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Systemax(GIC) - 2019 Q1 - Quarterly Report

Part I: Financial Information Financial Statements The unaudited condensed consolidated financial statements detail the company's financial position and performance for Q1 2019 Condensed Consolidated Balance Sheet (Unaudited, In millions) | | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total current assets | $274.4 | $497.4 | | Total assets | $358.2 | $530.0 | | Total current liabilities | $159.8 | $379.6 | | Total liabilities | $214.2 | $392.3 | | Total shareholders' equity | $144.0 | $137.7 | | Total liabilities and shareholders' equity | $358.2 | $530.0 | Condensed Consolidated Statements of Operations (Unaudited, In millions) | | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net sales | $232.2 | $212.2 | | Gross profit | $80.3 | $72.5 | | Operating income from continuing operations | $13.2 | $11.1 | | Net income from continuing operations | $10.0 | $8.7 | | Net income | $9.7 | $14.6 | | Diluted EPS from continuing operations | $0.26 | $0.23 | Condensed Consolidated Statements of Cash Flows (Unaudited, In millions) | | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $24.1 | $16.4 | | Net cash used in investing activities | $(1.0) | $(0.5) | | Net cash used in financing activities | $(248.4) | $(59.9) | | Net decrease in cash | $(225.4) | $(43.5) | | Cash – end of period | $70.0 | $141.0 | Note 1: Basis of Presentation The company operates as a single reportable segment, the Industrial Products Group, following recent divestitures - After the sale of its France-based IT business in August 2018, Systemax operates as a single reportable business segment, the Industrial Products Group (IPG)17 - The results of the sold France IT business, SARL Businesses, and North American Technology Group (NATG) are classified as discontinued operations181920 Note 2: Leases The adoption of a new lease standard resulted in the recognition of significant right-of-use assets and lease liabilities - Adopted new lease standard ASU 2016-02 on January 1, 2019, recording ROU assets of ~$54 million and lease liabilities of ~$64 million2931 Lease Details as of Q1 2019 | Metric | Value | | :--- | :--- | | Operating lease cost (Q1 2019) | $2.7 million | | Weighted Average Remaining Lease Term | 8.1 years | | Weighted Average Discount Rate | 5.6% | Note 3: Revenue Revenue is primarily generated from product sales within the Industrial Products Group, with the US as the dominant market Revenue by Geography (in millions) | Geography | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | United States | $220.8 | $202.0 | | Canada | $11.4 | $10.2 | | Consolidated | $232.2 | $212.2 | Note 4: Discontinued Operations Discontinued operations resulted in a net loss of $0.3 million in Q1 2019, compared to a net income of $5.9 million in Q1 2018 Net Income (Loss) from Discontinued Operations (in millions) | | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net sales | $0.0 | $143.0 | | Operating (loss) income | $(0.5) | $9.3 | | Net income (loss) | $(0.3) | $5.9 | Note 6: Credit Facilities The company maintains a $75 million credit facility with no outstanding borrowings and full covenant compliance - Maintains a $75 million secured revolving credit facility48 - As of March 31, 2019, there were no outstanding borrowings, and excess availability was $72.1 million48 Note 10: Subsequent Event Post-quarter, the company entered a new lease for a distribution facility with a total obligation of $20.0 million - On April 18, 2019, the company entered into a lease for a new distribution facility in Texas with a total lease obligation of approximately $20.0 million over 125 months60 Management's Discussion and Analysis of Financial Condition and Results of Operations Management highlights strong Q1 2019 performance, including a 9.4% sales increase and 18.9% operating income growth Q1 2019 Performance Highlights vs. Q1 2018 | Metric | Q1 2019 | Q1 2018 | % Change | | :--- | :--- | :--- | :--- | | Consolidated net sales | $232.2M | $212.2M | 9.4% | | Consolidated gross profit | $80.3M | $72.5M | 10.8% | | Consolidated operating income | $13.2M | $11.1M | 18.9% | | Net income from continuing ops | $10.0M | $8.7M | 14.9% | | Diluted EPS from continuing ops | $0.26 | $0.23 | 13.0% | - The company presents non-GAAP operating income, adjusting for certain items, to provide more meaningful investor information72 Results of Operations Net sales grew 9.4% in Q1 2019, driven by strong demand and improved gross margin, leading to operating margin expansion - Net sales growth was broad-based, with U.S. revenue up 9.3% and Canada sales up 17.5% on a constant currency basis92 - Gross margin increased by 40 basis points, reflecting improved shipping performance and positive product margin contribution94 - SD&A as a percentage of sales was stable at 28.9%, with increased salary costs offset by disciplined spending95 Financial Condition, Liquidity and Capital Resources The cash position decreased significantly due to a special dividend, though operating cash flow and liquidity remain strong - Cash used in financing activities was $248.4 million, driven by a $243.5 million special dividend and a regular quarterly dividend108 - Net cash provided by continuing operations was $23.8 million, a significant increase from the prior year due to working capital changes106 - Anticipated capital expenditures for 2019 are in the range of $6.0 to $8.0 million113 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks from currency fluctuations and interest rates are considered limited - The company is exposed to currency exchange rate risk, principally from its Canadian operations117 - Interest rate risk is minimal as there were no outstanding balances under the variable-rate credit facility119 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of the quarter-end - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective as of March 31, 2019121 - No material changes in internal controls over financial reporting occurred during the quarter124 Part II: Other Information Legal Proceedings The company is involved in routine legal matters, none of which are expected to have a material adverse effect - The company is subject to various ordinary course lawsuits and investigations, including an audit regarding "unclaimed property" liabilities126 - A lawsuit related to the former NATG business is ongoing; the company intends to defend itself vigorously126 - Management does not expect the outcome of any current legal matters to have a material adverse effect on the company's financial position127 Exhibits This section lists filed exhibits, including Sarbanes-Oxley certifications and XBRL interactive data files - The filing includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act129 - Interactive Data Files (XBRL documents) are included as exhibits129 Signatures The report is formally signed and authorized by the CEO and CFO on May 7, 2019