Market Overview

Lawson Products Announces First Quarter 2020 Results

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Lawson Products, Inc. (NASDAQ:LAWS) ("Lawson" or the "Company"), a distributor of products and services to the MRO marketplace, today announced results for the first quarter ended March 31, 2020.

First Quarter Summary Financial Highlights

 

Three Months Ended March 31,

($ in millions, except earnings per share data)

 

2020

 

2019

 

Change

Net Sales

 

$91.0

 

$91.3

 

(0.3)%

Average Daily Net Sales

 

$1.422

 

$1.450

 

(1.9)%

Number of Business Days

 

64

 

63

 

 

 

 

 

 

 

 

 

Reported Operating Income

 

$18.6

 

$5.5

 

236.2%

Adjusted Operating Income (1)

 

$7.9

 

$6.0

 

32.9%

 

 

 

 

 

 

 

Adjusted EBITDA (1)

 

$9.5

 

$7.5

 

26.8%

Adjusted EBITDA Margin (1)

 

10.4%

 

8.2%

 

+220 bps

 

 

 

 

 

 

 

Reported Diluted Earnings (loss) Per Share

 

$1.34

 

$0.44

 

$0.90

Adjusted Diluted Earnings Per Share (2)

 

$0.52

 

$0.48

 

$0.04

(1)

Excludes the impact of stock-based compensation and severance. (See reconciliation in Table 1)

(2)

Excludes the impact of stock-based compensation and severance. (See reconciliation in Table 2)

"During this challenging coronavirus period, Lawson is focused on the safety of our team members, servicing our customers and maintaining our financial strength. Lawson has been deemed an essential business by the government. Our field sales team and distribution network continue to operate while following a strict health protocol. I am confident that the strength and dedication of our team and suppliers, coupled with our financial strength, will see us through this environment," said Michael DeCata, president and chief executive officer.

"In the first quarter of 2020, revenue decreased slightly over last year. Although sales were increasing sequentially, we experienced declining sales due to the economic impact of the COVID-19 pandemic in the second half of March. Our adjusted operating income improved for the quarter as we leveraged our costs and immediately implemented actions to align our cost structure with the demand environment.

"Our financial position is strong and we are focused on maintaining its strength through effective and disciplined management. In late 2019, we entered into a new $100 million revolving credit agreement that provides us with significant financial flexibility. We entered this pandemic period in a strong position, both operationally and financially, and expect to exit it as strong as we entered it," concluded Mr. DeCata.

COVID-19

In March 2020, the World Health Organization declared a new strain of coronavirus ("COVID-19") a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility in the financial markets. It is unknown at this time how long these circumstances will exist, when restrictions such as shelter in place orders, social distancing and closures of non-essential businesses will be relaxed, and if these restrictions will be reintroduced at a future date. The pandemic is negatively impacting sales and operations currently and may negatively impact future financial results, liquidity and overall performance of the Company. As Lawson is considered an "essential business," by the U.S. and Canada governments, our field sales team and distribution network continue to operate, providing service and products to our customers.

We have undertaken a number of steps to address the impact of the COVID-19 pandemic with certain customers having temporarily reduced business hours or shut down entirely. Some of the recurring onsite customer service provided by our sales reps has been limited due to social distancing guidelines and shelter in place orders. As a result, our sales reps continue to reach out to all customers with a portion being serviced via phone, fax and internet-based communications. The Company has also put into place health safety measures for sales reps who visit their customers as well as for our distribution centers and corporate employees. We have also introduced curbside pick-up at The Bolt Supply House branches which all remain open. We are supporting these efforts by reinforcing our supply chain through regular contact with our existing suppliers as well as reaching out to additional suppliers to ensure that orders for inventory are fulfilled in a timely manner and our supply chain remains strong. Our sales reps and our finance group are working in concert to ensure that any customer issues are quickly identified and credit is carefully extended to customers who are able to pay.

We continue to monitor the Company's balance sheet and liquidity position and are taking actions to protect cash flows from operations. The Company ended the first quarter with $4.1 million of cash and cash equivalents and an additional $87.5 million of borrowing capacity under its existing line of credit and through yesterday has approximately the same level of availability. With our committed credit facility being led by JPMorgan Chase, we have access to ample liquidity to fund our requirements. The Company has taken numerous cost reduction actions including furloughing approximately 100 employees, reducing salaries and Board compensation, canceling travel and award trips, consolidating our Suwanee, GA distribution operations into the McCook facility and eliminating non-critical capital expenditures.

We are closely monitoring the operating environment. Looking ahead, we will take all necessary actions to ensure safety for our employees, customers, and suppliers while maintaining our strong financial position.

