Market Overview

Lawson Products Announces Third Quarter 2019 Results

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Strong Operating Performance Driven By 7.1% Sales Increase

Lawson Products, Inc. (NASDAQ:LAWS) ("Lawson" or the "Company"), a distributor of products and services to the MRO marketplace, today announced results for the third quarter ended September 30, 2019.

Third Quarter Summary Financial Highlights

 

Three Months Ended September 30,

($ in millions, except earnings per share data)

 

2019

 

2018

 

Change

Net Sales

 

$94.8

 

$88.5

 

7.1%

Average Daily Net Sales

 

$1.481

 

$1.405

 

5.4%

Number of Business Days

 

64

 

63

 

 

 

 

 

 

 

 

 

Reported Operating Income (Loss)

 

$6.4

 

$(2.3)

 

NA

Adjusted Operating Income (1)

 

$8.9

 

$5.6

 

58.9%

 

 

 

 

 

 

 

Adjusted EBITDA (1)

 

$10.3

 

$7.3

 

40.9%

Adjusted EBITDA Margin (1)

 

10.9%

 

8.3%

 

+260 bps

 

 

 

 

 

 

 

Reported Diluted Earnings (loss) Per Share

 

$0.51

 

$(0.09)

 

$0.60

Adjusted Diluted Earnings Per Share (2)

 

$0.69

 

$0.59

 

$0.10

(1)

Excludes the impact of stock-based compensation, severance and other non-recurring items. (See reconciliation in Table 1)

(2)

Excludes the impact of stock-based compensation, severance and other non-recurring items. (See reconciliation in Table 2)

"I am pleased to report that our solid execution delivered another quarter of strong results. Revenues grew 7.1% which drove a 59% improvement in our adjusted operating income year-over-year and an 11% increase sequentially over the second quarter. Growth in The Bolt Supply House business along with targeted investments in the Company's operations and sales force, combined with successfully leveraging our infrastructure on higher sales, had a positive impact on our results with adjusted EBITDA margin increasing to 10.9% of sales," said Michael DeCata, president and chief executive officer.

"Lawson is well-positioned to continue to deliver improved operating results through better sales rep productivity and customer fulfillment processes which will further leverage our cost structure. The recently announced $100 million plus credit facility, led by JPMorgan Chase, enhances our future financial flexibility," concluded Mr. DeCata.

Highlights

  • Sales of $94.8 million increased 7.1% year-over-year. Average Daily Sales (ADS) increased 5.4% to $1.481 million in the third quarter of 2019 compared to $1.405 million in 2018 with one additional selling day in 2019.
  • Reported operating income was $6.4 million compared to an operating loss of $2.3 million in the third quarter of 2018. Non-GAAP adjusted operating income excluding stock-based compensation, severance expense and acquisition costs increased 58.9% to $8.9 million from $5.6 million in the year ago quarter. (See reconciliation in Table 1) As a percent of sales adjusted EBITDA improved to 10.9% for the third quarter 2019 from 8.3% in the year ago quarter.
  • Reported net income was $4.8 million for the quarter, or $0.51 per diluted share compared to a loss per diluted share of $0.09 in third quarter of 2018. On an adjusted basis, diluted earnings per share was $0.69. (See reconciliation in Table 2)
  • Net cash generated from operations in the quarter of $10.3 million was used to reduce net borrowings by $8.3 million. The quarter ended in a net cash less debt positive position of $6.4 million.
  • On October 14th, the Company announced a new five-year credit facility increasing its borrowing capacity from $40 million to $100 million, plus an accordion feature to support its acquisition and organic growth strategy.

Third Quarter Results

Net sales increased 7.1% to $94.8 million in the third quarter of 2019 compared to $88.5 million in the third quarter of 2018. Sales growth reflected a 1.3% increase in the Lawson segment sales rep productivity driven by increases within our strategic, Kent Automotive, government and core customer segments. The Bolt Supply House, which represents approximately 12% of consolidated sales, increased 15.0% over the prior year quarter, reflecting strength across multiple product categories and new customers. Excluding the impact of Canadian currency fluctuations, consolidated sales increased 7.4% for the quarter. Average daily sales grew to $1.481 million compared to $1.405 million in the prior year quarter with one additional selling day in the third quarter of 2019 compared to the third quarter a year ago.

