Improved Performance Continues
Lawson Products, Inc. (NASDAQ:LAWS)
(“Lawson” or the "Company"), a distributor of products and
services to the MRO marketplace, today announced results for the
fourth quarter and the full year ended December 31, 2020.
Summary Financial Highlights
Three Months Ended December
31,
Year Ended December
31,
($ in millions, except earnings per share
data)
2020
2019
Change
2020
2019
Change
Net Sales
$98.1
$88.6
10.8%
$351.6
$370.8
(5.2)%
Average Daily Net Sales
$1.609
$1.452
10.8%
$1.390
$1.471
(5.5)%
Number of Business Days
61
61
253
252
Reported Operating (Loss) Income
$(0.7)
$(4.5)
NA
$20.6
$9.1
126.7%
Adjusted Operating Income (1)
$6.9
$5.8
18.6%
$27.4
$28.6
(4.1)%
Adjusted EBITDA (1)
$9.0
$7.3
22.3%
$34.1
$34.5
(1.1)%
Adjusted EBITDA Margin (1)
9.1%
8.3%
+80 bps
9.7%
9.3%
+40 bps
Reported Diluted (Loss) Earnings Per
Share
$0.02
$(0.34)
$0.36
$1.62
$0.77
$0.85
Adjusted Diluted Earnings Per Share
(2)
$0.60
$0.48
$0.12
$2.16
$2.33
$(0.17)
(1) Excludes the impact of stock-based
compensation, severance and non-recurring items. (See
reconciliation in Table 1)
(2) Excludes the impact of stock-based
compensation, severance and non-recurring items. (See
reconciliation in Table 2)
“Our fourth quarter results demonstrate the progress we are
making with the ongoing recovery from the 2020 pandemic-driven
economic downturn. Net sales for the quarter grew 11% to $98.1
million including a full quarter's contribution from the
Partsmaster acquisition completed in the third quarter.
Profitability improved as we continued to leverage our cost
structure and realize the benefit from our recent acquisition. Our
organic adjusted EBITDA performance has returned to pre-pandemic
levels. Cash flow generated during the quarter was $12.5 million
and we finished 2020 in a strong financial position," said Michael
DeCata, president and chief executive officer.
“We are pleased with the Partsmaster performance and it has
proven to be an excellent strategic fit. During the fourth quarter,
Partsmaster contributed sales of $17.2 million to the organization
and was accretive to our full-year consolidated 9.7% operating
margin.
“Reflecting on last year’s results, I am encouraged by our
performance during the most difficult business environment we have
ever encountered. We were able to ensure the safety of our team
while providing outstanding service to our customers at the
standards they have come to expect. By adjusting our cost structure
for the effect of the pandemic to protect our profitability and
cash flows, we are well positioned entering 2021. We have been able
to recover organic daily sales by 38% over April’s levels, improve
operating margins, and integrate a significant acquisition in an
uncertain business environment. With continued focus on our cost
structure and almost 100 more sales reps than in 2019, we expect to
continue to deliver improving results and execute on our ongoing
growth strategy,” concluded DeCata.
Fourth Quarter Highlights
- Sales increased to $98.1 million compared to $88.6 million for
the fourth quarter 2019 and $90.3 million in the third quarter of
2020. Partsmaster contributed $17.2 million in sales in the quarter
and $5.4 million in sales in the third quarter 2020.
- Average daily net sales (ADS) reached $1.609 million in the
quarter, up nearly 43% from the low of $1.127 million recorded in
the second quarter due to the Partsmaster acquisition and a rebound
in organic sales.
- For the quarter, results improved with Lawson reporting an
operating loss of $0.7 million compared to an operating loss of
$4.5 million in the prior year quarter. Non-GAAP adjusted operating
income was $6.9 million for the quarter compared to $5.8 million in
the prior year quarter. (See table above and reconciliation in
Table 1). Non-GAAP adjustments consist of stock-based compensation,
severance expense, goodwill impairment and acquisition related
costs.
- Reported net income for the quarter improved to $0.2 million
compared to a net loss of $3.0 million in the year ago period.
