Michael Smargiassi - IR Larry Reinhold - President and CEO Tex Clark - VP and CFO

Good afternoon, ladies and gentlemen, and welcome to the Systemax Inc.'s. first quarter 2017 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's first quarter 2017 earnings call. Today's call will include formal remarks from Larry Reinhold, President and Chief Executive Officer; and Tex Clark, Vice President and Chief Financial Officer. We will not be hosting a live Q&A session at the end of today's call. If you have any questions on first quarter results, please contact Brainerd Communicators or Systemax. Contact details can be found on the press release issued today and at www.systemax.com. Today's discussion may include certain forward-looking statements. This 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 in 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, our divested European operations and Afligo, our formal rebates processing business has discontinued operations, as well as excluding certain recurring and nonrecurring adjustments from comparable GAAP measures, investors have an additional meaningful measurement of the company's performance. This call will include a discussion of certain non-GAAP financial measures. The company has provided a reconciliation of these 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 the Form 8-K. 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. Good afternoon, everyone, and thank you for joining us today. More than a year ago, we commenced the strategy to exit our underperforming businesses and streamline our company. With the sale of our former North American Technology Group in late 2015, the sale of Germany in September 2016, the sale of Afligo in December 2016 and the sale of the remainder of our underperforming businesses in Europe in March 2017, we have substantially completed this initiative and successfully transformed Systemax. Each of these businesses generated significant losses for several years, and their disposition substantially improves our overall profitability. While certain wind down activities remain, we are now focused on our core operations. This was a significant and multistep process, that was completed in a very short period of time. And I want to thank our corporate team and the board for all their efforts, assistance and guidance. Today, Systemax is essentially a new company. We have shed the unprofitable businesses that hit the growth potential and value of our profitable North American Industrial Products Group and our France technology value-added reseller businesses. These two continuing businesses each delivered exceptional performance in the first quarter, generating double-digit revenue and significant operating income gains over the prior year. Both are highly successful and we're focused on their continued growth. We believe both businesses are positioned to deliver strong top and bottom line performance in 2017. And our first quarter results highlight their success and future potential. Industrial had a terrific first quarter on the top line and showed improved leverage, as we are starting to benefit from our efficiency initiatives. Revenue growth continues to outperform many competitors in the Industrial supplies, MRO market and reached a record $190 million for the first quarter, which represents an increase of 13% on…

Thank you, Larry. I will address our segment financial performance in more detail. As mentioned previously, our comments will primarily be directed to non-GAAP results. In addition, revenue results now include an average daily sales metric to enhance comparability between periods. First quarter consolidated revenue reflects double-digit top line growth in both Industrial and France on a constant currency average daily sales basis. Consolidated gross margins declined slightly year-over-year, driven by a temporary increase in logistics costs in our Industrial segment as well as a reduction in gross margin in France, primarily attributable to product and customer mix. Consolidated SG&A decreased on a percent of sales basis. And non-GAAP operating profit and margin increased to $13.3 million and 4.4%, respectively. Starting with Industrial's financial performance, Industrial's first quarter revenue increased 11.5% on a reported basis and was up 13% on a constant currency average daily sales basis. The 2017 first quarter had one fewer selling day versus 2016 first quarter, which resulted in the difference between reported and average daily sales. This was our strongest quarter of organic growth on an average daily sales basis in more than two years and we showed top line momentum as we move through the period with 14% growth in March. Further, we were able to return our Canadian operations to growth, as we delivered 22% local currency growth as we improved our logistics performance and delivered an enhanced value proposition to our customers. Industrial's gross profit for the quarter increased to $53.4 million from $48.7 million last year. Reported gross margin was off 40 basis points, reflecting increased warehouse staffing cost, due to incremental temporary labor to ensure customer service levels during our systems transition. This temporary cost increase was partially offset by a 20 basis point increase in our net selling margin…

That concludes today's conference. You may now disconnect your lines.