Highlights

  • Sales of $91.0 million decreased 0.3% year-over-year. Average Daily Sales (ADS) decreased 1.9% to $1.422 million in the first quarter of 2020 compared to $1.450 million in 2019 with one additional selling day in 2020. Sales during the second half of March were noticeably affected by the COVID-19 situation.
  • Reported operating income was $18.6 million compared to $5.5 million in the first quarter of 2019. Non-GAAP adjusted operating income excluding stock-based compensation and severance expense increased 32.9% to $7.9 million from $6.0 million in the year ago quarter. (See reconciliation in Table 1) As a percent of sales adjusted EBITDA improved to 10.4% for the first quarter 2020 from 8.2% in the year ago quarter.
  • Reported net income was $12.5 million for the quarter, or $1.34 per diluted share compared to $0.44 in first quarter of 2019. On an adjusted basis, diluted earnings per share was $0.52 compared to $0.48 a year ago. (See reconciliation in Table 2)
  • Ended the quarter with $4.1 million of available cash and cash equivalents and $87.5 million of additional borrowing capacity under our line of credit.

First Quarter Results

Net sales were $91.0 million in the first quarter of 2020 compared to $91.3 million in the first quarter of 2019. The slight decline in sales reflects a 3.1% decrease in the Lawson segment sales rep productivity driven by decreases within our government and core customers late in the quarter, offset by positive growth within our strategic and Kent Automotive customers. Sales within The Bolt Supply House segment, which represents approximately 11% of consolidated sales, increased 7.5% over the prior year quarter, reflecting strength across multiple product categories and new customers. Average daily sales decreased to $1.422 million compared to $1.450 million in the prior year quarter with one additional selling day in the first quarter of 2020 compared to the first quarter a year ago. The second half of March was noticeably affected by the COVID-19 situation. Excluding the impact of Canadian currency fluctuations, consolidated sales increased 0.2% for the quarter.

Reported gross profit was $48.9 million for the first quarter of 2020, which was unchanged compared to the year ago quarter. Consolidated gross profit as a percentage of sales was 53.7% for the first quarter of 2020 compared to 53.6% in the first quarter of 2019. Excluding selling related costs, the core Lawson MRO segment gross margin was 60.8% in the first quarter 2020, unchanged from a year ago quarter.

Reported selling expenses decreased to $20.0 million in the first quarter of 2020 compared to $21.7 million in the prior year quarter. Despite a slight decline in sales, reported selling expenses decreased to 22.0% from 23.8% in the first quarter of 2019 primarily due to leveraging our fixed selling expenses.

General and administrative expenses decreased $11.3 million to $10.3 million in the first quarter of 2020 compared to $21.6 million in the prior year quarter. The decrease in G&A expense compared to the prior year quarter is primarily due to an $11.1 million decrease in stock-based compensation expense, a portion of which fluctuates with our stock price. Excluding expenses related to stock-based compensation and severance, general and administrative expenses were down 1.0% from a year ago quarter.

Reported operating income in the first quarter of 2020 was $18.6 million compared to $5.5 million in the prior year quarter. Adjusted non-GAAP operating income increased approximately $1.9 million to $7.9 million in the first quarter of 2020 from $6.0 million in the prior year quarter. (See reconciliation in Table 1) For the quarter, adjusted EBITDA was $9.5 million, an improvement of 26.8% over the prior year quarter. (See reconciliation in Table 1)

Reported net income for the first quarter of 2020 was $12.5 million, or $1.34 per diluted share compared to net income of $4.1 million, or $0.44 per diluted share, for the same period a year ago. Non-GAAP adjusted net income was $4.8 million or $0.52 per diluted share compared to $0.48 a year ago. (See reconciliation in Table 2)

At March 31, 2020, Lawson had $4.1 million of available cash and cash equivalents and $87.5 million of additional borrowing capacity under its line of credit. The Company repurchased approximately $1.8 million of its common stock under its share repurchase program.

Conference Call

Lawson Products, Inc. will conduct a conference call with investors to discuss first quarter 2020 results at 9:00 a.m. Eastern Time on April 30, 2020. 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 May 31, 2020. 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 57488#. A streaming audio of the call and an archived replay will also be available on the investor relations page of Lawson's website through May 31, 2020.

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 https://www.kent-automotive.com.

This Release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. The terms "may," "should," "could," "anticipate," "believe," "continues," "estimate," "expect," "intend," "objective," "plan," "potential," "project" and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. These statements are based on management's current expectations, intentions or beliefs and are subject to a number of factors, assumptions and uncertainties that could cause or contribute to such differences or that might otherwise impact the business and include the risk factors set forth in Item 1A of the December 31, 2019, Form 10-K filed on February 27, 2020. The Company undertakes no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements whether as a result of new information, future events or otherwise.

Lawson Products, Inc.

