Distributors

Lawson Products 3Q Earnings Top Estimates

Lawson Products 3Q Earnings Top Estimates

CHICAGO — Lawson Products, Inc. today announced results for the third quarter ended September 30, 2018.

Highlights

  • Sales of $88.5 million, up 17.0%. Average daily sales (“ADS”) increased to $1.405 million during the third quarter of 2018 compared to $1.201 million in the third quarter of 2017
  • Lawson segment ADS increased 4.0%, excluding The Bolt Supply House (“Bolt Supply”), primarily due to a 6.6% improvement in sales rep productivity
  • Operating loss of $2.3 million, including $7.6 million in stock-based compensation expense due to a 39% increase in the market price of the Company’s stock price, compared to operating income of $1.1 million in the third quarter of 2017. Non-GAAP adjusted operating income of $5.6 million compared to $3.9 million a year ago, up 44.6%. Adjusted EBITDA of $7.3 million which exceeded the $5.4 million from a year ago, up 34.6% (See reconciliation in Table 2)
  • Net loss of $0.8 million or $0.09 per diluted share. Adjusted net income, excluding stock-based compensation, acquisition costs and severance, was $5.0 million or $0.54 per diluted share (See reconciliation in Table 3)
  • Borrowings, net of cash, were $2.3 million at September 30, 2018, a reduction of $7.8 million during the quarter, driven by strong cash flows from operations
  • Continued to be active with acquisitions by acquiring Dallas-based Screw Products, Inc. on October 1, 2018

“The third quarter results evidenced strong demand, solid execution on our growth strategy and a continuation of our favorable 2018 performance. We delivered a 17.0% sales increase driven by improved Lawson sales rep productivity as well as the inclusion of Bolt Supply. In addition, our adjusted operating income grew by nearly 45% demonstrating our ability to leverage our existing infrastructure,” said Michael DeCata, president and chief executive officer.

“Subsequent to the quarter, we announced the acquisition of Dallas-based Screw Products, Inc., a $3.0 million dollar customized fastener and component distributor that will expand our customer base in the job shop/manufacturing market segment. We will continue to make strategically-focused and disciplined investments. We remain confident that we will achieve continued earnings growth fueled by both organic sales and accretive acquisitions,” said DeCata.

Third Quarter Results

Net sales increased 17.0% to $88.5 million for the third quarter of 2018 compared to $75.7 million in 2017. Sales were positively impacted by a 6.6% improvement in the Lawson segment sales rep productivity compared to the third quarter of 2017 and the inclusion of Bolt Supply sales of $9.8 million. Average daily sales grew to $1.405 million compared to $1.201 million in the prior year quarter with 63 selling days in both quarters.

Third quarter gross profit increased $2.1 million to $48.1 million compared to $46.0 million in 2017, primarily due to increased sales and the acquisition of Bolt Supply. This was offset by $3.4 million due to the adoption of Accounting Standards Codification 606 (“ASC 606”) on January 1, 2018. Under ASC 606, certain costs were reclassified from selling expenses to cost of sales. (See Table 1)

Consolidated gross profit as a percentage of sales was 54.3% for the third quarter. Prior to the adoption of ASC 606, consolidated gross profit as a percentage of sales was 58.3% including Bolt Supply. The Lawson segment gross profit percentage, prior to ASC 606, was 60.9% compared to 60.8% in the year-ago quarter.

Selling expenses decreased to $22.2 million in the third quarter compared to $24.4 million a year ago. This decrease reflects the inclusion of $0.8 million of Bolt Supply expenses offset by $3.4 million of selling expenses now reported within gross profit. Selling expenses decreased to 25.0% from 32.2% of sales in the year-ago quarter primarily due fixed selling costs leveraged over a higher sales base, the adoption of the new revenue recognition standard and the inclusion of Bolt Supply, which has lower selling expenses as a percent of sales.

General and administrative expenses were $28.2 million in the third quarter of 2018 compared to $20.6 million in the year-ago quarter. The increase in general and administrative expense was driven by a $5.3 million increase in stock-based compensation in the third quarter of 2018 compared to the third quarter of 2017 and the inclusion of $2.2 million of general and administrative expenses for Bolt Supply. Excluding stock-based compensation, general and administrative expenses were 23.2% of sales for the quarter compared to 24.1% in the prior year third quarter.

Operating loss in the third quarter of 2018 was $2.3 million compared to income of $1.1 million a year ago. Adjusted non-GAAP operating income increased to $5.6 million in the third quarter of 2018 compared to $3.9 million in the year-ago quarter. The growth in adjusted non-GAAP operating income from a year ago was generated by an improvement of $1.0 million in the Lawson segment and the contribution of $0.7 million from Bolt Supply.

Net loss for the third quarter of 2018 was $0.8 million, or $0.09 per diluted share compared to net income of $1.3 million, or $0.14 per diluted share, for the same period a year ago. Net income for the third quarter of 2018 was negatively impacted by an increase in the market price of the Company’s common stock price which resulted in a charge for stock-based compensation of $7.6 million, or $0.64 per diluted share. Adjusted net income, excluding stock-based compensation, acquisition costs and severance, was $5.0 million or $0.54 per diluted share. (See reconciliation in Table 3)

Borrowings and Cash Flow

As of September 30, 2018, the Company had $9.9 million of borrowings under its revolving credit facility and cash and cash equivalents of $7.7 million. On a net basis, this represents a reduction of $7.8 million in the third quarter of 2018 primarily driven by improved earnings and working capital management. On a year-to-date basis, the Company has generated cash flows from operating activities of $10.2 million.

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