CHICAGO — Lawson Products, Inc. announced results for the fourth quarter and the full year ended December 31, 2021.
Michael DeCata, the Company’s president and chief executive officer said, “We are pleased to report net sales growth of 4.0% in the fourth quarter and 18.8% for the fiscal year, compared to last year. Our strong full year growth was driven by a 9.4% organic increase plus our acquisitive growth. I’m proud of the team’s hard work in the quarter, despite ongoing challenges faced by many companies from supply chain disruptions, product costs increases and labor shortages. Average daily sales for the quarter grew 5.7% to $1.701 million compared to the fourth quarter of 2020 from growth in both the Lawson MRO and The Bolt Supply House businesses. Sequential daily sales gains over the third quarter are evidence of strong customer demand that has continued into early 2022. The Company’s solid performance and positive operating cash flows in 2021 further strengthened our financial position to fund our growth initiatives.
“We are excited to celebrate an important milestone for Lawson in 2022, its 70th anniversary. Since 1952, this Company has been built on strong relationships that enables its customers to operate more efficiently. We have provided the services, products and technical expertise that customers have come to expect from Lawson Products. As a result, our customers depend heavily on us to support their labor needs, thereby placing us in a great position to enhance services to existing customers and attract new customers.
“Our adjusted EBITDA this quarter reflects fewer seasonal selling days and planned investments made in the organization to grow sales by expanding our channels to market. As we move into 2022, we are optimistic that we can achieve solid organic growth, increase margins and make acquisitions to build on our strengths,” concluded DeCata.
Fourth Quarter and Full Year Highlights
- During the quarter, Lawson entered into two merger agreements in which Lawson has agreed to combine with two of Luther King Capital Management’s (LKCM) portfolio companies, TestEquity and Gexpro Services, in all-stock transactions as previously announced by Lawson. The completion of the mergers is subject to receipt of Lawson stockholder approvals, refinancing the existing debt and other closing conditions. Lawson expects to complete the mergers in the second quarter of 2022.
- Net sales increased to $102.1 million compared to $98.1 million for the fourth quarter of 2020. Average daily net sales (ADS) improved 5.7% to $1.701 million in the fourth quarter of 2021 compared to $1.609 million in the prior year quarter on one less selling day. For the full year, ADS increased by 19.7% with organic sales growing 9.4%.
- For the quarter, inclusive of $6.9 million of non-operating expenses, we reported an operating loss of $0.8 million. The non-operating expenses consist of stock-based compensation and costs from the negotiation, review and execution of the merger agreements relating to Lawson’s proposed business combination with TestEquity and Gexpro Services. This compares to an operating loss of $0.7 million in the prior year quarter.
- Adjusted EBITDA was $8.4 million or 8.3% of sales for the quarter as compared to $9.0 million or 9.1% of sales for the fourth quarter of the prior year and $9.4 million or 8.9% of sales sequentially from the third quarter of 2021 on four fewer selling days. For the full year, adjusted EBITDA was $35.8 million as compared to $34.1 million in 2020.
- We reported a net loss for the quarter of $0.8 million inclusive of non-operating items. Adjusted net income for the quarter was $4.7 million or $0.52 adjusted earnings per diluted share compared to $5.6 million or $0.60 per diluted share for the fourth quarter last year and $6.0 million or $0.64 per diluted share in the third quarter on four fewer selling days in the fourth quarter. For the full year, adjusted diluted earnings per share were $2.31 as compared to $2.16 in 2021. (See reconciliation in Table 2)
- We ended the year with total liquidity of $91.3 million, consisting of $4.2 million of cash and cash equivalents and $87.1 million of availability under our $100.0 million committed credit facility.
Fourth Quarter Results
Net sales increased 4.0% to $102.1 million in the fourth quarter of 2021 compared to $98.1 million in the fourth quarter of 2020. Strength within our Lawson MRO business through improved sales rep productivity and growth in The Bolt Supply House business drove the increase. The improvements were partially offset by lower sales to our government customers compared to the prior year quarter. Average daily sales grew to $1.701 million compared to $1.609 million in the prior year quarter on one less selling day in the current year quarter, an improvement of 5.7%.
Gross profit increased $1.9 million to $54.0 million from $52.1 million in the fourth quarter of 2020, primarily driven by increased sales compared to the prior year quarter. Gross profit as a percentage of sales was 52.9% compared to 53.1% in the year ago quarter and in the third quarter of 2021 demonstrating our ability to manage margins despite the supply chain disruptions. Rising supplier costs during the fourth quarter were primarily offset by price increases instituted throughout 2021.