Reported gross profit increased $2.5 million to $50.6 million compared to $48.1 million in the third quarter of 2018, primarily due to sales growth. Consolidated gross profit as a percentage of sales was 53.4% for the third quarter of 2019 compared to 54.3% in the third quarter of 2018. The core Lawson MRO segment gross margin excluding service-related costs was 60.9% in the third quarter 2019, flat with a year ago quarter.

Reported selling expenses decreased to $21.3 million on higher sales in the third quarter of 2019 compared to $22.2 million in the prior year quarter. As a percentage of sales, reported selling expenses decreased to 22.4% from 25.0% in the third quarter of 2018 primarily due to leveraging selling expenses over a larger sales base and an increase in service-related costs included within gross margin.

General and administrative expenses decreased $5.3 million to $22.9 million in the third quarter of 2019 compared to $28.2 million in the prior year quarter. The decrease in G&A expense compared to the prior year quarter is primarily due to a $5.3 million decrease in stock-based compensation expense, a portion of which fluctuates with our stock price. Excluding expenses related to stock-based compensation, severance, and acquisitions, general and administrative expenses were essentially flat from a year ago quarter and decreased as a percent of sales to 21.6% from 23.0%.

Reported operating income in the third quarter of 2019 was $6.4 million compared to an operating loss of $2.3 million in the prior year quarter. Adjusted non-GAAP operating income increased $3.3 million to $8.9 million in the third quarter of 2019 from $5.6 million in the prior year quarter. (See reconciliation in Table 1) For the quarter, adjusted EBITDA was $10.3 million, an improvement of 40.9% over the prior year quarter. (See reconciliation in Table 1)

Reported net income for the third quarter of 2019 was $4.8 million, or $0.51 per diluted share compared to net loss of $0.8 million, or $0.09 per diluted share, for the same period a year ago. Adjusted net income was $6.5 million or $0.69 per diluted share compared to $0.59 a year ago. (See reconciliation in Table 2) On a year-to-date basis, reported net income improved $6.6 million while adjusted diluted earnings per share improved 61.3% to $1.79. (See reconciliation in Table 2)

At September 30, 2019, Lawson had $8.6 million of available cash and cash equivalents and $2.2 million of outstanding borrowings. Net cash generated from operations in the quarter of $10.3 million was utilized to reduce net borrowings and repurchase approximately 32,000 shares of the Company's common stock.

Conference Call

Lawson Products, Inc. will conduct a conference call with investors to discuss third quarter 2019 results at 9:00 a.m. Eastern Time on October 24, 2019. The conference call is available by direct dial at 1-877-737-7051 in the U.S. or 1-201-689-8878 from outside of the U.S. A replay of the conference call will be available approximately two hours after completion of the call through November 29, 2019. Callers can access the replay by dialing 1-877-481-4010 in the U.S. or 1-919-882-2331 outside the U.S. The PIN access number for the replay is 53763#. A streaming audio of the call and an archived replay will also be available on the investor relations page of Lawson's website through November 29, 2019.

About Lawson Products, Inc.

Founded in 1952, Lawson Products, Inc., headquartered in Chicago, IL, sells and distributes specialty products to the industrial, commercial, institutional and government maintenance, repair and operations market (MRO). The Company is dedicated to helping customers in the U.S. and Canada lower their total cost of operation by increasing productivity and efficiency. The combination of Lawson Managed Inventory and the Company's problem-solving professionals ensures customers always have the right parts to handle the job. Through The Bolt Supply House, customers in Western Canada have access to products at several branch locations. Under its Kent Automotive brand, the Company provides collision and mechanical repair products to the automotive aftermarket.

Lawson Products ships from several strategically located distribution centers to customers in all 50 states, Puerto Rico, Canada, Mexico, and the Caribbean.

For additional information, please visit https://www.lawsonproducts.com or

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