CHICAGO — Lawson Products, Inc., a distributor of products and services to the MRO marketplace, today announced results for the first quarter ended March 31, 2018.
Highlights
- Average daily sales (“ADS”) increased 15.0% to $1.341 million during the first quarter of 2018 compared to $1.166 million in the first quarter of 2017
- Organic Lawson segment ADS increased by 4.0% compared to prior year quarter
- GAAP operating income rose to $1.8 million compared to $0.7 million in the first quarter of 2017. Non-GAAP EBITDA, adjusted for stock-based compensation and severance improved $2.2 million to $5.1 million from $2.9 million a year ago. The Lawson segment adjusted EBITDA was $4.5 million compared to $2.9 million a year ago quarter (see reconciliation in Table 2)
- The Bolt Supply House (“Bolt Supply”), which was acquired in October of 2017, added $8.0 million of sales, $0.5 million of operating income and $0.6 million of adjusted EBITDA in the first quarter 2018
“The positive results achieved during the quarter demonstrate how we have strengthened our business both organically and through acquisitions,” said Michael DeCata, president and chief executive officer. “The 15% increase in average daily sales was driven by improved Lawson sales rep efficiency and the inclusion of Bolt Supply. The $2.2 million improvement in our adjusted non-GAAP EBITDA is a result of our sales growth combined with the leveraging of our existing expense base.”
On January 1, 2018, the Company adopted Accounting Standards Codification 606-Revenue From Contracts With Customers (“ASC 606”). As part of the Company’s adoption of ASC 606, it concluded that it has two separate performance obligations, and accordingly, two separate revenue streams: product and services. As a result, the Company is now reporting two separate revenue streams and two separate costs of revenues. The adoption of ASC 606 had a minimal impact on total reported revenues, costs and net income for the first quarter 2018 results. However, the adoption required the prospective reclassification of certain selling expenses associated with the separately identified vendor managed inventory services performance obligation historically classified as selling expense to cost of sales. As ASC 606 was adopted on a modified retrospective method, prior quarters are not restated.
First Quarter Results
Total sales increased 13.2% to $84.5 million for the first quarter of 2018 compared to $74.6 million in 2017 with 2018 having one less selling day. Average daily sales grew 15.0% to $1.341 million compared to $1.166 million in the previous year quarter. Sales were positively impacted by $8.0 million from the inclusion of the Bolt Supply acquisition completed at the beginning of the fourth quarter of 2017 and the 6.4% improvement of Lawson sales rep productivity compared to the first quarter 2017.
First quarter gross profit increased $1.3 million to $46.2 million compared to $44.9 million in 2017. The reclassification of expenses associated with vendor managed inventory services in the first quarter of 2018 reduced reported gross margins by $3.4 million. Prior to this reclassification, gross margins improved by 10.6% or $4.7 million. Due to the expense reclassification and the anticipated effect of the lower gross margins of Bolt Supply, reported gross margin was 54.7% compared to 60.1% a year ago. The Lawson segment gross margin grew to 60.6% versus 60.1% in the year-ago quarter. The expansion in the Lawson segment gross margin was driven by improved efficiency in our fulfillment process and lower customer set-up costs partially offset by increased sales to our strategic customers who typically have lower gross margins.
Selling expenses decreased $2.9 million to $21.9 million in the first quarter from $24.8 million reported in the prior-year quarter. This decrease is primarily due to the $3.4 million reclassification of services expense to cost of revenues, partially offset by the inclusion of Bolt Supply in the quarter. Prior to the expense reclassification, selling expenses increased by $0.5 million primarily due to the inclusion of Bolt Supply. The addition of Bolt Supply’s selling expense of $0.6 million was partially offset by lower Lawson consulting and insurance expenses. As a percent of sales, selling expenses decreased from 33.2% to 26.0% due to the aforementioned reclassification of expenses, a reduction of costs within the Lawson segment and the proportionately lower selling expense structure in Bolt Supply’s operations.
General and administrative expenses were $22.4 million in the first quarter of 2018 compared to $19.4 million in the prior-year quarter. This increase was primarily due to Bolt Supply expenses of $2.1 million, higher stock-based compensation of $1.0 million, a portion of which varies with the company stock price, and incremental severance. Excluding these items, the Lawson segment general and administrative expenses were down slightly compared to a year ago quarter as we continue to manage our costs.
Operating income in the first quarter of 2018 was $1.8 million compared to $0.7 million a year ago. Adjusted non-GAAP EBITDA, adjusted for stock-based compensation and severance increased to $5.1 million in the first quarter of 2018 compared to $2.9 million in the year-ago quarter (see reconciliation in Table 2). The growth in adjusted non-GAAP EBITDA from a year ago was primarily due to an additional $1.6 million being generated from the Lawson segment, with the remaining $0.6 million being generated by Bolt Supply.
Net income for the first quarter of 2018 was $1.2 million, or $0.13 per diluted share compared to net income of $0.9 million, or $0.09 per diluted share, for the same period a year ago. The first quarter of 2018 includes income tax expense which negatively impacted our fully diluted earnings per share by $0.07.
“Our performance this quarter demonstrated the benefit of our acquisition strategy as well as our ability to leverage our infrastructure as we grow organic sales. Our improving financial performance is a continuation of benefits realized by the investments we have made over the past several years, combined with a stronger industrial economy. We will continue to execute our plan to achieve higher profit through increased sales combined with leveraging our infrastructure,” concluded Mr. DeCata.
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