Mike Smargiassi - Investor Relations, Brainerd Communicators Larry Reinhold - President and Chief Executive Officer.

Good afternoon, ladies and gentlemen and welcome to Systemax Inc.’s First Quarter 2016 Earnings Call. At this time, I would like to turn the call over to Mike Smargiassi of Brainerd Communicators. Please go ahead..

Thank you and welcome to the Systemax first quarter 2016 earnings call. Today’s call has been pre-recorded and will include formal remarks from Larry Reinhold, President and Chief Executive Officer. We will not be hosting a live Q&A session at the end of today’s call.

If you should have any questions on first quarter results, please contact Brainerd Communicators or Systemax. Contact details can be found in the press release issued today and at www.systemax.com. Today’s discussion may include certain forward-looking statements.

It should be understood that actual results could differ materially from those projected due to a number of factors, including those described under the forward-looking statements caption and the company’s annual report on Form 10-K and quarterly reports on Form 10-Q.

I would like to highlight the non-GAAP metrics that are included in today’s press release.

The company believes that by presenting the entire North American Technology Products Group as a discontinued operation and excluding certain recurring and nonrecurring adjustments from comparable GAAP measures, investors have an additional meaningful measurement of the company’s performance.

As a result, this call will include a discussion of certain non-GAAP financial measures. The company has provided a reconciliation of those non-GAAP financial measures to their most directly comparable GAAP measures in today’s press release. The press release is available on the company’s website and will be filed with the SEC in a Form 8-K.

As a reminder and as previously noted on the company’s fourth quarter conference call in November 2015, Systemax announced the decision to sell most of its North American Technology business and to wind down the remaining operations to fully exit the business.

A substantial portion of NA Tech was its retail operations, which peaked at 42 stores in 2011. From 2012 through the first half of 2015, 39 of these stores were closed, leaving 3 stores in operation at the time of the sale announcement in November 2015. Those stores were closed during December 2015 and January 2016. The U.S.

GAAP rules for discontinued operations changed effective January 1, 2015. These revised rules mandate that, because the 39 stores had closed prior to the sale announcement, their historical results along with allocations of shared distribution and back office costs must be presented as part of continuing operations for U.S. GAAP.

This presentation results in 2016 and 2015 first quarter GAAP operating losses from continuing operations of approximately $0.5 million and $12.1 million respectively. On a non-GAAP basis, excluding all NA Tech results, first quarter 2016 and 2015 operating income was $1.9 million and $1.6 million respectively.

Systemax believes its non-GAAP presentation of financial results is a better presentation of the economic substance of both Systemax – Systemax’s continuing operations and its discontinued NA Tech operations.

Accordingly, the supplemental non-GAAP presentation has adjustments to present the entirety of NA Tech as a discontinued operation, as well as typical adjustments for one-time items, intangible amortization and equity compensation.

Note that for the first quarter of 2016 substantially all first quarter activity for NA Tech is reflected as discontinued operations for GAAP purposes. Unless otherwise noted, comments today will focus on non-GAAP performance. This call is the property of and is copyrighted by Systemax Inc. I will now turn the call over to Mr. Larry Reinhold..

Thanks, Mike and good afternoon and thank all of you for joining us today. During the first quarter, we continue to focus on optimizing the performance in our Industrial Products Group, progressing on the turnaround in our EMEA Technology Group and winding our discontinued North America Technology Group activities.

Industrial had another successful quarter as we grew revenues for the 25th consecutive quarter. And in EMEA, we improved our bottom line performance significantly. In NA Tech, we fully exited business operations as we sold all remaining inventory, closed all remaining retail stores and the warehouse.

We expect remaining wind down activities will be substantially completed by the end of the second quarter.

In looking at our first quarter consolidated non-GAAP performance, it’s clear that we have significantly improved the financial health of Systemax with the NA Tech exit, which has also made the performance and underlying value of our other businesses more visible to investors.

Consolidated revenue reflects continued top line growth in industrial offset by a modest decline in EMEA, which was due primarily to currency. We delivered consolidated gross margin improvement of 130 basis points, which was driven by improved margins in EMEA as well as a larger contribution from the higher margin industrial business.

Consolidated SG&A increased modestly on an absolute basis, primarily as a result of the inclusion of PEG in the first quarter for industrial. Consolidated operating margin was 0.4%, flat to last year.

Turning first to industrial, in the quarter, we marked the first anniversary of the PEG acquisition, made initial progress on our efforts to optimize our distribution network and delivered modest organic top line growth despite published surveys reporting that the North America MRO market is flat to modestly contracting.

