Sales Growth and Operating Leverage Drive
Improved Results
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, 2019.
"Our continued strong execution has delivered another quarter of
great results and a strengthening of our balance sheet. This
improvement was reflected across-the-board with total revenue
increasing 6.3% over a year ago quarter, or 7.1% excluding currency
fluctuations. Although reported operating income was lower, mainly
due to the effect of the 17% increase in our stock price on
stock-based compensation, our adjusted operating income grew nearly
31%. We also passed our stated milestone of achieving better than
10% adjusted EBITDA margin for the quarter, excluding the impact of
the new lease accounting rule. Our results were driven by continued
improvement in Lawson sales rep productivity, strong sales growth
at The Bolt Supply House and a contribution from recently acquired
Screw Products," said Michael DeCata, president and chief executive
officer.
"Our strategy to improve sales rep productivity through ongoing
training, support and improved customer fulfillment processes has
continued to produce positive results over the past few years.
Going forward, we are well positioned to drive additional earnings
through leveraging our infrastructure on organic growth and through
acquisitions,” said DeCata.
Highlights
- Sales of $96.1 million increased 6.3% year-over-year. Excluding
the impact of currency fluctuations, sales grew 7.1%
- Lawson MRO segment ADS increased 4.4% primarily driven by a
3.0% growth in sales rep productivity as measured by sales per rep
per day
- Reported operating income was $1.6 million compared to $5.6
million in the second quarter of 2018. Non-GAAP adjusted operating
income excluding stock-based compensation and severance expense
increased 30.9% to $7.9 million from $6.1 million a year ago. (See
reconciliation in Table 1) As a percent of sales adjusted EBITDA
was 9.8% which was negatively impacted by .3% from adopting the new
lease accounting rule. On a comparable basis, this 10.1% for the
quarter exceeded the 8.6% reported in the prior year
- Reported GAAP net income was $1.3 million or $0.14 per diluted
share in the second quarter of 2019 compared to $0.35 a year ago.
Adjusted net income, excluding stock-based compensation and
severance was $5.9 million or $0.62 per diluted share compared to
adjusted per diluted share of $0.39 a year ago (See reconciliation
in Table 2). On a year-to-date basis, adjusted diluted EPS has
improved 72% to $1.10 (See reconciliation in Table 2)
- Net cash generated from operations in the quarter of $8.3
million was used to reduce net borrowings by $7.6 million
Second Quarter Summary Financial
Highlights
Three Months Ended June 30,
($ in millions)
2019
2018
Change
Net Sales
$
96.1
$
90.4
6.3
%
Average Daily Net Sales
$
1.502
$
1.412
6.3
%
Number of Business Days
64
64
Reported Operating Income
$
1.6
$
5.6
(70.8
)%
Adjusted Operating Income (1)
$
7.9
$
6.1
30.9
%
Adjusted EBITDA (1)
$
9.4
$
7.7
21.3
%
Margin (1)
9.8
%
8.6
%
+120 bps
Adjusted EBITDA Margin (2)
10.1
%
8.6
%
+150 bps
Reported Diluted Earnings Per Share
$
0.14
$
0.35
$
(0.21
)
Adjusted Diluted Earnings Per Share
(3)
$
0.62
$
0.39
$
0.23
(1)
Excludes the impact of
stock-based compensation, severance and other non-recurring items.
(See reconciliation in Table 1)
(2)
2019 excludes the adoption of ASC
842 - Leases which requires certain expenses previously recognized
as depreciation expense to be recorded as operating expenses. This
accounting change reduced the adjusted EBITDA margin by 0.3% in
2019.
(3)
Excludes the impact of
stock-based compensation, severance and other non-recurring items.
(See reconciliation in Table 2)
Second Quarter Results
Net sales increased 6.3% to $96.1 million in the second quarter
of 2019 compared to $90.4 million in the second quarter of 2018.