Selling expenses were $23.7 million, or 23.2% of sales, in the fourth quarter of 2021 compared to $21.3 million, or 21.7% of sales, in the prior year quarter and 23.6% of sales in the third quarter of 2021. The rise in selling expenses compared to the prior year quarter was primarily driven by higher sales representative compensation on improved sales, planned investments to grow sales by expanding our channels to market and increased customer facing activities as sales rebounded from the pandemic.
General and administrative expenses were $31.1 million in the fourth quarter of 2021, which were essentially flat compared to $31.4 million in the prior year quarter. Fourth quarter 2021 expenses include $3.7 million from the negotiation, review and execution of the merger agreements relating to Lawson’s proposed business combination with TestEquity and Gexpro Services, and costs of $3.5 million for stock-based compensation and acquisition costs. During 2020 fourth quarter, costs included a goodwill impairment charge of $1.9 million and $5.7 million of stock-based compensation, severance expense and acquisition-related costs. Excluding these items, general and administrative expenses were flat compared to the prior year quarter.
Inclusive of $6.9 million of non-operating items in the quarter, we reported an operating loss of $0.8 million in the fourth quarter of 2021. This compares to an operating loss of $0.7 million in the prior year quarter. Non-GAAP adjusted operating income was $6.1 million in the fourth quarter of 2021 compared to $6.9 million in the prior year quarter. (See reconciliation in Table 1) For the quarter, adjusted EBITDA was $8.4 million or 8.3% of sales compared to $9.0 million or 9.1% of sales in the prior year quarter. (See reconciliation in Table 1)
We reported a net loss of $0.8 million, or $0.09 per diluted share, for the fourth quarter 2021 compared to net income of $0.2 million, or $0.02 per diluted share, in the prior year quarter. Adjusted net income was $4.7 million or $0.52 per diluted share compared to $5.6 million or $0.60 per diluted share a year ago. (See reconciliation in Table 2)
Full Year 2021 Results
Net sales were $417.7 million for 2021 compared to $351.6 million in 2020, an increase of 18.8%. The increased sales were driven by the inclusion of Partsmaster sales of $57.8 million for the full year of 2021 compared to $22.6 million of sales recorded in the four-months following the acquisition in 2020. Excluding the impact of the Partsmaster acquisition, organic sales grew 9.4% in 2021 over 2020. While the 2021 business environment continued to be impacted by the pandemic, the slowly improving environment over 2020 contributed to increased sales in all customer categories in the Lawson segment on a full year basis. The Bolt Supply House business sales grew 18.6% in 2021 on customer expansion and improved branch performance. Despite global supply chain disruptions, sales improved as 2021 progressed.
Gross margin increased $32.7 million for the year to $219.2 million compared to $186.5 million in the prior year. Increased margin dollars were driven by incremental Partsmaster gross margin of $23.2 million for the full year 2021 compared to the four-month post-acquisition period in 2020 and $9.5 million of organic growth. As a percentage of sales, reported gross margin was 52.5% for the full year 2021 compared to 53.1% in 2020. The lower gross margin percent for 2021 was driven by establishing inventory reserves related to the integration of Partsmaster into the Lawson product line and establishing reserves on excess personal protective equipment (PPE) inventory. Higher freight and supplier costs, which were a result of supply chain disruptions affecting the broader economy, also impacted gross margin as a percent of sales. The Company’s gross margin improved sequentially in both the third and fourth quarters of 2021 as we took actions, including price increases, to mitigate the impact of the supply chain disruptions which began in early 2021.
Reported operating income in 2021 was $12.0 million after $15.5 million of non-operating items from the negotiation, review and execution of the merger agreements relating to Lawson’s proposed business combination, stock-based compensation expense, acquisition-related costs and inventory reserves for the integration of Partsmaster and for excess PPE inventory. Excluding these items, non-GAAP adjusted operating income was $27.5 million in 2021 compared to $27.4 million in the prior year (See table above and reconciliation in Table 1). For the year, adjusted EBITDA was $35.8 million or 8.6% of sales compared to $34.1 million or 9.7% of sales a year ago which benefited from temporary cost reductions to manage through the pandemic. (See table above and reconciliation in Table 1)
Reported net income for 2021 was $9.4 million or $1.01 per diluted share compared to net income of $15.1 million, or $1.62 per diluted share in 2020. Non-GAAP adjusted net income was $21.6 million or $2.31 per diluted share compared to $20.1 million or $2.16 per diluted share in 2020. (See reconciliation in Table 2)
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