However, this businesses overall performance was somewhat disappointing as its operating margin declined. As we look forward to the remainder of this year and beyond, we believe we have a tremendous opportunity to continue to grow our industrial business and capitalize on our existing infrastructure.

During the past 4 years, we have made significant investments in our distribution capabilities and built a platform that can service substantially more sales volume than we generate today. These investments include growing from one to four major warehouses with a fully integrated national distribution system and expansion of the product offering.

We have also enhanced our sales team both in number of reps and level of expertise and are looking forward to increase productivity of all of our reps. It will take some time to fully optimize our operations and grow into the distribution assets and sales resources we have today.

While we have a good deal of work ahead, we believe we are well-positioned to increase revenue without significantly adding to our cost structure, which will drive leverage in the business and improve bottom line performance. In addition, we continue to evaluate potential strategic M&A opportunities that could be additive to our growth.

Industrials first quarter revenue increased 7.4% overall. On a constant currency basis and excluding PEG, revenues grew 3.6%.

Top line performance reflects continued growth across core categories, such as product storage and material handling, partially offset by softness in categories such as heating, which was adversely impacted by a warm winter in the Northeast and office supplies.

Industrials gross profit for the quarter grew to $48.7 million from $45.5 million last year. Gross margin was flat and reflects improved product margins as we saw an increase in stock product sales, which carry higher margins than our [indiscernible] products.

This was offset by increased expenses for the larger Las Vegas distribution center and for freight costs. Las Vegas shipping volumes are ramping nicely from 10,000 orders in Q3 last year, it’s first quarter of full operations to over 30,000 orders in Q1 of this year.

Historically, our industrial and NA Tech businesses operated under shipping agreements that aggregated volumes with a major carrier. With the exit from NA Tech, we had only industrial shipping volume, which resulted in higher per package freight expense.

We recently entered a new for industrials parcel and small box needs and expect lower per package freight cost in Q2 than in Q1. SG&A spending for the quarter was $40.6 million and reflects increased salary costs related to the PEG acquisition, investments in the sales force across the business and increased advertising costs.

Industrials operating income for the quarter was $8.1 million and operating margin declined from 6.5% to 4.7%. The business is focused on improving the efficiency of advertising spending and identifying other cost reduction opportunities.

In EMEA technology, France, our largest market delivered another outstanding quarter with double-digit improvement on the top and bottom lines and in the UK we significantly lowered our operating loss. EMEA’s first quarter revenue declined 5.3% overall. On a constant currency basis, revenues declined only 2.2%.

France once again was a strong performer, with local currency revenues up double-digits for the ninth consecutive quarter and our Netherlands solution business reported more than 20% revenue growth. We also had solid sales growth in a number of our smaller markets. In the UK, we are highly focused on recruiting sales representatives.

We are planning on opening a new office in a geographically desirable location in North London as well as a new program for home-based reps. While it’s still early, we are seeing encouraging recruiting activity related to these programs. EMEA gross profit for the quarter increased approximately 7% to $34.1 million.

Gross margin improved 150 basis points to 13.2% and reflects changes in sales mix, which included fewer low margin government procurement projects in the quarter. SG&A spending in absolute dollars for the quarter was down modestly by about $1.5 million, primarily from changes in exchange rates.

EMEA’s operating loss for the quarter was reduced to $0.7 million compared to $4.4 million last year. The improvement was driven by better operating performance in the majority of our markets, including France and the UK.

For the quarter, the discontinued NA Tech business incurred losses of $18.0 million, primarily related to the closing of the warehouse and two retail stores that were in operation during part of January. We anticipate recording additional losses on discontinued operations of between $5 million and $7 million during the second quarter.

The largest component of these anticipated losses will relate to accruals related to the Miami headquarters building. Let me now turn to the balance sheet. As of March 31, our balance sheet included approximately $163 million in cash and about $205 million in working capital.

Of the total cash, approximately $133 million was held in our continuing businesses of industrial, EMEA and corporate. The remainder was held by NA Tech. We continue to have a very strong and liquid balance sheet.

The current ratio at March 31, 2016 was 1.6:1 and total debt was $0.9 million, with approximately $38 million of availability under our line of credit. In summary, are focused on improving our profitability and driving the value of our businesses.

We are committed to strengthening customer relationships and improving efficiencies across our operations. We have a strong cash position, which provides us tremendous flexibility to pursue strategic M&A and execute on our operating strategy. This concludes our prepared remarks.

If you have any questions about first quarter 2016 earnings, please contact Brainerd Communicators, our Investor and Media Relations adviser or Systemax directly. Contact information could be found on the earnings release issued earlier today. Thank you for your interest in Systemax..

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