Condensed Consolidated Statements of Income

(Dollars in thousands, except per share data)

(Unaudited)

 

 

Three Months Ended March 31,

 

2020

 

2019

 

 

 

 

Product revenue

$

81,335

 

 

$

81,915

 

Service revenue

9,700

 

 

9,428

 

Total revenue

91,035

 

 

91,343

 

 

 

 

 

Product cost of goods sold

37,805

 

 

38,007

 

Service costs

4,309

 

 

4,413

 

Gross profit

48,921

 

 

48,923

 

 

 

 

 

Operating expenses:

 

 

 

Selling expenses

19,984

 

 

21,742

 

General and administrative expenses

10,299

 

 

21,637

 

Operating expenses

30,283

 

 

43,379

 

Operating income

18,638

 

 

5,544

 

 

 

 

 

Interest expense

(115

)

 

(197

)

Other income (expense), net

(1,111

)

 

472

 

 

 

 

 

Income before income taxes

17,412

 

 

5,819

 

Income tax expense

4,879

 

 

1,673

 

 

 

 

 

Net income

$

12,533

 

 

$

4,146

 

 

 

 

 

Basic income per share of common stock

$

1.39

 

 

$

0.46

 

 

 

 

 

Diluted income per share of common stock

$

1.34

 

 

$

0.44

 

Lawson Products, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share data)

 

 

March 31,

 

December 31,

 

2020

 

2019

ASSETS

(Unaudited)

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

4,095

 

 

$

5,495

 

Restricted cash

802

 

 

802

 

Accounts receivable, less allowance for doubtful accounts of $793 and $593, respectively

41,406

 

 

38,843

 

Inventories, net

56,182

 

 

55,905

 

Miscellaneous receivables and prepaid expenses

6,674

 

 

5,377

 

Total current assets

109,159

 

 

106,422

 

 

 

 

 

Property, plant and equipment, net

15,662

 

 

16,546

 

Deferred income taxes

18,525

 

 

21,711

 

Goodwill

19,555

 

 

20,923

 

Cash value of life insurance

13,808

 

 

14,969

 

Intangible assets, net

11,276

 

 

12,335

 

Lease assets

10,178

 

 

11,246

 

Other assets

252

 

 

277

 

Total assets

$

198,415

 

 

$

204,429

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

13,730

 

 

13,789

 

Lease obligation

3,825

 

 

3,830

 

Accrued expenses and other liabilities

18,960

 

 

39,311

 

Total current liabilities

36,515

 

 

56,930

 

 

 

 

 

Revolving line of credit

10,460

 

 

2,271

 

Security bonus plan

11,677

 

 

11,840

 

Lease obligation

8,331

 

 

9,504

 

Deferred compensation

5,327

 

 

6,370

 

Deferred tax liability

5,994

 

 

6,188

 

Other liabilities

3,376

 

 

3,325

 

Total liabilities

81,680

 

 

96,428

 

 

 

 

 

Stockholders' equity:

 

 

 

Preferred stock, $1 par value:

 

 

 

Authorized - 500,000 shares, Issued and outstanding — None

 

 

 

Common stock, $1 par value:

 

 

 

Authorized - 35,000,000 shares

Issued - 9,190,171 shares

Outstanding - 8,996,267 and 9,043,771 shares, respectively

9,190

 

 

9,190

 

Capital in excess of par value

18,528

 

 

18,077

 

Retained earnings

99,029

 

 

86,496

 

Treasury stock – 193,904 and 146,400 shares, respectively

(7,517

)

 

(5,761

)

Accumulated other comprehensive income (loss)

(2,495

)

 

(1

)

Total stockholders' equity

116,735

 

 

108,001

 

Total liabilities and stockholders' equity

$

198,415

 

 

$

204,429

 

LAWSON PRODUCTS, INC.

SEC REGULATION G GAAP RECONCILIATIONS

The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, the Company's management believes that certain non-GAAP financial measures may provide users of this financial information with additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain non-operational items that impact the overall comparability. See Tables below for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three months ended March 31, 2020 and 2019. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP.

Table 1 - Reconciliation of GAAP Operating Income

to Adjusted Non-GAAP Operating Income and Adjusted EBITDA

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

Three Months Ended

 

March 31,

 

2020

 

2019

 

 

 

 

Operating income as reported per GAAP

$

18,638

 

 

$

5,544

 

 

 

 

 

Stock-based compensation (1)

(10,700

)

 

408

 

 

 

 

 

Severance expense

7

 

 

27

 

 

 

 

 

Adjusted non-GAAP operating Income

7,945

 

 

5,979

 

 

 

 

 

Depreciation and amortization

1,509

 

 

1,478

 

 

 

 

 

Non-GAAP adjusted EBITDA

$

9,454

 

 

$

7,457

 

(1)

A portion of stock-based compensation expense varies with the Company's stock price

