarter, it's really been for the last three or four quarters.

And when we look at the trend there, as Mike highlighted, we've seen five out of six months this year where we have exceeded $3 million in sales on a monthly basis. So, I would say we are up against tougher comps as we enter into the second half of the year on government.

But looking at the trends that we've seen here in the first couple of quarters as well as the additional resources that we put into that area, we certainly still expect to see nice growth in that area, not only for the second half of this year, but also moving into 2020. It's a real opportunity for us then.

And we've made some good changes on the supply chain side of the business to make sure that we're fulfilling the customers' needs as well there.

So, I don't know, Mike, if you--?.

Yes. Well, the only thing I would add, as we look at that across multiple dimensions, I've mentioned that a handful of occasions that we want to make sure that our growth is broad based and not narrowly focused on one sub segment. What we're seeing is a good state, local and educational growth. We're seeing good military growth.

So, we're seeing a broad based growth. And the process reengineering that I alluded to talks about quote-to-cash, but it also enables us to win more business because of that cycle time compression.

And let me just say that was classic Lean Six Sigma cross functional teamwork, and admiration to the military team and all of the adjacent departments that came together and work to hugely reduce cycle time in all aspects of that customer service activity.

So, all of these little things make us more competitive in winning more business and more broadly. But it also makes it a lot more profitable..

Okay, great. Well, thanks for taking the questions..

Thanks Kevin..

Thanks Kevin..

[Operator Instructions] Our next question is a follow-up question from Ryan Mills with KeyBanc. Please proceed with your question..

Yes. Just have a couple of more.

Could you maybe talk about the integration and performance of Screw Products? I believe you said it added about $700,000 or so to the topline this quarter, but can you maybe talk about the year-over-year growth for that business?.

Yes, let me take the first part. Screw Products for us was a first albeit small step in understanding a very near adjacency. And think about Screw Products as a project-based small production OEM related work. Again, very unique, value added, a lot of service going on there.

And for us, Screw Product is a way of sort of extending our service proposition. But it was about us trusting our own paradigms and understanding the value proposition. And let me say the elasticity of what we do into a baby step outside. That was the reason for doing Screw Products.

Over time, we'll determine whether we want to do more of those or just grow it organically or bolt on more similar stuff. And those questions are yet to be answered..

Okay.

Then could you talk about the year-over-year performance for that business?.

Yes, Ryan. So, this is Ron. So, when you look at the second quarter, I would say it's relatively flat versus kind of where they were before we made the acquisition. So to Mike's point, we're still looking at the right way to integrate Screw Products into the organization.

What I would say is that their earnings EBITDA, which is really was a -- I know we talked about this on the call, when we made the acquisition was, close to 30%. Their earnings continue to be at that high level. So, they are throwing off some additional profitability.

But I think where we will be focusing on going forward is how do we integrate them into the organization and leverage what they do with our existing sales force to drive the topline. So, still a kind of little bit yet to come there as we work our way through that, but we're still seeing some nice results on that acquisition..

Yes. We're in the process of integrating some aspects into our McCook distribution center, which will extend their capability more broadly, integrating them more fully into SAP, which again will extend their ability to do analysis and integrate from an IT perspective. So, a slow, systematic and deliberate approach.

It's kind of the way we do everything around here. And I feel very confident in the future of that unit, but also we are very confident in what we're learning out of it..

Good to know. And then you had really strong operating leverage year-to-date so far running at 30% plus on a consolidated level. I know you stated the 25% to 30% MRO operating leverage target.

Just kind of curious how should we think about consolidated incrementals of moderating growth continues? Sounds like you should get a little bit of a benefit for the remainder of the year with the margin profile of Screw Products.

But do you think you could maintain the 30% plus consolidated incrementals and continued moderating growth?.

Yes, I think for the quarter on a consolidated basis, we were sitting at about 29%. And certainly, the MRO side of that being north of 30%, which is really what we've commented on in the past. So, we don't see anything that would take us off of that previous guidance of 25% to 30%.

Certainly, it's always our goal to exceed it, which we've done for the last couple of quarters. But given the current model and given what we're looking at from a sales forecast on a go-forward basis, that 25% to 30% range still feels like it's very achievable..

Okay. Then last one for me. Can you just talk about your performance by end markets? It sounds like oil and gas maybe took a step back with those two customers. Larger reported peers, who already reported, indicated heavy manufacturing, somewhat taken a step back.

Just kind of curious to know how your end markets are performing and what you're experiencing?.

So, when we typically look at our business, we really break it down into the strategic, the governments, the core business as well as our Kent Automotive business. And as you said, Ryan, putting those two customers aside, we saw nice growth within all those segments of the business, and then Bolt, certainly on top of that. And we've talked about this.

We service in excess of 70,000 customers. So, our end market is very diverse, very diverse customer base. And for us, we've not seen any, what I would call setbacks in really any of those end markets. But again, servicing 70,000-plus customers, we continue to see growth within the segments as to how we measure our business.

And the end markets are always a little bit more challenging to get it locked down exactly for oil and gas or for construction and so forth. But relative to how we're managing, we're seeing some nice growth within all of our segments..

Yes, Ryan. I would just add that the market does what the market does, but we're especially proud and feel great about the actions we're taking, things we control that are enabling us to win share, customer retention is really very, very strong and has been for a while.

Things like cross functional teamwork enable us to service customers better, and hold costs down while we're doing it, our commitment to process, but candidly, our strong and open-minded culture. I mean our people really make the difference here.

And all of those are things we control and all of those are things that are differentiating us in the marketplace.

And then when you start thinking about labor demographics and how hard it is to find maintenance mechanics and shop supervisors and welders and truck drivers, our customers don't want those people sitting around waiting a day or even a couple of hours to repair a piece of equipment that's down because that labor shortage for our customers is a huge issue.

And our ability to keep their labor and their machines productive is differentiating us in the marketplace. And we're seeing that play out in the form of share gain, share wallet, and all the other things we've been alluding to.

Whether its conversion or picking up new accounts or retaining existing accounts, all of that are -- all of those are things we control and that's where we're focused..

Great. I think it's pretty evident you're taking share gains and thanks again for taking my follow-up..

Thank you. Ryan..

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

Thank you very much. And thank you for joining the call. Lawson Products had another great quarter. Sales, EBITDA, gross margin, and leverage all continue the positive trend that began in 2016. The company is performing better than it has in a very long time. We are confident that Lawson will continue to thrive in the coming months and years.

Our operational excellence continues to differentiate us in the marketplace, enabling us to win share and fully support our customers. I would like to extend special thanks and appreciation to our teammates. Their hard work and commitment to customer service has enabled Lawson Products to grow and service over 70,000 customers.

Thank you again for joining the call today and we look forward to speaking with you again in October. Have a great day..