Sales growth reflected a 3.0% increase in the Lawson segment sales
rep productivity driven by increases with our government, core and
Kent Automotive customers. The Bolt Supply House, which represents
approximately 12% of consolidated sales, increased 14.0% reflecting
strength across multiple product categories. In addition, Screw
Products, which was acquired in the fourth quarter of 2018,
contributed to the increase with sales of $0.7 million. Excluding
the impact of currency fluctuations, consolidated sales increased
7.1% for the quarter. Average daily sales grew to $1.502 million
compared to $1.412 million in the prior year quarter with 64
selling days in both quarters.
Gross profit increased $1.9 million to $51.0 million compared to
$49.1 million in the second quarter of 2018, primarily due to sales
growth. Consolidated gross profit as a percentage of sales was
53.1% for the second quarter of 2019 compared to 54.4% in the
second quarter of 2018. Gross profit margin reflected an increase
in the classification of service-related costs combined with growth
in sales from Bolt Supply and Screw Products, which have lower
gross margin profiles. The core Lawson MRO segment gross margin
before giving effect of service-related costs was 60.5% in the
second quarter 2019, essentially flat compared to a year ago.
The Company continues to efficiently manage its cost structure.
Despite significant sales growth, reported selling expenses
decreased slightly to $21.9 million in the second quarter compared
to $22.0 million in the prior year quarter. As a percentage of
sales, reported selling expenses decreased to 22.8% from 24.3% in
the second quarter of 2018 primarily due to leveraging selling
expenses over a larger sales base, an increase in service-related
costs classified within gross profit and lower selling expenses at
Bolt Supply and Screw Products.
General and administrative expenses increased $6.0 million to
$27.6 million in the second quarter of 2019 compared to $21.6
million in the prior year quarter. The G&A increase over the
prior year reflected a $4.8 million rise in stock-based
compensation expense, related predominately to the 17% increase in
our stock price, as well as an increase in severance expense of
$1.4 million. Excluding these items, general and administrative
expenses decreased as a percent of sales to 22.1% from 23.7% a year
ago quarter. Other G&A costs were collectively lower than the
prior year quarter. During the quarter the Company incurred $1.5
million of severance expense primarily related to the elimination
of certain positions to better align various operating areas within
the Company.
Reported operating income in the second quarter of 2019 was $1.6
million compared to operating income of $5.6 million in the prior
year quarter. Adjusted non-GAAP operating income increased to $7.9
million in the second quarter of 2019 compared to $6.1 million in
the prior year quarter. (See reconciliation in Table 1) For the
quarter, adjusted EBITDA was $9.4 million, an improvement of 21.3%
over the prior year quarter. (See reconciliation in Table1)
Reported net income for the second quarter of 2019 was $1.3
million, or $0.14 per diluted share compared to net income of $3.2
million, or $0.35 per diluted share, for the same period a year
ago. Adjusted net income was $5.9 million or $0.62 per diluted
share compared to $0.39 a year ago. (See reconciliation in Table 2)
On a year-to-date basis, adjusted diluted earnings per share has
improved 72% to $1.10. (See reconciliation in Table 2)
At June 30, 2019, Lawson had $7.7 million of available cash and
cash equivalents, $8.8 million of borrowings and $30.7 million of
available credit under its credit facilities.
Conference Call
Lawson Products, Inc. will conduct a conference call with
investors to discuss second quarter 2019 results at 9:00 a.m.
Eastern Time on July 25, 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 August 30, 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 49542#. 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 30,
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
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, 2018, Form 10-K filed on March
4, 2019. 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.
