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Good afternoon, and welcome to the Systemax First Quarter 2018 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to management. Please go ahead.
Thank you, and welcome to the Systemax First Quarter 2018 Earnings Call. Today's will call 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 should have any questions on the results, please contact The Plunkett Group or Systemax. Contact details can be found in the press release issued today and at 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 under risk factors 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, and its divested European operations as discontinued operations, as well as excluding certain recurring and nonrecurring adjustments for comparable GAAP measures, investors have an additional meaningful measurement of the company's performance.
Further, unless otherwise specified, when discussing revenue changes, management will be referring to constant currency average daily sales results.
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. 2008 (sic) [ 2018 ] is off to a great start for Systemax. Both of our ongoing businesses delivered outstanding financial performance in the first quarter, generating double-digit revenue increases, significant gains in operating income and strong cash flow generation. On a consolidated continuing operations basis, Systemax generated over $355 million in revenue in the first quarter, an increase of over 11% on a daily sales basis, and improved operational leverage with non-GAAP operating profit improving 56% to $20.8 million.
Starting with our North American Industrial Products Group. The first quarter of 2018 saw a continuation of our strong full year 2017 performance. Sales increased more than 11% over the first quarter of last year. Overall, demand remained solid across our diversified customer end markets, our broad product offerings, and our multiple sales channels.
We delivered operating leverage across the business, with improvement in product and gross margins compared to last year, primarily due to mix changes. Selling, distribution and administrative spend leverage improved, as our 2017 cost-reduction and productivity initiatives continued to benefit the business. And the business maintained a good spend discipline.
Overall, Industrial's operating income improved approximately 30% to over $16 million. The industrial team continues to focus on a number of projects that will enhance the customer experience and improve long-term profitability. This includes efforts to increase efficiencies and service levels within our distribution centers. In this regard, our first United States warehouse recently completed the initial design and training components of our engineered standards program and is about to launch in operations.
This is one of several significant projects which are expected to drive operational excellence throughout our distribution network and improve productivity.
We expect to roll out this engineered standards program to our largest distribution centers this year.
Within our sales operations, we continue to invest in team member training and productivity initiatives. In this regard, during the quarter, we commenced several professional development training initiatives for our sales leadership and representatives. We are also broadening product and technical expertise, which provide critical support to our sales representatives, and enhance our ability to close sales leads.
On the product front, we are augmenting our core categories with complementary products and remain focused on driving growth of emerging categories within our broad product offering.
And this July, we will host our 2018 customer and vendor expo in the New Jersey Meadowlands, just outside New York City. This event provides a significant opportunity to strengthen our customer relationships while showcasing our product and service offerings and extensive vendor relationships.
We have over 100 vendors set to exhibit, and expect an excellent customer turnout from around the country.
Overall, Industrial is delivering strong organic growth and improved profitability. It remains well positioned to drive operating efficiencies, enhance customer service levels, and deepen customer relationships. We continue to execute on our growth and productivity initiatives and are evaluating strategic acquisition opportunities.
Turning now to our French IT reseller business. Inmac WStore had another outstanding quarter with very strong profitability. Revenue grew more than 12%, as we benefited from solid performance across our diversified customer base of large corporate and SMB clients. We significantly expanded business with several of our largest corporate customers, supporting product rollouts across numerous locations.
Product and overall gross margins improved significantly, primarily due to both product and customer mix in the period.
Non-GAAP operating margin improved to 6.6%, a 130 basis point improvement from last year's first quarter, as the business was very disciplined in SD&A spend and delivered strong leverage across its operations.
Operating income grew over 56% to $9.4 million in U.S. dollars. France's exceptional performance highlights its very loyal and growing customer base and its ability to deepen existing account relationships.
In addition, it has an excellent customer service reputation, a growing market position as a one-stop shop for IT business needs and strong vendor relations that are helping it build new customer relationships and bring unique offers to the market.
In France, we continue to make investments that will enhance our competitive position and strengthen our IT solutions capabilities. This includes the addition of more advanced technical expertise and the broadening of our offering, which will allow us to maximize the value we provide customers and enhance their total lifetime value.
In summary, our Industrial and France businesses are performing well. They are among the leaders in their respective markets, delivering solid organic growth, and executing on a number of initiatives that we believe will drive and enhance their future performance. I want to recognize their entire leadership teams and associates for the great jobs they are doing managing our operations. Our businesses are generating increasing cash flows, and with a strong cash position, we have significant flexibility to invest in our growth opportunities and return capital to shareholders.
I will now turn the call over to Tex.
