Good morning, ladies and gentlemen, and welcome to the Lawson Products Second Quarter 2020 Earnings Call. This call will be hosted by Michael DeCata, Lawson Products' President and Chief Executive Officer, and Ron Knutson, Lawson Products' Chief Financial Officer. During this call, they will be providing an update on the business, as well as covering relevant financial and operational information. Then there will be time for questions and answers. Please note that statements on this call and in the press release contain forward-looking statements concerning goals, beliefs, expectations, strategies, plans, future operating results and underlying assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those described. In addition, statements made during this call are based on the company's views as of today. The company anticipates that future developments may cause those views to change. Please consider the information presented in that light. The company may at some point elect to update the forward-looking statements made today, but specifically disclaims any obligation to do so. This call is being audio simulcast on the Internet via Lawson Products Investor Relations page on the company's website, lawsonproducts.com. A replay of the webcast will be available on the website through August 31, 2020. 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 and our actions that we've taken to drive sales and earnings in this challenging economic environment, followed by our plans going forward. Ron Knutson, our CFO, will provide a more detailed review of our second quarter financial results, followed by your questions. The COVID-19 pandemic had an unprecedented adverse effect on the U.S. economy starting in March. However, Lawson is weathering this storm, and we believe will come through this a stronger company in the future. While our second quarter revenues reflected a drop-off early in the quarter, in most of our customer categories, we realized a nice recovery in May, and have seen continued sequential improvement in the following months. Our strategy during this quarter was to ensure a safe working environment for our employees, support our customer and supplier relationships, all while protecting the financial position of the company and long-term interests of our shareholders. I'd be remiss if I didn’t acknowledge the hard work and sacrifice our team members made through this challenging quarter. In that respect, this quarter was a great example of how the most important asset of the organization, our employees, stepped up and allowed us to continue to serve our customers, all while maintaining the financial strength of the organization. We have all learned a great deal during this environment. Rapidly modifying our sales by employing multiple channels to market; protecting a portion of our sales rep compensation; managing our supply chain by working to develop new PPE sources; and re-engineering administrative processes will provide future benefits to our organization. We believe these actions, their near-term results and long-term implications, will help position Lawson to re-establish solid growth into the future. In the current environment, sequential trends provide insight into our current performance and trajectory. As we mentioned on our first quarter call, April was certainly challenging. However, we achieved a significant step-up in business between April and May, and another more modest improvement between May and June. We have also achieved mid-single-digit increase in July versus June. Ron will comment on our results in more detail. But I am pleased with the response and overall performance, especially considering how rapidly the situation evolved and how quickly our team responded. Overall, we achieved 8.7% adjusted EBITDA as a percent of sales for the quarter. Gross margin for the Lawson core business came in at 59.7%, within our normal range of 59% to 61%, and reflected the impact of deleveraging of our fixed distribution center costs over lower sales; and to a lesser extent, higher freight costs and a shift in sales mix to lower-margin product categories. Across the board, we're seeing signs of business resuming to more normalized levels. However, it is important to recognize the risk that continues in this shorter term, given the pandemic. Over the intermediate to longer term, our value proposition is becoming more critical to our customers' success. I will now discuss some of our functional areas in more detail. First, the sales team is now visiting the majority of our customer locations, as they did in the past. The number of order lines and ship-to locations have been increasing on a sequential basis starting in May. For example, our lines shipped increased from 17,000 lines per day to the U.S. distribution centers in April to 23,000 lines per day in May, and continue to increase in July. Our services and the frequency of our visits are more critical than ever, as customers manage through the pandemic. Social distancing within our customer base has heightened the need to ensure that their maintenance teams are as productive as possible. Given the frequency of our visits, we enable customers to become highly efficient, maximizing machine up-time and increasing their productivity. We have also been able to remotely manage many of our back office functions. Our DSOs are back to pre-pandemic