Essendant's (ESND) CEO Robert Aiken on Q1 2016 Results - Earnings Call Transcript

| About: Essendant (ESND)

Essendant Inc. (NASDAQ:ESND)

Q1 2016 Earnings Conference Call

April 21, 2016 08:30 A.M. ET

Executives

Kaveh Bakhtiari – Director, IR

Robert B. Aiken Jr. - President and CEO

Earl Shanks - SVP and CFO

Analysts

Bradley Thomas - KeyBanc Capital Markets

Oliver Wintermantel - Evercore ISI

Unidentified Analyst - Jefferies, LLC

David Stratton - Great Lakes Review

Operator

Good morning, ladies and gentlemen, and welcome to the Essendant's First Quarter 2016 Earnings Conference Call. My name is Zelda, and I'll be your conference coordinator for today. I would now like to turn the conference over to Essendant's Director of Investor Relations, Mr. Kaveh Bakhtiari. Please go ahead.

Kaveh Bakhtiari

Thank you and good morning everyone. With me are Bob Aiken, Essendant's President and Chief Executive Officer and Earl Shanks, Senior Vice President and Chief Financial Officer. Yesterday after market closed we issued our earnings release, and presentation. Both are available on our website at investors.essendant.com. Following the remarks made by Management, we will open the call for Q&A. This conference is being recorded and webcast live on our website, and a replay will be made available after the call.

Before I turn the call over to Bob, let me remind you that today's call may contain forward-looking statements, and the cautionary language regarding forward-looking statements in our SEC filings applies to the remarks we make today. All forward-looking statements are based upon information currently available to the Company, and a number of factors could cause actual results to differ materially from our current expectations. These documents are available on our website, as are reconciliations to any non-GAAP measures discussed on today's call. With that, I will turn it over to Bob.

Robert B. Aiken Jr.

Thank you Kaveh, and good morning everyone. Thanks for joining us today. I’d like to begin with an overview of our results followed by a discussion of our goals in the second quarter and for the balance of the year. I’ve had the benefit of spending a lot of time speaking with our customers over the past couple of months. Our move to a common platform and the expansion of our digital capabilities are resonating well in the marketplace, enabling us to generate positive sales momentum as reflected in our results. I will talk about the work that lies ahead to build on this momentum but we are pleased with our progress.

Turning to the details for the quarter, let's begin with the overview on slide 3 of our earnings presentation. Our results in Q1 were in line with our expectations particularly on the top line as we increased organic sales 2% on a year-over-year basis. We had the benefit of an extra work day in 2016, and after adjusting for this item organic sales were 0.4% higher. I am proud of our team for working to deliver the additional $20 million in revenue this quarter, particularly as our industrial and energy business continued to face headwinds.

Adjusted EPS of $0.45 was lower by $0.01 versus prior year. As Earl will discuss in a few minutes we achieved this outcome despite the negative impact of much lower inflation this year, and added operating expenses we incurred as part of our common platform conversion. We are on track to deliver on our 2016 guidance. A key part of our guidance is tied to the positive sales momentum we have begun to generate. The new customers we spoke about last quarter played a significant role in reversing the organic sales declines we saw in the later part of 2015. And we are still in the process of fully ramping up sales to some of them. We expect to achieve the full benefit of these wins by May. To give you a sense of the impact, the run rate revenue associated with these new accounts is in excess of a $100 million a year.

Turning to slide 4, in our accomplishments in the quarter we achieved a significant milestone by completing the common platform facility conversions for our core office product in JanSan categories. Across the country we now have 45 distribution centers supplying our core office products in JanSan assortment which account for about 80% of our total sales. Our additional 29 distribution centers support our industrial and automotive businesses, representing the other 20% of our total sales.

The common platform is an important point of differentiation for Essendant and that allows us to sell multiple categories; office products, breakroom, food service, JanSan, and furniture with one order, one shipment, and one invoice. It expands our next day fulfillment capability and broadens our product offering to customers many of whom have prioritized category expansion and fast delivery as the way to grow their sales in the marketplace. In fact it is already having the desired impact because it was a key motivator for several of the new account wins I spoke about just a few moments ago.