Adjusted net income for the quarter also improved to $5.6 million
or $0.60 adjusted earnings per diluted share compared to $0.48
adjusted earnings per diluted share in the fourth quarter of 2019.
(See table above and reconciliation in Table 2).
- We generated $12.5 million of operating cash flows in the
quarter and $32.5 million for the full year 2020, ending the year
with $28.4 million of cash-on-hand and $66.0 million of
availability under our $100.0 million committed credit
facility.
Fourth Quarter Results
Net sales increased 10.8% to $98.1 million in the fourth quarter
of 2020 compared to $88.6 million in the fourth quarter of 2019
primarily due to the acquisition of Partsmaster in the third
quarter of 2020. Partsmaster contributed $17.2 million of sales in
the fourth quarter 2020. Average daily sales grew to $1.609 million
compared to $1.452 million in the prior year quarter. Excluding
Partsmaster, sales declined 8.6% compared to the year ago quarter
reflecting the economic effects of COVID-19. On a sequential basis,
average daily sales increased 14.0% over the third quarter driven
by the inclusion of Partsmaster for the full quarter. Excluding
Partsmaster, Lawson average daily sales improved slightly from the
third to the fourth quarter reflecting increases in most product
categories offset by less sales of lower margin PPE (Personal
Protective Equipment) products.
Gross profit increased $5.3 million to $52.1 million from $46.8
million in the fourth quarter of 2019 and improved as a percent of
sales to 53.1% compared to 52.9% in the year ago quarter. Excluding
the impact of Partsmaster, gross profit decreased $4.3 million
compared to the prior year quarter due to lower sales from the
impact of the COVID-19 pandemic. Prior to giving effect to
service-related costs, consolidated gross profit as a percentage of
sales was 58.1%, flat with the fourth quarter 2019 despite less
sales on which to leverage fixed costs.
Selling expenses increased to $21.3 million in the fourth
quarter of 2020 compared to $20.5 million in the prior year quarter
due to the inclusion of $3.6 million of selling expense from
Partsmaster this quarter. As a percent of sales, selling expenses
declined to 21.7% in the fourth quarter of 2020 compared to 23.1%
in the comparable period a year ago. Excluding Partsmaster, selling
expenses declined $2.9 million or 13.9% primarily due to reduced
compensation on lower sales, less travel related expenses and
continued cost controls.
General and administrative expenses were $31.4 million in the
fourth quarter of 2020 compared to $30.9 million in the prior year
quarter. The increase in general and administrative expense was
driven by the inclusion of $5.3 million from the Partsmaster
acquisition, a goodwill impairment charge of $1.9 million, and
increased severance expense of $0.3 million. These costs were
partially offset by a $5.4 million decrease in stock-based
compensation expense compared to the year ago quarter. Excluding
the impact of the acquisition, stock-based compensation, severance,
goodwill impairment and acquisition related costs, general and
administrative expenses decreased by $1.5 million or 7.5% due to
cost control actions taken throughout the year.
The Company's operating loss of $0.7 million in the fourth
quarter of 2020 improved by $3.8 million compared to a reported
operating loss of $4.5 million in the prior year quarter. Adjusted
non-GAAP operating income increased 18.6% to $6.9 million in the
fourth quarter of 2020 from $5.8 million in the prior year quarter.
(See reconciliation in Table 2) For the quarter, adjusted EBITDA
was $9.0 million or 9.1% of sales compared to $7.3 million or 8.3%
of sales in the prior year quarter. (See reconciliation in Table
1)
Reported net income for the fourth quarter of 2020 was $0.2
million, or $0.02 per diluted share compared to a net loss of $3.0
million, or $0.34 per diluted share, in the fourth quarter of 2019.
Adjusted net income improved to $5.6 million or $0.60 per diluted
share compared to $4.3 million or $0.48 per diluted share a year
ago. (See reconciliation in Table 2)
Full Year 2020 Results
Net sales were $351.6 million compared to $370.8 million in
2019, a decline of 5.2%. Sales were negatively impacted by the
COVID-19 pandemic partially offset by the acquisition of
Partsmaster which contributed $22.6 million in sales during 2020.