levels and bad debt levels increased minimally versus the first quarter of 2020 and 2019. Our accounts receivable team has done a great job and this is just one example of many of the teams across the organization that have managed their processes well. From an end market perspective, our government segment is seeing faster signs of recovery. Our military customers were up 15% for the quarter versus the first quarter, but down versus last year due to budget cuts and motor pools at large bases running at reduced capacity due to the pandemic. The state, local and education markets are showing strong indications of recovery, especially in June, and were up 13% in June over a year ago. In April, we were awarded an MRO agreement with a region four area of OMNIA, a cooperative purchasing organization for state and local government, K-12 education, colleges and universities. OMNIA uses cooperative contracts to reduce the cost of goods and services by aggregating the purchasing power of public agencies nationwide, and obtains publicly-awarded contracts for their members with best-in-class national suppliers. It is one of the largest public sector group purchasing organizations in the country. A number of our strategic accounts struggled during the quarter, as the impact from the pandemic was exacerbated by the general slowdown in the oil and gas segment. However, one of our large pipeline customers has informed us that they are ramping up several large locations, and we anticipate good growth from that customer during the second half of the year. Importantly, our strategic account customers are experiencing the same rebound that we're seeing across the company. Our Kent Automotive market segment experienced the steepest decline, as well as the steepest recovery, during the quarter. These customers are more connected to retail activities, and as that has recovered, they are seeing business pick up with an increased traffic on higher driven miles reported. Historically, safety represented about 5% of our business. We did see that rise to 10% during a portion of the quarter, as we worked to supply customer requests. This is a lower-margin business for us at this point, and the demand is back to more normalized levels. Overall, products that we classify as PPE continue to have strong month-over-month increases. For the quarter, Bolt Supply sales were down about 25%, primarily in April. They have realized sequential improvement in May and June. In fact, July sales were essentially flat versus a year ago. Western Canada was not as sharply impacted as the U.S. was. However, they were required to manage their branch locations to comply with government-imposed safety measures. Our operations team in the distribution center is doing an extraordinary job under very difficult circumstances. Social distancing, face coverings and extensive cleaning have impacted productivity. However, the team has risen to the challenge to support our sales reps and customers. U.S. and Canadian DC line counts have sequentially increased along with sales, and continue to track on a positive trajectory. You may recall that as part of our cost control measures, we temporarily consolidated our Suwanee, Georgia, operations into our McCook, Illinois, distribution center. I'm pleased to say that given the recovery in line volume, we will gradually be bringing Suwanee back online to fill customer orders within the next couple of weeks. Our three-part growth strategy has certainly been impacted, but remains unchanged. After eliminating some less productive sales rep positions in April, our current sales rep count stands at 940 sales reps. We continue to add sales reps in underserved territory, even in this environment. Sales rep productivity remains a key focus area through the pandemic. Given the restrictions on sales reps' ability to physically meet with our customers, early in the quarter, we took actions to continue to support our sales reps and customers through phone, email and our website. As the quarter developed, we also had the ability to get back into customers' locations to provide more traditional VMI services. From an M&A perspective, we're making good progress on several fronts. We continue to have productive discussions with potential candidates, and are focused on maintaining a strong capital structure through the pandemic that will allow us to move quickly when we identify opportunities that fit our criteria. Let me now wrap up my prepared comments on an overall market and larger trends that we're seeing. Currently, we're seeing growth across all market segments. Line count is trending positively month-on-month, as we discussed regarding piece count. Customers are purchasing many of the same SKUs as they were previously. However, since the machine time utilization is down, the occurrence of repair is less frequent. We continue to open new accounts and we are optimistic that over time, these will become long-term customers. Overall, we're very pleased with the results for the quarter and the progress that we've made under very difficult circumstances. Our team has demonstrated a commitment and tenacity that we couldn’t have imagined six months ago. While the second quarter was certainly challenging, we are confident that we will exit this pandemic as strong, or stronger, than we entered. Now, we'll turn it over to Ron for more details.