Last quarter we focused on the actions we were taking to improve the experience of resellers who are impacted by the initial cut over to the common platform which affected JanSan distributors in particular. I am pleased to say that those actions have driven a notable improvement in our operations and that our JanSan category sales swung back to positive growth in the quarter. While the conversion did drive some added operating expense in the quarter, we made solid progress resolving the customer disruption.

As I mentioned at the start of the call I have spent a lot of time meeting with customers this year. Most recently at the Center for Reseller Excellence Meeting, we hosted in Chicago two weeks ago. This event included more than a hundred of our largest independent dealers. The feedback from these customers has been very positive reflecting a high level of interest in the common platform and in our growing digital capabilities. It was a gratifying moment to be able to demonstrate some of the digital advantages we had promised the last time we brought this group together. Not only does it reflect our customer commitment, I think it also reflects the ability of our team to execute against that commitment.

Our progress in winning new customers based on the value proposition we have created through these investments is also a sign to mean that as a company we are out on the right strategic path. Our value proposition is winning in the marketplace and I believe we are positioned to grow over the long-term because we are aligned with those resellers who are gaining share.

The customers at our conference also shared thoughts in areas of further improvements for our company. In particular they are looking for our help and leadership in driving growth and expanding reseller access to the end customers served by our vertical markets group. The vertical markets group has been able to grow sales at a double-digit pace since its inception a few years ago. And has done so by targeting enterprise accounts such as state and local governments, healthcare networks, and colleges and universities just to name a few.

Resellers are looking for expanded access to these end users and there remains significant untapped opportunity. We will be seeking to address this potential as we prepare to serve an even greater number of enterprise accounts through the acquisition of the Staples wholesale business. It remains to be seen if we will have an opportunity to close that deal but we are excited by that prospect as are a number of our customers who want to grow in the enterprise account segment.

Turning to slide 5, you will see a list of milestones that I expect us to achieve over the next two years. Some of them may shift slightly in timing subject to the Staples deal closing but regardless of timing I believe we will need to move quickly on this list to add the most value to our company. Our priorities are as follows; one, we plan to generate profitable growth by aligning with the customers who are taking share in each channel we serve. Two, having demonstrated the positive impact in our core office products JanSan and Breakroom businesses, we will continue our efforts to move our businesses onto a common operating, IT, and digital platform.

Three, we will simplify our business and continue to control cost across our organization. Four, we will pursue merchandizing excellence to optimize our assortment and create additional value for our customers. And five, we will stabilize the ORS industrial business by diversifying into customer segments outside the oil field and energy sectors. I am encouraged by the fact that the team has already made significant progress in a number of these areas particularly our numbers 1, 2, and 3. We will have more to share on our plans regarding merchandizing excellence and our industrial business later this year.

With that backdrop on the year and beyond let me turn my attention to our goals for the current quarter as reflected on slide 6. I think it is important to outline both our near and long-term objectives for associates and for our investors. Our first goal this quarter is to continue the positive revenue trend that we established in the first quarter. We are well positioned to do so by capturing additional share in the market that places a higher value on our capabilities and offering which in turn creates more value for our customers.

We have opportunities to drive sales growth by fully integrating the new customer accounts we announced this year and by recapturing loss sales from the common platform transition that affected some resellers recently. We also have growth opportunities in industrial which showed some signs of stabilization at the end of the first quarter. Of course our e-tail business continues to offer significant growth potential as it continued on its low double-digit growth rate last quarter.

Our second goal is to complete the common platform transition and normalize our operations. As I said earlier we have moved back to positive growth in the JanSan category and expect those trends to continue as we normalize operations and further leverage the category across sell opportunities. Our third goal is to effectively manage working capital and the inventory. While we will necessarily need to increase inventory buys to support sales growth, our team is focused on improving inventory returns and generating free cash flow.

