Lawson Products Reports First Quarter 2022 Results

CHICAGO — Lawson Products, Inc. today announced the Lawson Products stand-alone results for the first quarter ended March 31, 2022.

¹Excludes the impact of stock-based compensation, severance and non-recurring items. (See reconciliation in Table 1)
²Excludes the impact of stock-based compensation, severance and non-recurring items. (See reconciliation in Table 2)

“We are pleased to report sales growth of 13.8% over the prior year quarter, driven by strong growth in our now integrated Lawson/Partsmaster business, as well as within The Bolt Supply House business,” said Michael DeCata, president and chief executive officer.

Ron Knutson, chief financial officer, commented, “The Lawson team has continued to deliver, despite inflationary and supply chain challenges. We are taking the necessary actions to mitigate the effects of the inflationary environment on our profitability, including instituting price increases. We also continue to invest in our sales representatives which drove a 16.4% improvement in sales per rep per day productivity over a year ago. Our adjusted EBITDA improved over a year ago and over the fourth quarter despite being burdened with higher health insurance costs and increasing labor related costs to support the sales growth. The first quarter results help solidify the financial position to continue to invest in our growth initiatives and pursue accretive acquisitions.”

“The relationships the company has built over its 70-year history have made Lawson one of the most dependable companies in the MRO distribution industry. Our customers rely on us for their MRO needs through our vendor managed inventory services, products and technical expertise. In today’s challenging labor market, this places us in a great position to further support our ongoing customers’ needs,” concluded Mr. Knutson.

First Quarter and Recent Highlights

• The Company completed its strategic combination of Lawson Products, TestEquity and Gexpro Services on April 1, 2022.
• On April 4, 2022, Cesar Lanuza was appointed President and Chief Executive Officer of the Lawson Products operating company and Michael DeCata announced his retirement from the Company effective May 1, 2022.
• Net sales increased to $117.9 million compared to $103.6 million in the first quarter 2021. Average daily sales (ADS) were $1.842 million in the first quarter 2022, an improvement of 12.0% compared to $1.644 million of ADS in the first quarter of 2021.
• For the quarter, reported operating income was $12.1 million compared to operating income of $4.8 million in the prior year quarter. The most recent quarter results are inclusive of a non-operating net benefit of $5.0 million, which includes a stock-based compensation benefit of $8.6 million, partially offset by non-operating expenses of $3.6 million, which are primarily related to the April 1, 2022 combination of Lawson Products with TestEquity and Gexpro Services.
• Adjusted EBITDA was $9.2 million or 7.8% of sales for the quarter compared to $8.4 million or 8.3% of sales in the fourth quarter 2021 and $9.1 million or 8.8% of sales in the first quarter 2021. (See reconciliation in Table 1) The quarter was negatively impacted by higher health insurance costs of $1.5 million in the post-Covid environment experienced by many companies.
• Net income for the quarter was $9.0 million or $0.96 earnings per diluted share compared to $3.6 million or $0.39 per diluted share in the prior year quarter. Adjusted net income for the quarter was $5.3 million or $0.57 adjusted earnings per diluted share compared to $5.4 million or $0.58 adjusted earnings per diluted share in the prior year quarter. (See reconciliation in Table 2)

First Quarter Results

Net sales increased 13.8% to $117.9 million in the first quarter of 2022 compared $103.6 million in the prior year quarter. Average daily sales grew 12.0% to $1.842 million from $1.644 million in the prior year quarter on one more selling day in the first quarter 2022 compared to the first quarter 2021. The integrated Lawson/Partsmaster sales grew 12.1% through price, volume and sales rep productivity. Realization of price increases instituted during 2021 and the first quarter of 2022 led to higher sales on a sequential basis and compared to the prior year quarter. The Bolt Supply House sales improved 26.9% compared to the prior year quarter from continued strength in branch location sales and a recovery of direct sales to oil and gas customers.

Gross profit increased $5.9 million to $60.5 million in the first quarter of 2022 from $54.6 million in the prior year quarter primarily driven by higher sales. As a percentage of sales, reported gross margin decreased to 51.3% from 52.7% in the prior year quarter. The decrease in gross margin, as a percent of sales, is primarily due to a sales mix shift toward larger, lower margin customers, increased industry-wide supplier costs primarily driven by inflation and increased transportation and labor costs. The Company will continue to take the necessary actions to protect its margins.

Selling expenses were $26.3 million, or 22.3% of sales, in the first quarter of 2022 compared to $23.8 million, or 23.0% of sales in the prior year quarter. Increased selling expenses were primarily driven by higher sales representative compensation on sales growth, increased customer facing activities to stimulate the rebound from the pandemic, and increased health insurance costs experienced in a post-Covid environment. As a percentage of sales, selling expenses decreased from the prior year quarter driven by fixed expenses allocated over a larger sales base.

General and administrative expenses were $22.1 million in the first quarter of 2022 compared to $25.9 million in the prior year quarter, a decrease of $3.8 million. The lower general and administrative expense for the first quarter 2022 was primarily driven by a stock-based compensation benefit of $8.6 million for the quarter driven by a decrease in the stock price. This benefit was partially offset by costs of $3.0 million incurred in the first quarter of 2022 related to the strategic combination of Lawson Products with TestEquity and Gexpro Services which was consummated on April 1, 2022. Excluding stock-based compensation, severance and acquisition related costs, general and administrative expense increased by $2.7 million compared to the prior year quarter. This increase was driven primarily by higher employee related costs including additional health insurance claims of approximately $1.5 million.

Inclusive of a net benefit of $5.0 million of non-operating items consisting of stock-based compensation, severance and acquisition costs in the quarter, reported operating income was $12.1 million or 10.2% of sales in the first quarter of 2022. This compares to operating income of $4.8 million or 4.6% of sales in the prior year quarter. Non-GAAP adjusted operating income was $7.1 million for the first quarter of 2022 compared to $7.2 million in the prior year quarter. (See reconciliation in Table 1) For the quarter, adjusted EBITDA was $9.2 million or 7.8% of sales compared to $9.1 million or 8.8% of sales in the prior year quarter. (See reconciliation in Table 1)

Net income was $9.0 million, or $0.96 per diluted share, for the first quarter 2022 compared to net income of $3.6 million or $0.39 per diluted share in the prior year quarter. Adjusted net income was $5.3 million or $0.57 per diluted share compared to $5.4 million or $0.58 per diluted share a year ago. (See reconciliation in Table 2)