-TABLES FOLLOW-
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,
2019
2018
2019
2018
Product revenue
$
85,996
$
80,397
$
167,911
$
155,367
Service revenue
10,101
9,985
19,529
19,474
Total revenue
96,097
90,382
187,440
174,841
Product cost of goods sold
40,580
37,856
78,587
72,688
Service costs
4,474
3,395
8,887
6,804
Gross profit
51,043
49,131
99,966
95,349
Operating expenses:
Selling expenses
21,867
22,004
43,609
43,944
General and administrative expenses
27,553
21,573
49,190
44,014
Operating expenses
49,420
43,577
92,799
87,958
Operating income
1,623
5,554
7,167
7,391
Interest expense
(146
)
(264
)
(343
)
(504
)
Other income (expense), net
339
(777
)
811
(490
)
Income before income taxes
1,816
4,513
7,635
6,397
Income tax expense
509
1,319
2,182
1,967
Net income
$
1,307
$
3,194
$
5,453
$
4,430
Basic income per share of common
stock
$
0.15
$
0.36
$
0.61
$
0.50
Diluted income per share of common
stock
$
0.14
$
0.35
$
0.58
$
0.48
Lawson Products, Inc.
Condensed Consolidated Balance
Sheets
(Dollars in thousands, except
share data)
June 30,
December 31,
2019
2018
ASSETS
(Unaudited)
Current assets:
Cash and cash equivalents
$
6,915
$
11,883
Restricted cash
800
800
Accounts receivable, less allowance for
doubtful accounts of $596 and $549, respectively
45,570
37,682
Inventories, net
55,360
52,887
Miscellaneous receivables and prepaid
expenses
4,742
3,653
Total current assets
113,387
106,905
Property, plant and equipment, net
17,630
23,548
Deferred income taxes
19,021
20,592
Goodwill
20,794
20,079
Cash value of life insurance
13,167
12,599
Intangible assets, net
12,895
13,112
Lease assets
11,840
—
Other assets
298
307
Total assets
$
209,032
$
197,142
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Revolving lines of credit
$
8,823
$
10,823
Accounts payable
16,550
15,207
Lease obligation
3,708
—
Accrued expenses and other liabilities
34,904
40,179
Total current liabilities
63,985
66,209
Security bonus plan
12,353
12,413
Lease obligation
10,500
5,213
Deferred compensation
5,670
5,304
Deferred tax liability
2,900
2,761
Other liabilities
4,292
6,069
Total liabilities
99,700
97,969
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 -
9,032,948 and 9,005,716 shares, respectively Outstanding -
8,983,162 and 8,955,930 shares, respectively
9,033
9,006
Capital in excess of par value
16,973
15,623
Retained earnings
84,728
77,338
Treasury stock – 49,786 shares
(1,234
)
(1,234
)
Accumulated other comprehensive loss
(168
)
(1,560
)
Total stockholders’ equity
109,332
99,173
Total liabilities and stockholders’
equity
$
209,032
$
197,142
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, 2019 and 2018. 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,
2019
2018
2019
2018
Operating income as reported per GAAP
$
1,623
$
5,554
$
7,167
$
7,391
Stock-based compensation (1)
4,839
87
5,247
1,057
Severance expense
1,485
64
1,512
692
Discontinued operation accrual (2)
—
529
—
529
Lease termination gain
—
(164
)
—
(164
)
Adjusted non-GAAP operating Income
7,947
6,070
13,926
9,505
Depreciation and amortization (3)
1,455
1,679
2,933
3,365
Non-GAAP adjusted EBITDA
$
9,402
$
7,749
$
16,859
$
12,870
(1)
A portion of stock-based
compensation expense varies with the Company's stock price
(2)
Additional estimated future
remediation of an environmental matter at the Decatur, Alabama
property
(3)
2019 includes the adoption of ASC
842 - Leases which requires certain expenses previously recognized
as depreciation expense to be recorded as operating expenses of
$0.7 million.