Thank you, Mike, and good morning, everyone. I will first provide some key takeaways from the quarter and the trends of the business from April through July, along with an update on the actions that we have taken. I'll then discuss our second quarter results on both a reported and adjusted basis. A few highlights of the quarter. First, sales improved sequentially month-to-month throughout the quarter, both in the MRO business and the Bolt Supply business. On a consolidated basis, average daily sales were $961,000 in April, $1.178 million in May and $1.247 million in June. After the initial step-back in April, sequentially, we realized a 23% increase in May and then an additional 6% increase in June. Second, the cost controls that we discussed on the first quarter call, and put in place in mid-April, continued for the quarter. We have taken a balanced approach on costs, while continuing to invest in the business, in particular, in areas to drive sales. Overall, our operating expenses decreased by $11.7 million for the second quarter. And third, we have proactively managed our working capital and liquidity position to ensure we maintain and exit the pandemic environment with a strong balance sheet. We ended the quarter with $10.8 million of cash and cash equivalents and an additional $97.3 million of availability under our committed credit facility. We were deemed an essential business early in the quarter, which allowed us to continue to service our customers. We quickly adapted our company to a remote work environment. Our distribution centers continue to fulfill customer orders all while adjusting our cost structure to a lower sales level, as demand fell quickly in late March and into early April. As we reflect back on the quarter, there were numerous challenges that impacted the overall business economy and most distributors. We were not immune to that situation and acted quickly in a coordinated manner to operate our business differently. Some examples of this include training our sales reps on remote selling; procuring more safety products which historically, had been about 5% of our sales; adapting to a remote work environment for our corporate employees; and operating our distribution centers in an environment that ensures safety, while continuing day in and day out to receive and get product out the door to our customers. Our team members have been incredible during this situation. From our sales representatives, our field management teams to our corporate employees and our distribution center teams, all have committed themselves to ensuring Lawson remained strong in this environment and to supporting our end customers. As business started to re-open mid-quarter, we were able to support our customers in their efforts. And while many are not yet back to full production, we are able to now be onsite with a majority of our customers. During the quarter, we saw sequential increases in the number of orders and the unique ship-to locations as the economy started to re-open. For the quarter, average daily sales declined by 24.9% compared to a year ago. From a monthly sequential perspective, April was down 29% from March. However, May was up 22.6% over April, and June was up 5.9% over May. So far, July sales are up mid-single-digits over June's level. As Mike mentioned, we remain focused on supporting our customers and generating revenue in this challenging environment, while ensuring the safety of our teams. We continue to perform onsite visits to many of our customers' locations, while providing additional support through phone outreach, internal customer service representatives, email communication, and our website. As businesses began to re-open, our commitment to servicing our customers has been well received. And we believe this will provide additional loyalty in the long term. Consolidated gross margins for the quarter came in largely at expected levels, with our reported gross margin at 53.1%, flat with the same quarter a year ago. On a standalone basis before service costs reclassifications, the MRO margin was 59.7% for the quarter versus 60.5% a year ago, with the decline primarily being driven by the deleveraging effect of our fixed distribution center cost over a smaller sales base, higher net freight expense and a shift in sales mix toward lower-margin products for a period of the quarter. For the quarter, total operating expenses were $37.7 million, compared to $49.4 million a year ago. The decrease was primarily driven by lower sales and the specific actions taken in early April to adjust our cost structure. During the quarter, we recorded stock-based compensation expense of $3.2 million, with the benefit primarily associated with an increased stock price during the quarter. This compares to expense of $4.8 million in the second quarter of 2019. Excluding stock-based compensation and severance, adjusted operating expenses decreased $9.6 million or 22%. Our reported operating income was $569,000 for the second quarter inclusive of aggregate severance and stock-based compensation expense of $4.2 million. On an adjusted basis, non-GAAP operating income was $4.8 million compared to adjusted operating income of $7.9 million in the year-ago quarter. This results in an adjusted EBITDA, as a percent of sales, of 8.7% for the quarter compared to 9.8% a year-ago quarter, as we balanced our costs on a lower sales level. On an adjusted basis, excluding stock-based compensation and severance, diluted EPS was $0.37 for the quarter versus $0.62 a year-ago quarter. Capital expenditures for the quarter were approximately $169,000, as we eliminated non-critical CapEx to control our overall capital spend. As we manage our liquidity for the remainder of 2020, we expect our total CapEx to be in the range of $1.5 million to $2 million versus the previously guided range of $3 million to $4 million. As an organization, we continue to make investments in the business, in particular, in areas that have a direct positive impact on sales. For example, we have brought back some individuals that were previously furloughed, to drive sales in specific segments or regions. We will take a prudent, cautious and conservative approach on restoring some of the actions, given the continued uncertainty in the business environment. We are also proactively managing our balance sheet and liquidity. We have reached out to our vendor and supplier community for extended payment terms, eliminated non-critical capital and continued to monitor our customer credit to manage customer past-due balances. We ended the quarter with $10.8 million of cash and cash equivalents and an additional $97.3 million of availability under our $100 million committed credit facility. During the quarter, we generated $14.7 million of positive cash flows from operations, primarily as a result of lower working capital needs and extended payment terms for various tax liabilities under the CARES Act. As Mike and I have both commented, as we manage through these interim periods, we look to coming out of this environment as strong as we went into it. Before I turn it over for questions, let me echo Mike's comments about the strength and commitment of our team members over the past few months. We have placed additional workload and financial pressure on our teammates, and they have all stepped up, and have remained committed to the long-term success of the organization. Thank you to the entire Lawson, Kent and Bolt Supply teams.