While all customer categories were impacted, the most significant
decline occurred in the second quarter at the onset of the
pandemic. By the end of the year, organic Lawson average daily
sales have recovered 38% over April's lows and were at
approximately 92% of pre-pandemic levels.
Reported operating income in 2020 was $20.6 million compared to
$9.1 million in 2019. The increase in operating income was driven
by a decrease of $15.8 million in stock-based compensation expense
compared to the prior year and the acquisition of Partsmaster
offset by the impact of the COVID-19 pandemic. Adjusted non-GAAP
operating income was $27.4 million in 2020 compared to $28.6
million in the prior year. For the year, adjusted EBITDA was $34.1
million or 9.7% of sales compared to $34.5 million or 9.3% a year
ago. (See table above and reconciliation in Table 1)
Reported net income for 2020 was $15.1 million or $1.62 per
diluted share compared to net income of $7.2 million, or $0.77 per
diluted share in 2019. Adjusted non-GAAP net income was $20.1
million or $2.16 adjusted diluted earnings per share compared to
$21.8 million or $2.33 per diluted share in 2019. (See table above
and reconciliation in Table 2)
Cash Flow and Cash Position
The Company ended the year with $28.4 million of cash and cash
equivalents on hand and generated $32.5 million of operating cash
flows for the year. Additionally, we have $66.0 million of
availability under our $100.0 million committed credit facility
which is net of the letter of credit securing the $33.0 million
payment due in May 2021 to the sellers of Partsmaster. We intend to
fund the final payment to the sellers using cash-on-hand and
availability under our credit facility for any remaining
portion.
Capital expenditures for the year of $1.7 million were primarily
for improvements to distribution centers and information
technology. During the first quarter of 2020 we repurchased 47,504
shares of our common stock, on the open market, at an average
purchase price of $36.93.
Conference Call
Lawson Products, Inc. will conduct a conference call with
investors to discuss fourth quarter 2020 results at 9:00 a.m.
Eastern Time on February 25, 2021. 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 March 31, 2021. 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 39783#. A streaming audio of
the call and an archived replay will also be available on the
investor relations page of Lawson's website through March 31,
2021.
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 and Partsmaster's Managed Inventory process
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 Operations
(Dollars in thousands, except
per share data)
(Unaudited)
Three Months Ended December
31,
Twelve Months Ended December
31,
2020
2019
2020
2019
Net sales
$
98,133
$
88,566
$
351,591
$
370,785
Cost of goods sold
46,054
41,752
165,053
173,431
Gross profit
52,079
46,814
186,538
197,354
Operating expenses:
Selling expenses
21,330
20,478
76,775
85,342
General & administrative expenses
31,407
30,883
89,213
102,946
Operating expenses
52,737
51,361
165,988
188,288
Operating income (loss)
(658
)
(4,547
)
20,550
9,066
Interest expense
(325
)
(122
)
(654
)
(603
)
Other income, net
874
413
889
1,211
Income (loss) before income
taxes
(109
)
(4,256
)
20,785
9,674
Income tax expense (benefit)
(332
)
(1,250
)
5,672
2,453
Net income (loss)
$
223
$
(3,006
)
$
15,113
$
7,221
Basic income (loss) per share of common
stock
$
0.02
$
(0.34
)
$
1.68
$
0.81
Diluted income (loss) per share of
common stock
$
0.02
$
(0.34
)
$
1.62
$
0.77
Lawson Products, Inc.