Our fourth goal for the quarter is to continue preparing to transition the Staples wholesale business we agreed to acquire in February. While this transaction will only go through if Staples and Office Depot merger is allowed to proceed, we have diligently been working on a plan to transition that business to Essendant so we are ready if and when the deal is permitted to proceed. And finally, we are focused on expanding the target customer group in our ORS industrial business. Moving forward we will take steps to diversify our exposure to energy customers and focus on the broader industrial landscape including from distributor serving construction, HVAC, and government segments.

E-tail growth will also be a key initiative for our industrial business in the months ahead. The team successfully executed on a number of our top priorities in Q1 and exited the quarter with solid momentum. This gives me confidence that we will deliver on our 2016 guidance of low to mid single-digit revenue growth and high single-digit adjusted EPS growth versus the prior year. Our 2016 sales outlook remains positive and we will work to continue to deliver annual free cash flow in excess of net income just as we did in 2015.

Share repurchases and dividends will remain as key parts of our capital allocation strategy. At this time I am going to turn the call over to Earl to provide more details on our financials. Earl, over to you.

Earl Shanks

Thank you, Bob and good morning. My comments this morning will include a discussion of first quarter results, details on our category and overall revenue performance, and our outlook for the year. Beginning with the overview on slide 7, yesterday we reported first quarter adjusted EPS of $0.45, a decline of $0.01 year-over-year. As Bob noted in his remarks, our performance was in line with our expectation. We were especially pleased with our sales performance as net sales grew 1.5% versus the prior year.

I will have more to say on our revenue growth shortly but it was driven in large part by increased sales in our core categories office products and JanSan which is consistent with our strategy to grow from our core. Acquisitions and divestitures were in that negative with respect to our revenue comparison as the sales attributed to the Mexico business we sold last year more than offset the additional revenue from Nestor, the bolt on automotive acquisition we closed in July.

Adjusted EBITDA declined by $600,000 to $46.1 million. You may recall last year we took important steps to achieve reductions in our cost structure and we saw the benefit of those cost savings in our numbers. In this quarter however these savings were offset by a higher incremental cost related to the common platform project and the impact of lower inflation on our gross margin which had together an estimated $6 million impact. Over the next couple of quarters we expect to eliminate the additional labor related to the common platform conversion as we optimize the workflows.

Turning to slide 8 of our earnings presentation first quarter net sales increased 1.5% to $1.35 billion while organic sales grew 2%. As I mentioned the revenue improvement was driven by our core categories. Office product sales increased by $29 million, while JanSan sales increased by $4 million on an organic basis. We believe we have an incremental opportunity to further improve core category sales by getting JanSan back on track from the kind of platform related disruptions that Bob spoke about earlier.

JanSan sales grew 1% year-over-year and swung from negative to positive within the quarter as we addressed these disruptions. Importantly we expect that some of our fixes to enhance customer experience and recapture sales can add to that growth going forward. Acquisitions and divestitures were a net sales headwind. We expect this condition to persist for a couple of quarters as we lack the impact of selling our Azerty to Mexico subsidiary in Q3 of last year. The team remains focused on organic sales growth and the business we own today are ones that we believe leverage our core capabilities and add value to our customers.

Turning to slide 9, you will see additional detail on our category sales. Traditional office product sales were the single largest driver of organic sales growth and increased 4.1%. Cut-sheet paper sales increased 3.8% this quarter. Office products sales were offset in part by declines in technology and furniture which were lower by 0.5% and 5% respectively.

Industrial revenues were down by $9 million or 6.2% year-over-year as the energy and welding channels continued to be weak in the first quarter compared to last year. Our industrial business did begin to show sequential year-over-year improvement in March in e-commerce sales, safety, and national accounts. While performance in these segments of the business is encouraging, it doesn’t yet rise to the level or rebound in our industrial category. We continue to expect lower consumption levels will persist into the second half of the year at which time the comparables become less challenging and the steps we are taking to stabilize the business and diversify the customer base should take greater effect.

