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Lawson Products Announces Second 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 second quarter ended June 30, 2020.

Second Quarter Summary Financial Highlights

 

Three Months Ended June 30,

 

Six Months Ended June 30,

($ in millions, except earnings per share data)

 

2020

 

2019

 

Change

 

2020

 

2019

 

Change

Net Sales

 

$72.1

 

$96.1

 

(24.9)%

 

$163.2

 

$187.4

 

(12.9)%

Average Daily Net Sales

 

$1.127

 

$1.502

 

(24.9)%

 

$1.275

 

$1.476

 

(13.6)%

Number of Business Days

 

64

 

64

 

 

 

128

 

127

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported Operating Income

 

$0.6

 

$1.6

 

(64.9)%

 

$19.2

 

$7.2

 

168.0%

Adjusted Operating Income (1)

 

$4.8

 

$7.9

 

(39.8)%

 

$12.7

 

$13.9

 

(8.6)%

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA (1)

 

$6.3

 

$9.4

 

(33.1)%

 

$15.7

 

$16.9

 

(6.6)%

Adjusted EBITDA Margin (1)

 

8.7%

 

9.8%

 

(110) bps

 

9.6%

 

9.0%

 

+60 bps

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported Diluted Earnings Per Share

 

$0.07

 

$0.14

 

$(0.07)

 

$1.41

 

 

$0.58

 

$0.83

Adjusted Diluted Earnings Per Share (2)

 

$0.37

 

$0.62

 

$(0.25)

 

$0.93

 

 

$1.10

 

$(0.17)

(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)

"Lawson reacted quickly to the unprecedented negative impact that COVID-19 had on the economy and the Company. We focused on the health and safety of our team including social distancing, protective coverings, increased sanitizing and working remotely whenever possible. Lawson's team members have been our greatest strength throughout this aberrant period. Through their terrific efforts, commitment and positive attitude, our streamlined team achieved solid adjusted operating results while fortifying our cash and financial position," said Michael DeCata, president and chief executive officer.

"During the quarter, we successfully undertook a series of actions that continued a high level of service to our customers, protected operating margins and maintained our strong financial position. Our adjusted EBITDA margin of 8.7% was a direct result of our actions. Looking ahead, we are focused on improving sales to further leverage our streamlined cost structure and expand operating margins. The current disruptive conditions have challenged us to be more productive in many areas of the organization that will have continuing long-term benefits. Although there is uncertainty about the pandemic and general economy, we believe the actions we've taken, their near term results and long-term implications best serve our shareholders and employees by positioning Lawson to achieve solid growth into the future. In addition, we will be opportunistic in utilizing our strong balance sheet and cash position to make accretive acquisitions," concluded Mr. DeCata.

Highlights

  • Sales of $72.1 million decreased 24.9% year-over-year. As the quarter developed, sequentially, May Average Daily Sales (ADS) increased nearly 23% over April while June ADS increased another 6% over May. Average daily sales were $1.127 million in the second quarter of 2020 compared to $1.502 million during the same quarter 2019.
  • Reported gross margin was 53.1% for the quarter, the same as a year ago. This was achieved despite a shift in sales mix toward lower margin product categories.
  • Net cash generated from operations in the quarter of $14.7 million was achieved through effective working capital management with a keen focus on preserving our cash position. Lawson ended the quarter in a positive cash position of $8.3 million, net of debt, along with having $97.3 million of availability under its committed credit facility.
  • Reported net income was $0.6 million for the quarter, or $0.07 per diluted share compared to $0.14 in the second quarter of 2019. On an adjusted basis excluding stock-based compensation and severance expense, diluted earnings per share were $0.37. (See reconciliation in Table 2)

Second Quarter Results

Net sales in the second quarter of 2020 were $72.1 million compared to $96.1 million in the second quarter of 2019. The decrease year-to-year reflects the economic impact of the COVID-19 pandemic with the most significant decline occurring in April when sales decreased 35%. Sequentially, May sales improved 23% and June sales further improved 6% as average daily sales started to recover during the quarter. During April, the Company experienced a demand surge for its safety and cleaning products with softer trends in its automotive product line. As the quarter progressed, product category mix trends normalized. The Bolt Supply House sales were also impacted by COVID-19 restrictions placed on many of its customers along with additional restrictions on its branch locations. Average daily sales for the full business declined to $1.127 million compared to $1.502 million in the prior year quarter with both quarters having 64 selling days.

Reported gross profit was $38.3 million compared to $51.0 million in the second quarter of 2019, primarily driven by lower sales due to the impact of COVID-19. However, consolidated gross profit as a percentage of sales remained steady at 53.1% for the second quarter of 2020 compared to 2019. The core Lawson MRO segment gross margin excluding service-related costs, was 59.7% in the second quarter 2020, compared to 60.5% a year ago quarter, reflecting reduced operating leverage on a lower sales base, higher net freight costs and a mix shift, primarily during April, toward lower margin safety and cleaning products.