Condensed Consolidated Balance
Sheets
(Dollars in thousands, except
unaudited share data)
(Unaudited)
December 31, 2020
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
$
28,393
$
5,495
Restricted cash
998
802
Accounts receivable, less allowance for
doubtful accounts
44,515
38,843
Inventories, net
61,867
55,905
Miscellaneous receivables and prepaid
expenses
7,289
5,377
Total current assets
143,062
106,422
Property, plant and equipment, net
15,800
16,546
Deferred income taxes
18,482
21,711
Goodwill
35,176
20,923
Cash value of life insurance
16,185
14,969
Intangible assets, net
18,503
12,335
Right of use assets
8,764
11,246
Other assets
332
277
Total assets
$
256,304
$
204,429
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accrued acquisition liability
$
32,673
$
—
Accounts payable
22,262
13,789
Lease obligation
4,568
3,830
Accrued expenses and other liabilities
38,492
39,311
Total current liabilities
97,995
56,930
Revolving line of credit
—
2,271
Security bonus plan
11,262
11,840
Lease obligation
5,738
9,504
Deferred compensation
10,461
6,370
Deferred tax liability
2,841
6,188
Other liabilities
5,585
3,325
Total liabilities
133,882
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 – 9,287,625 and 9,190,171 shares,
respectively
Outstanding – 9,061,039 and 9,043,771
shares, respectively
9,288
9,190
Capital in excess of par value
19,841
18,077
Retained earnings
101,609
86,496
Treasury stock – 226,586 and 146,400
shares held, respectively
(9,015
)
(5,761
)
Accumulated other comprehensive loss
699
(1
)
Total stockholders’ equity
122,422
108,001
Total liabilities and stockholders’
equity
$
256,304
$
204,429
LAWSON PRODUCTS, INC.
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 infrequently occurring, seasonal or non-operational items
that impact the overall comparability. See Tables 1 and 2 below for
supplemental financial data and corresponding reconciliations to
GAAP financial measures for the three and twelve months ended
December 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 (Loss) to Adjusted Non-GAAP Operating Income
and EBITDA
(Dollars in thousands)
(Unaudited)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2020
2019
2020
2019
Operating (loss) income as reported per
GAAP (1)
$
(658
)
$
(4,547
)
$
20,550
$
9,066
Stock-based compensation (2)
4,776
10,167
2,009
17,788
Severance expense (3)
557
214
2,077
1,756
Goodwill impairment (4)
1,918
—
1,918
—
Acquisition related costs (5)
325
—
880
—
Adjusted non-GAAP operating Income
6,918
5,834
27,434
28,610
Depreciation and amortization
2,041
1,492
6,701
5,893
Non-GAAP adjusted EBITDA
$
8,959
$
7,326
$
34,135
$
34,503
(1)
Partsmaster acquisition contributed $0.1
million of GAAP income in the fourth quarter 2020 and $0.5 million
of GAAP operating income in the full year 2020.
(2)
Expense for stock-based compensation, of
which a portion varies with the Company's stock price
(3)
Includes severance expense from actions
taken in 2020 and 2019 along with 2020 severance and retention
costs related to the Partsmaster acquisition.
(4)
Represents the goodwill impairment related
to the 2018 acquisition of Screw Products, Inc. as the carrying
value of the reporting unit exceeded its estimated fair value.
(5)
Primarily legal and accounting costs
pertaining to the acquisition of Partsmaster.