Thank you, Larry. I will now address our segment financial performance in more detail. Both the 2017 and 2018 first quarters had the same numbers of selling days in the U.S., while our operations in France and Canada, each had one fewer selling day in the first quarter of 2018 compared to the first quarter of 2017.
Turning to our results. First quarter consolidated revenue reflects double-digit top line growth in both industrial and France, while consolidated gross profit improved 18% year-over-year, with gross margin expansion in both segments. Consolidated SD&A improved to 120 basis points as a percentage of sales, driven by leverage gains in all key functional areas, including distribution and logistics, marketing and salaries.
Non-GAAP operating profit was $20.8 million, an increase of over 56%, and margin increased 150 basis points to 5.9% compared to last year's first quarter.
Starting with Industrial's financial performance. In the first quarter, revenue increased 11.6% over Q1 of last year, a modest improvement from the 10.6% year-over-year growth reported in the fourth quarter of 2017. The rate of growth expanded each period in the quarter, with March growing at the fastest rate in the period.
In our Canadian operations, we delivered almost 30% revenue growth, the fifth consecutive quarter of double-digit gains.
Gains in both the U.S. and Canada were broad-based across our customer segments, with core product lines continuing to perform very well.
Industrial's gross profit for the quarter increased to $72.5 million, from $63.4 million last year. Gross margin improved 90 basis points from the year-ago quarter, reflecting both a favorable sales mix between higher margin stock products versus dropped shipped items, partially offset by lower freight margins.
SD&A spending for the quarter was $55.8 million, a 30 basis point improvement as a percentage of sales from last year. The cost benefit was largely driven by leverage within our salary structure, partially offset by technology spend within the business.
Industrial's non-GAAP operating income for the quarter was $16.7 million, a 29.5% improvement, and operating margin improved to 7.9%, an improvement of 110 basis points from last year.
Over the past 4 quarters, we have delivered strong margin gains and continue to make investments to further improve our long-term profitability.
As we have previously noted, our 11.4% operating margin in the second quarter of 2017 was exceptional, and we don't expect a repeat of that performance in the second quarter of 2018. We continue to believe Industrial's 2018 margin variability will be much more normalized and we expect to see more moderate sequential variance, given the impact of customer, product, channel and marketing mix on individual period results.
Total depreciation and amortization expense in the quarter was approximately $1 million. We continue to anticipate 2018 CapEx within the industrial business to range between $4 million and $6 million.
Turning to France's financial performance. France delivered exceptional top and bottom line results. First quarter revenue increased 27.3% to $143 million on a U.S. dollar reported basis. On a local currency basis, average daily sales increased 12.1%. France continues to outperform the local market, and benefited from solid business across its SMB and corporate account base, with several large volume and strong margin corporate deals in the quarter. France gross profit for the quarter increased to $24.2 million, while its gross margin increased 50 basis points to 16.9%.
SD&A spending was $14.8 million, a 70 basis point decrease as a percentage of sales. Cost savings were primarily the result of an efficient repatriation of functions to our local French operations from the broader pan-European structure that was in place in last year's first quarter.
France's non-GAAP operating income for the quarter was $9.4 million, an increase of 56.7%, and margin was 6.6%, a 130 basis point increase.
France recorded approximately $0.1 million of depreciation and amortization in the period, while CapEx is anticipated to be less than $1 million in 2018.
Let me now turn to our balance sheet. We continue to have a very strong and liquid balance sheet with a current ratio of 1.7:1. As of March 31, we had approximately $141 million in cash, essentially no debt, and over $190 million of working capital. Further, we have approximately $71 million of excess availability under our $75 million credit agreement. I'd like to remind listeners that we paid out almost $60 million in dividends in the first quarter, as well as settled a large lease within our former North American Technology Product Group, resulting in a cash payment of $4.5 million.
While there was no P&L impact to the settlement payment in the period, it is a component of our free cash flow. Inclusive of this payment, we generated approximately $16 million of free cash flow in the first quarter.
The strength of our balance sheet allows us to continue to invest in our growth opportunities, explore strategic M&A, and return capital to shareholders. As a result, our Board of Directors has declared a quarterly cash dividend of $0.11 per share of common stock, to shareholders of record at the close of business on May 14, 2018, payable on May 21, 2018.
We anticipate continuing a regular quarterly dividend in the future.
This is concludes our prepared remarks. If you have any questions about first quarter 2018 earnings, please contact Mike Smargiassi at The Plunkett Group, our investor and media relations adviser, or Systemax directly. Contact information can be found in the earnings release issued earlier today. Thank you for your continued interest in Systemax.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.