Selling expenses decreased to $16.3 million in the second quarter of 2020 compared to $21.9 million in the prior year. As a percentage of sales, reported selling expenses decreased to 22.6% from 22.8% in the second quarter of 2019. The decrease in selling expense primarily reflects efforts to manage sales employee compensation to be in line with lower sales with fewer sales personnel.

General and administrative expenses decreased $6.2 million to $21.4 million in the second quarter of 2020 compared to $27.6 million in the prior year quarter. The decline in G&A expense is primarily due to initiatives to align the cost structure with the demand environment as well as a decrease in stock-based compensation expense, a portion of which fluctuates with the Company's stock price. Our cost management actions included furloughing 100 employees, temporary compensation reductions, canceling travel and trip awards, eliminating certain less productive sales representative positions and consolidating the Suwanee, GA distribution center operations into the McCook, IL facility. Excluding expenses related to stock-based compensation and severance, general and administrative expenses decreased $4.0 million, a portion of which represent productivity improvements that will benefit the Company on a long-term basis.

Reported operating income in the second quarter of 2020 was $0.6 million compared to operating income of $1.6 million in the prior year quarter. Adjusted non-GAAP operating income was $4.8 million in the second quarter of 2020 compared to $7.9 million in the prior year quarter. (See reconciliation in Table 1) For the quarter, adjusted EBITDA was $6.3 million compared to $9.4 million for the prior year quarter. (See reconciliation in Table 1)

Reported net income for the second quarter of 2020 was $0.6 million, or $0.07 per diluted share compared to net income of $1.3 million, or $0.14 per diluted share, for the same period a year ago. Adjusted net income was $3.5 million or $0.37 per diluted share compared to $0.62 a year ago. (See reconciliation in Table 2)

At June 30, 2020, the Company had $10.0 million of unrestricted cash and cash equivalents and an additional $97.3 million of borrowing capacity, net of outstanding letters of credit, under its committed credit facility. Management has strategically prioritized maintaining its strong cash and financial position and remains prepared to act upon opportunities for accretive acquisitions.

Conference Call

Lawson Products, Inc. will conduct a conference call with investors to discuss second quarter 2020 results at 9:00 a.m. Eastern Time on July 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 August 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 35110#. A streaming audio of the call and an archived replay will also be available on the investor relations page of Lawson's website through August 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 June 30,

 

Six Months Ended June 30,

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

 

 

 

 

 

 

 

 

Product revenue

$

64,571

 

 

$

85,996

 

 

$

145,906

 

 

$

167,911

 

Service revenue

 

7,575

 

 

 

10,101

 

 

 

17,275

 

 

 

19,529

 

Total revenue

 

72,146

 

 

 

96,097

 

 

 

163,181

 

 

 

187,440

 

 

 

 

 

 

 

 

 

Product cost of goods sold

 

31,063

 

 

 

40,580

 

 

 

68,868

 

 

 

78,587

 

Service costs

 

2,770

 

 

 

4,474

 

 

 

7,079

 

 

 

8,887

 

Gross profit

 

38,313

 

 

 

51,043

 

 

 

87,234

 

 

 

99,966

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

Selling expenses

 

16,306

 

 

 

21,867

 

 

 

36,290

 

 

 

43,609

 

General and administrative expenses

 

21,438

 

 

 

27,553

 

 

 

31,737

 

 

 

49,190

 

Operating expenses

 

37,744

 

 

 

49,420

 

 

 

68,027

 

 

 

92,799

 

 

 

 

 

 

 

 

 

Operating income

 

569

 

 

 

1,623

 

 

 

19,207

 

 

 

7,167

 

 

 

 

 

 

 

 

 

Interest expense

 

(72

)

 

 

(146

)

 

 

(187

)

 

 

(343

)

Other income (expense), net

 

511

 

 

 

339

 

 

 

(600

)

 

 

811

 

 

 

 

 

 

 

 

 

Income before income taxes

 

1,008

 

 

 

1,816

 

 

 

18,420

 

 

 

7,635

 

Income tax expense

 

389

 

 

 

509

 

 

 

5,268

 

 

 

2,182

 

 

 

 

 

 

 

 

 

Net income

$

619

 

 

$

1,307

 

 

$

13,152

 

 

$

5,453

 

 

 

 

 

 

 

 

 

Basic income per share of common stock

$

0.07

 

 

$

0.15

 

 

$

1.46

 

 

$

0.61

 

 

 

 

 

 

 

 

 

Diluted income per share of common stock

$

0.07

 

 

$

0.14

 

 

$

1.41

 

 

$

0.58

 

 

Lawson Products, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share data)

 

 

June 30,

 

December 31,

 

 

2020

 

 