We will now begin the question-and-answer session. Thank you. Our first question comes from Kevin Steinke with Barrington Research. Please proceed with your question.

Hi, good morning, Mike and Ron.

Good morning, Kevin.

Good morning, Kevin.

So you talked about with the rebounding trend in sales, gradually bringing some of the costs back. I think last quarter, you talked about $4 million to $4.5 million monthly cost reduction with about two-thirds of those reductions occurring naturally with the change in sales. Of the specific cost actions you took in terms of salary reductions, furloughs, et cetera, how much of that has come back? And I know you talked about bringing some furloughed employees back, but how much of that has come back? And what's your approach to bringing the rest of those costs back over time?

Yes, Kevin, this is Mike. I'll start and then Ron can jump in with some more data. The way we're bringing Suwanee, as an example, or furloughed employees back is as transaction volume – and when I say transaction volume, it could be AP, AR, of course, distribution center line volume. As those volumes come back and the workload increases, we're incrementally bringing one person back at a time. And that's the way we intend to do it on a go-forward basis. Again, to Ron's point, and to mine as well here, the team has just done an truly extraordinary job of working longer hours under difficult circumstances; in many cases, working from home to conduct their work. And at some point – and we are getting to that point – we are incrementally bringing people back because the workload continues to increase. And again, our team has done just such an extraordinary job that at some point, you just can't keep up with the transaction volume, considering the actions we've taken. So that's how we're rolling people back. Ron, did you want to add?

Yes, I'd like – and Kevin, I'd just add to that, as you saw for the quarter, our overall operating expenses decreased by about $12 million. So we were able to achieve the savings throughout the quarter. And to Mike's point, some of those costs are coming back into the organization, but it's really a balanced approach on how the economy is recovering, as well as what we see from a business recovery on our customer side as well.

Okay, understood. And I think, Mike, in your prepared comments, you mentioned one of the steps you're taking here to come out of the downturn stronger, or just as strong, is that you protected a portion of sales force compensation. Maybe just talk a little bit more about that strategy and your thoughts on retaining the team, and what – how you think that'll benefit you coming out of this.

Well, under these circumstances, we've learned a lot from the environment, from the challenge that everybody has faced across the globe, really. Things like our – the fact that for the last several years, we've been talking about embracing technology. One of those technologies, Microsoft Teams, enables the knowledge of 1,000 sales reps to be resident real-time with every sales rep every day. That's an example where people have embraced that even more. Distance learning is another example, which over the long term, will cut travel costs. Us working from home has opened doors to a different level of productivity. So what we're looking at internally is we feel like we were on a great trajectory prior to this. Our challenge today is how we come out not on that trajectory, but an even steeper positive trajectory because of our commitment to lean Six Sigma, our commitment to technology, how our team has evolved over the past several years to embrace change and new technologies. All of these things will have a structural impact on our future, which should deliver better results than the trajectory we were on before. So across the board, under adversity, you learn to adapt. But some good has come out of this, and some good in the way of innovation and examining how we do things is coming out of it, which will have long-term positive effects for our earnings, for our productivity, for our labor productivity, and for our customers especially.