Sales in our automotive category were up $19.2 million or 31.8% as Nestor contributed $16.9 million in sales in the quarter. We continued to be pleased with the growth potential of our automotive business and the management team leading it. At the bottom of this slide you will note that our sales mix was largely unchanged year-over-year.

Our gross margin and OPEX were largely flat as compared to Q1 2015. Like other wholesale distributors our business felt the impact of lower inflation on our gross margin. For the quarter we saw aggregate inflation across our products of approximately 10 basis points. This compares to first quarter 2015 inflation of approximately 80 basis points. The net negative impact on gross margin from lower inflation was approximately $3 million.

Higher freight expense also had an impact on gross margin which was driven by the continued shift to drop ship orders from e-tail customers as well as from other parts of our business. The e-tail business continued to grow at low double-digit growth rates as seen in prior quarters and the team is isolating the product and category drivers of higher freight expense to mitigate the impact.

Within operating expense, higher labor is the headwind we expect to be with us over the next quarter or two while we complete the background task related to the common platform project that Bob spoke about. The team is working to reduce the magnitude of these costs as we operationalize the many process changes impacting the 29 facilities recently converted to the common platform.

Acquisitions resulted in $3.7 million in incremental OPEX in the quarter which was offset by the benefit from our restructuring actions and expense control. The team executed well to hold the line on operating expenses given the number of initiatives currently under way. We continue to expect core operating and sales performance to be the biggest driver of our target EPS growth this year.

Before I wrap up my comments, I would like to give an update on our cash flow, capital priorities, and leverage. In the first quarter we had negative free cash flow of approximately $20 million, largely due to an increase in accounts receivable consistent with our revenue growth. In the quarter we returned approximately $12 million in cash to shareholders by purchasing approximately 241,000 shares at a cost of $6.8 million and paying cash dividends of $5.2 million. The goal of the company's capital allocation strategy is to fund priorities which achieved the highest and best returns to shareholders.

Debt-to-EBTIDA as defined by our lenders came in at 3.2 times which triggers the restricted payment clause in our credit agreements that I spoke about in the February call. This means during the second quarter we will be constrained from doing share repurchases due to provisions in our debt agreements related to our debt levels and income. During this period we plan to use cash to pay down debt as we move back under the bank covenant constraint of 3 to 1 debt-to-EBITDA ratio.

Just to be clear we have more than enough funding to run the business and to acquire the Staples wholesale business but are currently subject to credit agreement constraints related to our ability to expand capital returns to shareholders. During the second quarter we plan to offer lumpsum distributions to eligible terminate participants in our frozen non-union pension plan. The impact of these lumpsum distributions on the benefit obligation and assets of the non-union plan will not be determinable until the eligible participants like this voluntary option. But we expect to take a pretax charge to report earnings in the second quarter. We have not included the impact from this charge in our guidance and it will be excluded from adjusted results. We expect to offset the retained earnings for at least part of this charge through other comprehensive income during the quarter.

Finally, turning to slide 10 in our full year guidance we are confirming what we have said previously regarding our expected results. Approximately two thirds of the improvements will be derived from the organic revenue growth that we have begun to see and expect to continue to deliver throughout the year. Most of this growth will come from our core OP and JanSan business and we’ve achieved a strong start to the year with key customer wins. The asset revenue comes online we expect to realize more operating leverage based on the work we have done to reduce cost in an amount sufficient to offset operating investments and other cost increases.

We also expect to be able to deliver operating income performance in our ORS industrial business approximately equals to 2015 performance. Rounding up our adjusted EPS improvement will be the benefit of our ongoing share repurchase activities which we expect we will be in a position to resume in the second half of the year. These are the actions that will drive our goal of low to mid single-digit revenue growth and high single-digit adjusted EPS growth in 2016.