 

2019

 

ASSETS

(Unaudited)

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

10,012

 

 

$

5,495

 

Restricted cash

 

802

 

 

 

802

 

Accounts receivable, less allowance for doubtful accounts of $961 and $593, respectively

 

33,968

 

 

 

38,843

 

Inventories, net

 

54,910

 

 

 

55,905

 

Miscellaneous receivables and prepaid expenses

 

6,046

 

 

 

5,377

 

Total current assets

 

105,738

 

 

 

106,422

 

 

 

 

 

Property, plant and equipment, net

 

14,872

 

 

 

16,546

 

Deferred income taxes

 

19,218

 

 

 

21,711

 

Goodwill

 

20,150

 

 

 

20,923

 

Cash value of life insurance

 

14,716

 

 

 

14,969

 

Intangible assets, net

 

11,250

 

 

 

12,335

 

Right of use assets

 

9,507

 

 

 

11,246

 

Other assets

 

256

 

 

 

277

 

Total assets

$

195,707

 

 

$

204,429

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

 

11,492

 

 

 

13,789

 

Lease obligation

 

3,921

 

 

 

3,830

 

Accrued expenses and other liabilities

 

24,195

 

 

 

39,311

 

Total current liabilities

 

39,608

 

 

 

56,930

 

 

 

 

 

Revolving line of credit

 

1,712

 

 

 

2,271

 

Security bonus plan

 

11,832

 

 

 

11,840

 

Lease obligation

 

7,427

 

 

 

9,504

 

Deferred compensation

 

6,186

 

 

 

6,370

 

Deferred tax liability

 

6,094

 

 

 

6,188

 

Other liabilities

 

3,804

 

 

 

3,325

 

Total liabilities

 

76,663

 

 

 

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 - 9,201,315 and 9,190,171 shares, respectively

Outstanding - 9,007,411 and 9,043,771 shares, respectively

 

9,201

 

 

 

9,190

 

Capital in excess of par value

 

19,029

 

 

 

18,077

 

Retained earnings

 

99,648

 

 

 

86,496

 

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

 

(7,517

)

 

 

(5,761

)

Accumulated other comprehensive income (loss)

 

(1,317

)

 

 

(1

)

Total stockholders' equity

 

119,044

 

 

 

108,001

 

Total liabilities and stockholders' equity

$

195,707

 

 

$

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 and six months ended June 30, 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

 

Six Months Ended

 

June 30,

 

June 30,

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

Operating income as reported per GAAP

$

569

 

$

1,623

 

$

19,207

 

 

$

7,167

 

 

 

 

 

 

 

 

Stock-based compensation (1)

 

3,187

 

 

4,839

 

 

(7,513

)

 

 

5,247

 

 

 

 

 

 

 

 

Severance expense

 

1,025

 

 

1,485

 

 

1,032

 

 

 

1,512

 

 

 

 

 

 

 

 

Adjusted non-GAAP operating Income

 

4,781

 

 

7,947

 

 

12,726

 

 

 

13,926

 

 

 

 

 

 

 

 

Depreciation and amortization

 

1,511

 

 

1,455

 

 

3,020

 

 

 

2,933

 

 

 

 

 

 

 

 

Non-GAAP adjusted EBITDA

$

6,292

 

$

9,402

 

$

15,746

 

 

$

16,859

(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 June 30,

 

2020

 

2019

 

Amount

 

Diluted EPS (3)

 

Amount

 

Diluted EPS (3)

Net income, as reported per GAAP

$

619

 

 

$

0.07

 

 

$

1,307

 

 

$

0.14

 

Pretax adjustments:

 

 

 

 

 

 

 

Stock-based compensation (1)

 

3,187

 

 

 

0.34

 

 

 

4,839

 

 

 

0.52

 

 

 

 

 

 

 

 

 

Severance expense

 

1,025

 

 

 

0.11

 

 

 

1,485

 

 

 

0.16

 

 

 

 

 

 

 

 

 

Pretax adjustments

 

4,212

 

 

 

0.45

 

 

 

6,324

 

 

 

0.68

 

 

 

 

 

 

 

 

 

Tax effect (2)

 

(1,365

)

 

 

(0.15

)

 

 

(1,771

)

 

 

(0.20

)

 

 

 

 

 

 

 

 

Total adjustments, net of tax

 

2,847

 

 

 

0.30

 

 

 

4,553

 

 

 

0.48

 

 

 

 

 

 

 

 

 

Non-GAAP adjusted net income

$

3,466

 

 

$

0.37

 

 

$

5,860

 

 

$

0.62

 

(1)

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

(2)

Tax effected at quarterly effective tax rate of 32.4% for 2020 and 28.0% for 2019 which excludes the effect of discrete items

(3)

Pretax adjustments to diluted EPS calculated on 9.298 million and 9.381 million diluted shares for the second quarter 2020 and the second quarter 2019, respectively

