“During this challenging coronavirus period, Lawson is focused on the safety of our team members, servicing our customers and maintaining our financial strength. Lawson has been deemed an essential business by the government. Our field sales team and distribution network continue to operate while following a strict health protocol. I am confident that the strength and dedication of our team and suppliers, coupled with our financial strength, will see us through this environment,” said Michael DeCata, president and chief executive officer.
“In the first quarter of 2020, revenue decreased slightly over last year. Although sales were increasing sequentially, we experienced declining sales due to the economic impact of the COVID-19 pandemic in the second half of March. Our adjusted operating income improved for the quarter as we leveraged our costs and immediately implemented actions to align our cost structure with the demand environment.
“Our financial position is strong and we are focused on maintaining its strength through effective and disciplined management. In late 2019, we entered into a new $100 million revolving credit agreement that provides us with significant financial flexibility. We entered this pandemic period in a strong position, both operationally and financially, and expect to exit it as strong as we entered it,” concluded DeCata.
In March 2020, the World Health Organization declared a new strain of coronavirus (“COVID-19”) a pandemic. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility in the financial markets. It is unknown at this time how long these circumstances will exist, when restrictions such as shelter in place orders, social distancing and closures of non-essential businesses will be relaxed, and if these restrictions will be reintroduced at a future date. The pandemic is negatively impacting sales and operations currently and may negatively impact future financial results, liquidity and overall performance of the Company. As Lawson is considered an “essential business,” by the U.S. and Canada governments, our field sales team and distribution network continue to operate, providing service and products to our customers.
We have undertaken a number of steps to address the impact of the COVID-19 pandemic with certain customers having temporarily reduced business hours or shut down entirely. Some of the recurring onsite customer service provided by our sales reps has been limited due to social distancing guidelines and shelter in place orders. As a result, our sales reps continue to reach out to all customers with a portion being serviced via phone, fax and internet-based communications. The Company has also put into place health safety measures for sales reps who visit their customers as well as for our distribution centers and corporate employees. We have also introduced curbside pick-up at The Bolt Supply House branches which all remain open. We are supporting these efforts by reinforcing our supply chain through regular contact with our existing suppliers as well as reaching out to additional suppliers to ensure that orders for inventory are fulfilled in a timely manner and our supply chain remains strong. Our sales reps and our finance group are working in concert to ensure that any customer issues are quickly identified and credit is carefully extended to customers who are able to pay.
We continue to monitor the Company’s balance sheet and liquidity position and are taking actions to protect cash flows from operations. The Company ended the first quarter with $4.1 million of cash and cash equivalents and an additional $87.5 million of borrowing capacity under its existing line of credit and through yesterday has approximately the same level of availability. With our committed credit facility being led by JPMorgan Chase, we have access to ample liquidity to fund our requirements. The Company has taken numerous cost reduction actions including furloughing approximately 100 employees, reducing salaries and Board compensation, canceling travel and award trips, consolidating our Suwanee, GA distribution operations into the McCook facility and eliminating non-critical capital expenditures.
We are closely monitoring the operating environment. Looking ahead, we will take all necessary actions to ensure safety for our employees, customers, and suppliers while maintaining our strong financial position.
- Sales of $91.0 million decreased 0.3% year-over-year. Average Daily Sales (ADS) decreased 1.9% to $1.422 million in the first quarter of 2020 compared to $1.450 million in 2019 with one additional selling day in 2020. Sales during the second half of March were noticeably affected by the COVID-19 situation.
- Reported operating income was $18.6 million compared to $5.5 million in the first quarter of 2019. Non-GAAP adjusted operating income excluding stock-based compensation and severance expense increased 32.9% to $7.9 million from $6.0 million in the year ago quarter. As a percent of sales adjusted EBITDA improved to 10.4% for the first quarter 2020 from 8.2% in the year ago quarter.
- Reported net income was $12.5 million for the quarter, or $1.34 per diluted share compared to $0.44 in first quarter of 2019. On an adjusted basis, diluted earnings per share was $0.52 compared to $0.48 a year ago.
- Ended the quarter with $4.1 million of available cash and cash equivalents and $87.5 million of additional borrowing capacity under our line of credit.
First Quarter Results
Net sales were $91.0 million in the first quarter of 2020 compared to $91.3 million in the first quarter of 2019. The slight decline in sales reflects a 3.1% decrease in the Lawson segment sales rep productivity driven by decreases within our government and core customers late in the quarter, offset by positive growth within our strategic and Kent Automotive customers. Sales within The Bolt Supply House segment, which represents approximately 11% of consolidated sales, increased 7.5% over the prior year quarter, reflecting strength across multiple product categories and new customers. Average daily sales decreased to $1.422 million compared to $1.450 million in the prior year quarter with one additional selling day in the first quarter of 2020 compared to the first quarter a year ago. The second half of March was noticeably affected by the COVID-19 situation. Excluding the impact of Canadian currency fluctuations, consolidated sales increased 0.2% for the quarter.
Reported gross profit was $48.9 million for the first quarter of 2020, which was unchanged compared to the year-ago quarter. Consolidated gross profit as a percentage of sales was 53.7% for the first quarter of 2020 compared to 53.6% in the first quarter of 2019. Excluding selling related costs, the core Lawson MRO segment gross margin was 60.8% in the first quarter 2020, unchanged from a year-ago quarter.
Reported selling expenses decreased to $20.0 million in the first quarter of 2020 compared to $21.7 million in the prior year quarter. Despite a slight decline in sales, reported selling expenses decreased to 22.0% from 23.8% in the first quarter of 2019 primarily due to leveraging our fixed selling expenses.
General and administrative expenses decreased $11.3 million to $10.3 million in the first quarter of 2020 compared to $21.6 million in the prior year quarter. The decrease in G&A expense compared to the prior year quarter is primarily due to an $11.1 million decrease in stock-based compensation expense, a portion of which fluctuates with our stock price. Excluding expenses related to stock-based compensation and severance, general and administrative expenses were down 1.0% from a year-ago quarter.
Reported operating income in the first quarter of 2020 was $18.6 million compared to $5.5 million in the prior year quarter. Adjusted non-GAAP operating income increased approximately $1.9 million to $7.9 million in the first quarter of 2020 from $6.0 million in the prior year quarter. For the quarter, adjusted EBITDA was $9.5 million, an improvement of 26.8% over the prior year quarter.
Reported net income for the first quarter of 2020 was $12.5 million, or $1.34 per diluted share compared to net income of $4.1 million, or $0.44 per diluted share, for the same period a year ago. Non-GAAP adjusted net income was $4.8 million or $0.52 per diluted share compared to $0.48 a year ago.
At March 31, 2020, Lawson had $4.1 million of available cash and cash equivalents and $87.5 million of additional borrowing capacity under its line of credit. The Company repurchased approximately $1.8 million of its common stock under its share repurchase program.Tagged with financial results, lawson products