Okay. Got it. I know you have a lot of data that you kind of get on a daily basis if you want insight into the business. Are you able to dig into specific geographies, specific branches, and see how they're trending relative to others? I ask that just in relation to we've seen a flare-up in COVID cases in certain regions of the country. And maybe are you able to dig into how turbulent relative to others, just maybe if some have taken a step back because of that, or any other trends you might highlight on a geographic basis?

Yes, Kevin, to your point, yes, we do look at data. If anything has happened to our culture over the last handful of years, it is that we've become very analytical and very process-oriented and dig into the data. Yes, we do look at geographic data; every week, we get geographic updates for all the territories and all the states. So we are able to look at as things are trending up or slowing down. We are seeing an across-the-board increase. It's possible that that increase will vary by state. And again, we are looking at the state level and of course, at the sales rep level, we provide even more data than we used to, to sales reps and district sales managers, so that they can manage both new accounts, which we are aggressively working to win, as well as supporting our customers on the same frequency that we were before. So the short answer is here again, technology and a pragmatic use of technology has been incredibly effective in driving sales rep productivity, winning new customers and just overall, enabling us to get back on that trajectory as soon as possible. And again, I keep saying on an even steeper trajectory is our goal.

Okay, great. And then you said you're starting to add sales reps again selectively in underserved markets. I just wondered in this environment if you're seeing the opportunity to maybe add some more seasoned sales reps due to kind of a competitive dislocation? Or are you still hiring newer inexperienced reps and trying to ramp this up – ramp them up in this environment? What's kind of the approach on adding reps now?

Yes, we've seen a real availability of people, high-caliber, capable people. Still, adding a new sales rep to a new territory is a long-term investment. So in this environment, we're being a little bit prudent about the number of greenfield sales reps we're bringing on. But there are also territories, military bases, for example, or strategic account managers that we've brought back, where they can jump in very, very quickly and produce very good short-term results. So for us at this moment, it's a little bit of a balance between the long-term investment of bringing on greenfield reps, or dividing up territories as district managers see appropriate, and bringing back capable, seasoned people where they can jump in right away. However, fundamentally, our strategy, our three-part growth strategy, has not changed. We will continue to add, incrementally add, sales reps, for the foreseeable future, we'll continue to drive through technology, through all manner of analytics and leadership and training sales rep productivity. And we are absolutely focused on growth through acquisition and M&A. All three activities are unchanged in this environment.

Okay. And following up on that last point there, that leads me to my next question. You mentioned that you're making good progress on the M&A front; you're having a number of discussions. I was just wondering if, in this environment, the likelihood of closing acquisitions increases or decreases? Are targets maybe a little apprehensive about selling when their numbers are down? Or in contrast, are you seeing more businesses maybe willing to engage in discussions because of this environment?

I guess the answer would be a little of all of that. We continue to see a very robust pipeline, including new discussions that are new, within the last quarter or six months, that continue on track. We also – there have been a couple that have said, hey, look, I want to take a little pause because of the environment. And we continue to nurture the long-term discussions that we've had. And in many cases, we've had discussions with owners of companies and often, family-owned companies, for several years. And those discussions stay alive and well, and are even more frequent than they had been in the past. So it's a little bit of all of that. But underneath it all, we are deeply committed and very confident in our process and our strategy; and also the discipline though around how we use our capital and the prices we pay and the multiples that we pay for all this stuff. So all in all, we feel great about where we are and where we're going on that dimension as well as the other two.

Okay. That's helpful. That's all I had. And I thought the execution was very good in this difficult environment. So congratulations on that. That's all I had, thanks.

Thank you, Kevin.

Thanks Kevin.

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