 

Six Months Ending June 30,

 

2020

 

2019

 

Amount

 

Diluted EPS (3)

 

Amount

 

Diluted EPS (3)

Net Income, as reported per GAAP

$

13,152

 

 

$

1.41

 

 

$

5,453

 

 

$

0.58

 

Pretax adjustments:

 

 

 

 

 

 

 

Stock-based (benefit) compensation (1)

 

(7,513

)

 

 

(0.81

)

 

5,247

 

 

 

0.56

 

 

 

 

 

 

 

 

 

Severance expense

 

1,032

 

 

 

0.12

 

 

 

1,512

 

 

 

0.16

 

 

 

 

 

 

 

 

 

Pretax adjustments

 

(6,481

)

 

 

(0.69

)

 

6,759

 

 

 

0.72

 

 

 

 

 

 

 

 

 

Tax effect (2)

 

1,854

 

 

 

0.21

 

 

(1,933

)

 

 

(0.20

)

 

 

 

 

 

 

 

 

Total adjustments, net of tax

 

(4,627

)

 

 

(0.48

)

 

4,826

 

 

 

0.52

 

 

 

 

 

 

 

 

 

Non-GAAP adjusted net income

$

8,525

 

 

$

0.93

 

 

$

10,279

 

 

$

1.10

 

(1)

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

(2)

Tax effected at quarterly effective tax rate of 28.6% for 2020 and 28.6% for 2019 which excludes the effect of discrete items

(3)

Pretax adjustments to diluted EPS calculated on 9.327 million and 9.348 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

 

Jun. 30

2020

 

Mar. 31

2020

 

Dec. 31

2019

 

Sep. 30

2019

 

Jun. 30

2019

 

 

 

 

 

 

 

 

 

 

Number of business days

 

64

 

 

 

64

 

 

 

61

 

 

 

64

 

 

 

64

 

 

 

 

 

 

 

 

 

 

 

Average daily net sales (dollars in thousands)

$

979

 

 

$

1,265

 

 

$

1,279

 

 

$

1,295

 

 

$

1,316

 

Year over year increase (decrease)

 

(25.6

)%

 

 

(2.5

)%

 

 

1.7

%

 

 

3.7

%

 

 

4.4

%

Sequential quarter increase (decrease)

 

(22.6

)%

 

 

(1.1

)%

 

 

(1.2

)%

 

 

(1.6

)%

 

 

1.5

%

 

 

 

 

 

 

 

 

 

 

Average active sales rep. count (1)

 

957

 

 

 

998

 

 

 

1,002

 

 

 

989

 

 

 

980

 

Period-end active sales rep count

 

938

 

 

 

993

 

 

 

1,006

 

 

 

993

 

 

 

982

 

 

 

 

 

 

 

 

 

 

 

Sales per rep. per day

$

1.023

 

 

$

1.268

 

 

$

1.276

 

 

$

1.309

 

 

$

1.343

 

Year over year increase (decrease)

 

(23.8

)%

 

 

(3.1

)%

 

 

0.3

%

 

 

1.3

%

 

 

3.0

%

Sequential quarter increase (decrease)

 

(19.3

)%

 

 

(0.6

)%

 

 

(2.5

)%

 

 

(2.5

)%

 

 

2.7

%

(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

 

Jun. 30

2020

 

Mar. 31

2020

 

Dec. 31

2019

 

Sep. 30

2019

 

Jun. 30

2019

 

 

 

 

 

 

 

 

 

 

Average daily net sales

$

1,127

 

 

$

1,422

 

 

$

1,452

 

 

$

1,481

 

 

$

1,502

 

Year over year increase

 

(25.0

)%

 

 

(1.9

)%

 

 

2.7

%

 

 

5.4

%

 

 

6.3

%

Sequential quarter increase (decrease)

 

(20.7

)%

 

 

(2.1

)%

 

 

(2.0

)%

 

 

(1.4

)%

 

 

3.6

%

 

 

 

 

 

 

 

 

 

 

Net Sales

$

72,146

 

 

$

91,035

 

 

$

88,566

 

 

$

94,779

 

 

$

96,097

 

Gross profit

 

38,313

 

 

 

48,921

 

 

 

46,814

 

 

 

50,574

 

 

 

51,043

 

 

 

 

 

 

 

 

 

 

 

Gross profit percentage

 

53.1

%

 

 

53.7

%

 

 

52.9

%

 

 

53.4

%

 

 

53.1

%

 

 

 

 

 

 

 

 

 

 

Selling, general & administrative expenses

$

37,744

 

 

$

30,283

 

 

$

51,361

 

 

$

44,128

 

 

$

49,420

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

$

569

 

 

$

18,638

 

 

$

(4,547

)

 

$

6,446

 

 

$

1,623

 

 

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