Table 2 - Reconciliation of
GAAP Net Income (Loss) and Diluted EPS to Non-GAAP Adjusted Net
Income and Adjusted Diluted EPS (Unaudited)
(Dollars in thousands, except per share
amounts)
Three Months Ended December
31,
2020
2019
Amount
Diluted EPS (2)
Amount
Diluted EPS (2)
Net Income (loss) as reported per GAAP
$
223
$
0.02
$
(3,006
)
$
(0.34
)
Pretax adjustments:
Stock-based compensation
4,776
0.51
10,167
1.13
Severance expense
557
0.06
214
0.03
Goodwill impairment
1,918
0.21
—
—
Acquisition related costs
325
0.03
—
—
Pretax adjustments
7,576
0.81
10,381
1.16
Tax effect on adjustments (1)
(2,227
)
(0.23
)
(3,052
)
(0.34
)
Total adjustments, net of tax
5,349
0.58
7,329
0.82
Non-GAAP adjusted net income
$
5,572
$
0.60
$
4,323
$
0.48
(1)
Tax effected at effective tax rate of
29.4% for 2020 and 29.4% for 2019, excluding discrete items
(2)
Pretax adjustments to diluted EPS
calculated on 9.336 million and 8.961 million of diluted shares for
2020 and 2019, respectively
(Dollars in thousands, except per share
amounts)
Twelve Months Ended December
31,
2020
2019
Amount
Diluted EPS (2)
Amount
Diluted EPS (2)
Net Income as reported per GAAP
$
15,113
$
1.62
$
7,221
$
0.77
Pretax adjustments:
Stock-based compensation
2,009
0.22
17,788
1.90
Severance expense
2,077
0.22
1,756
0.18
Goodwill impairment
1,918
0.21
—
—
Acquisition related costs
880
0.09
—
—
Pretax adjustments
6,884
0.74
19,544
2.08
Tax effect on adjustments (1)
(1,879
)
(0.20
)
(4,964
)
(0.52
)
Total adjustments, net of tax
5,005
0.54
14,580
1.56
Non-GAAP adjusted net income
$
20,118
$
2.16
$
21,801
$
2.33
(1)
Tax effected at effective tax rate of
27.3% for 2020 and 25.4% for 2019
(2)
Pretax adjustments to diluted EPS
calculated on 9.331 million and 9.376 million of diluted shares for
2020 and 2019, respectively
Lawson Products Core
Business
Table 3 - Quarterly Data
(Unaudited)
Historical Lawson Segment Sales
Representative and Productivity Information
(Dollars in thousands)
Three Months Ended
Dec. 31
Sep. 30
Jun. 30
Mar. 31
Dec. 31
2020
2020
2020
2020
2019
Number of business days
61
64
64
64
61
Average daily net sales (1)
$
1,439
$
1,240
$
979
$
1,265
$
1,279
Year over year increase (decrease)
12.5
%
(4.2
)%
(25.6
)%
(2.5
)%
1.7
%
Sequential quarter increase (decrease)
16.0
%
26.7
%
(22.6
)%
(1.1
)%
(1.2
)%
Average active sales rep count (2)
1,099
993
957
998
1,002
Period-end active sales rep count
1,090
1,120
938
993
1,006
Sales per rep per day
$
1.309
$
1.249
$
1.023
$
1.268
$
1.276
Year over year increase (decrease)
2.6
%
(4.6
)%
(23.8
)%
(3.1
)%
0.3
%
Sequential quarter increase (decrease)
4.8
%
22.1
%
(19.3
)%
(0.6
)%
(2.5
)%
(1)
Quarters ended December 31, 2020 and
September 30, 2020 include Partsmaster revenue of $17.2 million and
$5.4 million, respectively, and weighted average reps counts of 196
and 67.
(2)
Average active sales representative count
represents the average of the month-end sales representative
counts
Lawson Products, Inc.
Table 4 - Consolidated
Quarterly Results (Unaudited)
(Dollars in thousands)
Three Months Ended
Dec. 31
Sep. 30
Jun. 30
Mar. 31
Dec. 31
2020
2020
2020
2020
2019
Average daily net sales
$
1,609
$
1,411
$
1,127
$
1,422
$
1,452
Year over year increase (decrease)
10.8
%
(4.7
)%
(25.0
)%
(1.9
)%
2.7
%
Sequential quarter increase (decrease)
14.0
%
25.2
%
(20.7
)%
(2.1
)%
(2.0
)%
Net sales
$
98,133
$
90,277
$
72,146
$
91,035
$
88,566
Gross profit
52,079
47,225
38,313
48,921
46,814
Gross profit percentage
53.1
%
52.3
%
53.1
%
53.7
%
52.9
%
Selling, general & administrative
expenses
$
52,737
$
45,224
$
37,744
$
30,283
$
51,361
Operating (loss) income
$
(658
)
$
2,001
$
569
$
18,638
$
(4,547
)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210225005167/en/
Investor Relations: Lawson Products, Inc. Ronald J.
Knutson Executive Vice President, Chief Financial Officer
773-304-5665
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