We reiterated our guidance today and expect total company revenue in the range of $5.4 billion to $5.6 billion this year and adjusted earnings per share in the range of $3.20 to $3.40. We also expect annual free cash flow in 2016 to be equal to or better than net income. Thank you for your time. We appreciate your interest in Essendant and at this time we’d like to open the call for the Q&A

Question-and-Answer Session

Operator

Thank you. [Operator Instructions]. Our first question comes from Brad Thomas with KeyBanc Capital Markets. Please go ahead.

Bradley Thomas

Yes, thank you. Good morning Bob and Earl, how are you doing?

Robert B. Aiken Jr.

Good, good morning Brad.

Bradley Thomas

Good, my first question was going to be on the recent account wins and thank you for disclosing the revenues associated with them, clearly very material to the business. Bob, I was hoping you could talk a little bit more about why you won these accounts and maybe how some of the latest pictures that you are in the midst of are shaping up and perhaps a likelihood that you think you have to win incremental business away from some of your biggest competitors?

Robert B. Aiken Jr.

Yes, good. Thanks Brad, the value proposition that we are bringing into each of the channels that we serve today is really built around this broad assortment and completion of our common platform implementation across the JanSan and OP categories. It really allows us to bring that to life. Of the digital capabilities that are helping our resellers to compete with the best e-tail players in the business today and then this vertical markets group that we talk about that’s focused on enterprise account wins. Those are variance of those value propositions are being executed across each of our channels. I think they position us well to continue to deliver the sort of top line growth that we’ve guided to this year. And they were instrumental in the account wins that we have highlighted today and that are starting to show up in our results. I’d say the common platform in particular was a key differentiator that allowed us to achieve a couple of those wins.

Bradley Thomas

Great and as we look forward Bob are there any large contracts that you all are in negotiations for right now that we might be able to hear about in the second quarter or third quarter?

Robert B. Aiken Jr.

Well, when we look at that 100 million that we have talked about this morning, we think that we will be able to deliver at least 100 million of benefit from the accounts that we have secured. We are always in the marketplace talking to both manufacturers about how we can help them get to market more effectively and efficiently and resellers about how we can help them to penetrate end user markets. So, you can be assured every day we are out there pitching new business and trying to bring our value proposition to life to grow our revenue. But we don’t have anything specific to guide on that point today.

Bradley Thomas

Okay, thank you. If I could ask a couple of modeling, housekeeping items Earl, could you gives us some thoughts on share repurchase thus far in the year and what your opportunity maybe over the next couple of quarters considering timing of cash flow and leverage ratios?

Earl Shanks

I would be happy to Brad. As you will have noted we bought about 241,000 shares in the first quarter. As we have indicated last quarter, we are going to be out of the market in the second quarter because of the bank covenants and we expect to be back in the market in the second half of the year. And as we have historically, we would expect that share repurchase is one of our key capital allocation strategies. Beyond that in terms of the details we will have to see kind of where the markets are and what the opportunity is later in the year. But at this point we will be out of the market in the second quarter.

Bradley Thomas

Great, and then I presume the extra work day from the leap year, any adjustments in days that we should be modeling in the quarters ahead?

Earl Shanks

Our expectation is that we have no additional work days or no last work days in the second quarter and I think that is true of the balance of the year as well.

Bradley Thomas

Great, and then just the last housekeeping from me, if you would hazard a guess for us could you give us any sense for what your thoughts would be on perhaps the timing that we might see from a ruling on Staples, Depot, when a deal could close if the judge ruled favorably and then I imagine you are not going to want to highlight, what you think the likelihood of the deal is going through but any additional color there would be welcome?

Robert B. Aiken Jr.

Well, as you saw the parties make closing arguments this week. We expect the judge to rule on or before May 10th. As to the closing I think it is a function of when all of the merger conditions are satisfied. Obviously that legal ruling is a key aspect of that. We are working hard to be prepared so that when the parties are ready to close we are in a position to execute the divestiture remedies. So, lot of internal planning and work has gone on and we will continue to put ourselves in a position so that if we are able to close on that deal we are ready to go.

Bradley Thomas

Alright, I will turn it over to others, thank you so much.

Robert B. Aiken Jr.

Thanks Brad.