Table 2 - Reconciliation of GAAP Net Income and Diluted EPS to

Non-GAAP Adjusted Net Income and Adjusted Diluted EPS

(Dollars in Thousands, Except Per Share Amounts)

(Unaudited)

 

 

Three Months Ended March 31,

 

2020

 

2019

 

Amount

 

Diluted EPS (2)

 

Amount

 

Diluted EPS (2)

Net income, as reported per GAAP

$

12,533

 

 

$

1.34

 

 

$

4,146

 

 

$

0.44

 

Pretax adjustments:

 

 

 

 

 

 

 

Stock-based compensation

(10,700

)

 

(1.16

)

 

408

 

 

0.05

 

 

 

 

 

 

 

 

 

Severance expense

7

 

 

0.01

 

 

27

 

 

 

 

 

 

 

 

 

 

 

Pretax adjustments

(10,693

)

 

(1.15

)

 

435

 

 

0.05

 

 

 

 

 

 

 

 

 

Tax effect (1)

2,994

 

 

0.33

 

 

(125

)

 

(0.01

)

 

 

 

 

 

 

 

 

Total adjustments, net of tax

(7,699

)

 

(0.82

)

 

310

 

 

0.04

 

 

 

 

 

 

 

 

 

Non-GAAP adjusted net income

$

4,834

 

 

$

0.52

 

 

$

4,456

 

 

$

0.48

 

(1)

Tax affected at quarterly effective tax rate of 28.0% for 2020 and 28.8% for 2019

(2)

Pretax adjustments to diluted EPS calculated on 9.334 million and 9.317 million diluted shares for 2020 and 2019, respectively

Table 3 - Historic Core Lawson Segment Sales and Sales Rep Productivity

(Dollars in Thousands)

(Unaudited)

 

Three Months Ended

 

Mar. 31

2020

 

Dec. 31

2019

 

Sep. 30

2019

 

Jun. 30

2019

 

Mar. 31

2019

 

 

 

 

 

 

 

 

 

 

Number of business days

64

 

 

61

 

 

64

 

 

64

 

 

63

 

 

 

 

 

 

 

 

 

 

 

Average daily net sales

$

1,265

 

 

$

1,279

 

 

$

1,295

 

 

$

1,316

 

 

$

1,297

 

Year over year increase (decrease)

(2.5

)%

 

1.7

%

 

3.7

%

 

4.4

%

 

6.9

%

Sequential quarter increase (decrease)

(1.1

)%

 

(1.2

)%

 

(1.6

)%

 

1.5

%

 

3.1

%

 

 

 

 

 

 

 

 

 

 

Average active sales rep. count (1)

998

 

 

1,002

 

 

989

 

 

980

 

 

991

 

Period-end active sales rep count

993

 

 

1,006

 

 

993

 

 

982

 

 

986

 

 

 

 

 

 

 

 

 

 

 

Sales per rep. per day

$

1.268

 

 

$

1.276

 

 

$

1.309

 

 

$

1.343

 

 

$

1.308

 

Year over year increase (decrease)

(3.1

)%

 

0.3

%

 

1.3

%

 

3.0

%

 

4.4

%

Sequential quarter increase (decrease)

(0.6

)%

 

(2.6

)%

 

(2.5

)%

 

2.8

%

 

2.8

%

(1)

Average active sales rep count represents the average of the month-ends sales representative count

Table 4 - Consolidated Quarterly Results

(Dollars in Thousands)

(Unaudited)

 

Three Months Ended

 

Mar. 31

2020

 

Dec. 31

2019

 

Sep. 30

2019

 

Jun. 30

2019

 

Mar. 31

2019

 

 

 

 

 

 

 

 

 

 

Average daily net sales

$

1,422

 

 

$

1,452

 

 

$

1,481

 

 

$

1,502

 

 

$

1,450

 

Year over year increase

(1.9

)%

 

2.7

%

 

5.4

%

 

6.3

%

 

8.2

%

Sequential quarter increase (decrease)

(2.1

)%

 

(2.0

)%

 

(1.4

)%

 

3.6

%

 

2.5

%

 

 

 

 

 

 

 

 

 

 

Net Sales

$

91,035

 

 

$

88,566

 

 

$

94,779

 

 

$

96,097

 

 

$

91,343

 

Gross profit

48,921

 

 

46,814

 

 

50,574

 

 

51,043

 

 

48,923

 

 

 

 

 

 

 

 

 

 

 

Gross profit percentage

53.7

%

 

52.9

%

 

53.4

%

 

53.1

%

 

53.6

%

 

 

 

 

 

 

 

 

 

 

Selling, general & administrative expenses

$

30,283

 

 

$

51,361

 

 

$

44,128

 

 

$

49,420

 

 

$

43,379

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

$

18,638

 

 

$

(4,547

)

 

$

6,446

 

 

$

1,623

 

 

$

5,544

 

 

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