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,
2019
2018
Amount
Diluted EPS (2)
Amount
Diluted EPS (2)
Net Income, as reported per GAAP
$
1,307
$
0.14
$
3,194
$
0.35
Pretax adjustments:
Stock-based compensation
4,839
0.52
87
0.01
Severance expense
1,485
0.16
64
0.01
Lease termination gain
—
—
(164
)
(0.02
)
Discontinued operation accrual
—
—
529
0.06
Pretax adjustments
6,324
0.68
516
0.06
Tax effect (1)
(1,771
)
(0.20
)
(151
)
(0.02
)
Total adjustments, net of tax
4,553
0.48
365
0.04
Non-GAAP adjusted net income
$
5,860
$
0.62
$
3,559
$
0.39
(1)
Tax effected at quarterly
effective tax rate of 28.0% for 2019 and 29.2% for 2018
(2)
Pretax adjustments to diluted EPS
calculated on 9.381 million and 9.217 million of diluted shares for
2019 and 2018, respectively
Six Months Ended June 30,
2019
2018
Amount
Diluted EPS (2)
Amount
Diluted EPS (2)
Net Income, as reported per GAAP
$
5,453
$
0.58
$
4,430
$
0.48
Pretax adjustments:
Stock-based compensation
5,247
0.56
1,057
0.11
Severance expense
1,512
0.16
692
0.08
Lease termination gain
—
—
(164
)
(0.02
)
Discontinued operation accrual
—
—
529
0.06
Pretax adjustments
6,759
0.72
2,114
0.23
Tax effect (1)
(1,933
)
(0.20
)
(649
)
(0.07
)
Total adjustments, net of tax
4,826
0.52
1,465
0.16
Non-GAAP adjusted net income
$
10,279
$
1.10
$
5,895
$
0.64
(1)
Tax effected at quarterly
effective tax rate of 28.6% for 2019 and 30.7% for 2018
(2)
Pretax adjustments to diluted EPS
calculated on 9.348 million and 9.200 million of diluted shares for
2019 and 2018, respectively
Table 3 - Historic Core Lawson
Segment Sales and Sales Rep Productivity
(Dollars in Thousands)
(Unaudited)
Three Months Ended
Jun. 30
Mar. 31
Dec. 31
Sep. 30
Jun. 30
2019
2019
2018
2018
2018
Number of business days
64
63
61
63
64
Average daily net sales (dollars in
thousands)
$
1,316
$
1,297
$
1,258
$
1,249
$
1,260
Year over year increase
4.4
%
6.9
%
5.6
%
4.0
%
7.5
%
Sequential quarter increase (decrease)
1.5
%
3.1
%
0.7
%
(0.9
)%
3.9
%
Average active sales rep. count (1)
980
991
989
967
966
Period-end active sales rep count
982
986
994
978
968
Sales per rep. per day
$
1.343
$
1.308
$
1.272
$
1.292
$
1.304
Year over year increase
3.0
%
4.4
%
5.4
%
6.6
%
9.1
%
Sequential quarter increase (decrease)
2.7
%
2.8
%
(1.5
)%
(0.9
)%
4.1
%
(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
Mar. 31
Dec. 31
Sep. 30
Jun. 30
2019
2019
2018
2018
2018
Average daily net sales
$
1,502
$
1,450
$
1,414
$
1,405
$
1,412
Year over year increase
6.3
%
8.2
%
7.0
%
17.0
%
20.5
%
Sequential quarter increase (decrease)
3.6
%
2.5
%
0.6
%
(0.5
)%
5.3
%
Net Sales
$
96,097
$
91,343
$
86,266
$
88,530
$
90,382
Gross profit (1)
51,043
48,923
46,083
48,108
49,131
Gross profit percentage (1)
53.1
%
53.6
%
53.4
%
54.3
%
54.4
%
Selling, general & administrative
expenses
$
49,420
$
43,379
$
41,998
$
50,374
$
43,577
Operating income (loss)
$
1,623
$
5,544
$
4,085
$
(2,266
)
$
5,554
(1)
Reflects the adoption of ASC 606
- Revenue Recognition effective January 1, 2018 including the
classification of certain selling costs as a reduction of gross
profit
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190725005076/en/
Investor Relations: Lawson Products, Inc. Ronald J.
Knutson Executive Vice President and Chief Financial Officer
773-304-5665
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