Operator

The next question comes from Oliver Wintermantel with Evercore ISI. Please go ahead.

Oliver Wintermantel

Good morning guys. I had a question regarding the move to the common platform, can you breakdown for us the cost, how much you have incurred already and what is left in dollars until you have all of the businesses move to the common platform?

Earl Shanks

Sure Oliver. In the quarter we spent about $4 million in total on the common platform that was up from about $1 million first quarter last year. We would expect for the year we would spend $10 million to $12 million in total this year which is actually a number pretty similar to what we spent the last year on that platform in total. So, those are -- that's the range of what we are expecting. We are in the process of doing some planning on the industrial and the automotive businesses in terms of finding a cost but to the -- depending on the decision we make those are costs that we will be incurring in 2017 or beyond.

Robert B. Aiken Jr.

and I would just add Ollie we -- 80% of our business is now operating off of the common platform. And so as Earl said we have got some planning work to do on our automotive and industrial businesses. We want to make certain that industrial we are seeing a good recovery in that business and that the work we are doing around expanding our customer base is working well before we move on industrial. So, the planning is around automotive and then industrial. But as Earl said, much of that work and the expense associated with it would be incurred next year. All the expenses associated with the common platform are included in the guidance that we’ve given for the year in a firm today.

Oliver Wintermantel

Got it. So just to make sure, the 10 million to 12 million this year that excludes the industrial and auto parts or automotive?

Robert B. Aiken Jr.

Yes. Some of the planning for those things but not for actual implementation.

Oliver Wintermantel

Is there any -- you had some disruptions in the JanSan business because of moving it on to the common platform, is there anything that you've learnt that you are going to do different with industrial and automotive or is there -- is it just the nature of the piece that you expect some disruptions as well?

Robert B. Aiken Jr.

Yes, I think what we learnt from the JanSan implementation will benefit us for both automotive and industrial. Our distributors in the automotive and industrial segments they go to market in many of the same ways as our JanSan distributors and their needs from us are quite similar. So some of the enhancements are kind of quick improvements that we have made since our last call will benefit those distributors as well. And we will be certain that when we do our GAAP analysis to understand the capabilities of our system relative to the needs of customers in automotive and industrial that we’ve covered and very clearly understand those needs. You learn as you go and I expect we will get better and better.

Earl Shanks

As we think about learning as we go Ollie, just to remind you we have been doing this now for many months in terms of the conversions and spent 21 weekends converting 29 facilities. The disruptions that we saw in the beginning of that process were much more than disruptions we saw last weekend when we finished the last one. But we did make progress.

Oliver Wintermantel

Got it and lastly just on the cash flow statement, the receivables was a big moving part of the first quarter, can you maybe give us -- walk us through for the rest of the year how you think receivables and inventories are going to move during the year? Thank you.

Robert B. Aiken Jr.

Sure I’ll be happy to. As we have said we expect it will get to free cash flow that is greater than net income. That would include an expectation that we will have year-over-year increases in receivables that are roughly consistent with the increase in revenue that we see late in the year as compared to late in the year last year. We also would expect that we’ll see a decline in inventory on a year-over-year basis when we get to the end of the year. We didn’t see that this quarter as we were investing a bit in inventory in anticipation of some of the customer ramps and to make sure that the service levels were as good as we wanted them to be. But we do expect that our inventories will decline as we move through the year and certainly as we get to the end of the year. I think we are feeling pretty good about our ability to execute on what we’ve described in terms of what we expected financially. Looked at what happened in the quarter, the growth in receivables on a year-over-year basis is largely driven by what we saw in growth in revenue in March.

Oliver Wintermantel

Got it, thanks very much and good luck.

Robert B. Aiken Jr.

Thank you.

Operator

The next question comes from Dan Binder with Jeffries. Please go ahead.

Unidentified Analyst

Hello, good morning, this is Dolphin for Dan, thank you for taking my question. My first question just on the quality of the receivables, it went up a lot and I was just wondering if you guys can provide any information as to your review on the quality of those receivables? Thank you.

Robert B. Aiken Jr.

We’re quite happy with what the quality of our receivable is. The increase in receivables that we saw it was as I said a minute ago largely driven by the growth we saw in the March timeframe. In terms of bad debt expense we’ve got very minor bad debt expense, very normal from what we would expect in the economy at this point. So no really issues there at all.

Unidentified Analyst

Okay, thank you and if I could just have a one housekeeping follow up question, for the adjusted work day or for the work day adjusting the category performance is it a pretty similar adjustment to be made in the sales for each of those categories?

Robert B. Aiken Jr.

Yes, it is like we take a adjusted [ph] -- we taka quantitative approach to that. So yes very similar in terms of the adjustment that you expect across the portfolio.

Unidentified Analyst

Okay, thank you very much. Appreciate your time.

Operator

[Operator Instructions]. The next question comes from David Stratton with Great Lakes Review. Please go ahead.

David Stratton

Good morning, thanks for taking the questions. I was wondering if you could break it out a little bit the cross selling opportunity that you see from the conversion and how much benefit that you expect just from the cross selling side moving forward?

Robert B. Aiken Jr.

There are really two key benefits to the common platform conversions in our office products and JanSan categories. The first is, it allows us to win new business and new customers who are interested in expanding their own assortment and this, there are a number of office products dealers and other office products resellers who are interested in moving into the JanSan and breakroom space. We make it easier for them to do that and those account wins are showing up, at least given an opportunity from a cross sell perspective as we hope our resellers to move into categories that they are not in today. And that’s the function of having a common platform in place. It is also a function of having the digital capabilities in place so they have got the content, the smart search capability, the data analytics that help them to grow in these new categories. So as we look forward we expect to drive benefit both in terms of new account wins and then this cross sell opportunity. And we’re really just getting going on the cross sell opportunity. We had to get the conversion done and some of the wrinkles ironed out as we have done and now we’ll be on the offensive to try to increase this cross sell.

David Stratton

Alright and that’s all for right now, you’d say it’s about split even between the two?

Robert B. Aiken Jr.

[Multiple Speaker] The cross sell opportunity is bigger than the new account opportunity is just that we have led with new account opportunity because the most progressive of the resellers want to do this broad range of offering and we’re helping them to do that.

David Stratton

Alright and then can you break out your e-commerce as a percent of total sales and then talk a little bit about how the digital capabilities that you see with the core lab meeting and how that’s being received and kind of provide some detail around, what makes you stand out?

Robert B. Aiken Jr.

The digital capabilities are relevant across all our channels because with our primary office products dealers at core lab this year we talked about the percentage of their business that’s moving to online ordering. So they are still doing local fulfilment and delivery. But more and more of their customers are ordering online and so that online extreme supplements their sales model. I talked to a number of customers that between 50% and 60% of their orders now are being taken online. So the digital capabilities helps in that independent dealer channel. The content is also helpful in our e-tail segment where we’re working with the larger e-tailers in the country that fulfil across our categories and we can help them with merchandising and assortment and then help to low the content that we have built on to their e-commerce platforms. And so we see good growth opportunities in both those areas based on this investment in digital. I’ll turn it to Earl to talk a little bit about the category percentages or I am sorry the channel percentages.

Earl Shanks

In terms of online as we have talked about we have seen pretty consistent double-digit growth in that space for the last several quarters. And at this point we are in the 13% to 14% of our total revenue range in terms of how big online is in total, how big the e-tail category is in total.

David Stratton

Alright, thank you.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Bob Aiken for any closing remarks.

Robert B. Aiken Jr.

Great, thank you very much, and thanks to all of you for joining us this morning. Overall I am pleased with our team's progress in the first quarter as we work to grow sales and put us on a path to achieve the goals that we announced at the end of last year and to continue to work to create value for our shareholders. We appreciate your time and interest during the call today. We look forward to updating you on our progress in the coming quarters as well. So, thanks very much everybody.

Operator

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

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