Distributors

Lawson Products Tops Q4 EPS, Revenues Miss

CHICAGO — Lawson Products, Inc. today announced results for the fourth quarter and the full year ended December 31, 2019.

President and CEO, Michael DeCata commented, “Lawson Products delivered another quarter of improving financial results completing a strong 2019. We generated sales growth of 2.7% and a 76% increase in adjusted operating income for the fourth quarter of 2019 as we continued to leverage our relatively fixed cost structure and make operational improvements in nearly every aspect of the business. Our reported fourth quarter financial results were negatively impacted by $10.2 million of stock-based compensation expense as a result of a significant increase in our stock price during the quarter.

“For the full year, sales increased 6.0% and adjusted EBITDA finished at $34.5 million representing an increase of 37%. As a percent of sales, adjusted EBITDA improved by more than two hundred basis points to 9.3%. Our 2019 success reflected further execution of Lawson’s growth strategy focused on strengthening our sales team and improving sales rep productivity while managing our operating costs.

“We enter fiscal 2020 well-positioned to take advantage of the runway of opportunities we have built through initiatives focused on sales rep productivity, adding to our sales team and making compatible, accretive acquisitions. Our underlying business is stronger than ever which places us in a great position to accelerate our results,” concluded DeCata.

Highlights

  • The Company ended the year with over 1,000 Lawson segment sales reps and realized continued sales rep productivity. Combined with strong sales at Bolt Supply, sales increased 6.0% for the year and 2.7% for the fourth quarter.
  • For the quarter, non-GAAP adjusted operating income increased 75.8% to $5.8 million from $3.3 million in the year ago quarter. As a percent of sales adjusted EBITDA improved to 8.3% for the fourth quarter 2019 from 5.9% in the year ago quarter. Adjusted diluted earnings per share improved 118% to $0.48 for the quarter compared to $0.22 a year ago.
  • For the year, reported operating income was $9.1 million inclusive of stock-based compensation expense of $17.8 million. Adjusted operating income for the year increased 55.5% to $28.6 million from $18.4 million in 2018. As a percent of sales adjusted EBITDA improved to 9.3% in 2019 from 7.2% in 2018. Adjusted diluted earnings per share improved 67.6% to $2.33 for the year compared to $1.39 a year ago
  • In the quarter we entered into a new five-year credit facility increasing our maximum borrowing capacity from $40.0 million to $100.0 million, plus an accordion feature which can increase borrowing capacity to $150.0 million. At year-end, $96.7 million was available under the new facility.

Fourth Quarter Results

Net sales increased 2.7% to $88.6 million in the fourth quarter of 2019 compared to $86.3 million in the fourth quarter of 2018. Sales growth reflected an increase in our government and Kent Automotive sectors and continued growth in The Bolt Supply House. In the aggregate, MRO sales rep count and sales territory managers at Bolt Supply ended at 1,030 for 2019. Average daily sales grew to $1.452 million compared to $1.414 million in the prior year quarter with 61 selling days in both quarters.

Gross profit increased $0.7 million to $46.8 million compared to $46.1 million in the fourth quarter of 2018 reflecting sales growth partially offset by an increase in service-related costs classified within gross profit. Consolidated gross profit as a percentage of sales was 52.9% for the fourth quarter of 2019 compared to 53.4% in the fourth quarter of 2018. The core Lawson MRO segment gross margin excluding service-related costs was 60.9% in the fourth quarter 2019 essentially flat with the year ago quarter.

Selling expenses decreased 4.9% to $20.5 million on higher sales in the fourth quarter of 2019 compared to $21.5 million in the prior year quarter. As a percentage of sales, reported selling expenses decreased to 23.1% from 24.9% in the fourth quarter of 2018 primarily due to leveraging selling expenses over a larger sales base and an increase in service-related costs classified within gross margin.

General and administrative expenses were $30.9 million in the fourth quarter of 2019 compared to $20.5 million in the prior year quarter reflecting an $11.4 million increase in stock-based compensation expense from the year ago quarter, most of which fluctuated with the $13.37 stock price increase. Excluding expenses related to stock-based compensation, severance and other non-recurring costs, general and administrative expenses decreased 3.5%.

Reported operating loss, inclusive of $10.2 million of stock-based compensation, was $4.5 million in the fourth quarter of 2019 compared to operating income of $4.1 million in the prior year quarter. Adjusted non-GAAP operating income increased 75.8% to $5.8 million in the fourth quarter of 2019 from $3.3 million in the prior year quarter. For the quarter, adjusted EBITDA was $7.3 million, an improvement of 45.0% over the prior year quarter. (See reconciliation in Table 1)

Reported net loss for the fourth quarter of 2019 was $3.0 million, or $0.34 per diluted share compared to net income of $2.6 million, or $0.28 per diluted share, for the same period a year ago. Adjusted net income was $4.3 million or $0.48 per diluted share compared to $0.22 per diluted share a year ago. (See reconciliation in Table 2)

Full Year 2019 Results

Net sales increased 6.0% in 2019 to $370.8 million from $349.6 million in 2018. Sales for the core Lawson segment were positively impacted by a 2.3% improvement in sales productivity of Lawson sales representatives as well as an improvement in sales to government, strategic, Kent Automotive and core customers compared to the prior year. Sales were also positively impacted by a 13.3% improvement in Bolt Supply sales spread across multiple product categories. Average daily sales improved 5.6% to $1.471 million in 2019 compared to $1.393 million in 2018 with one more selling day in 2019. Excluding the impact of currency fluctuations, consolidated sales increased 6.6% year over year.

Operating income in 2019 was $9.1 million compared to $9.2 million in 2018, reflecting higher stock-based compensation of $10.3 million in 2019. Adjusted non-GAAP operating income improved 55.5% to $28.6 million in 2019 from $18.4 million in the prior year. For the year, adjusted EBITDA was $34.5 million, an improvement of 36.7% over the prior year driven by higher sales and cost controls. (See table above reconciliation in Table 1)

Reported net income for 2019 was $7.2 million or $0.77 per diluted share compared to net income of $6.2 million, or $0.67 per diluted share in 2018. Adjusted non-GAAP net income improved by 67.3% to $21.8 million from $13.0 million in 2018 and with adjusted diluted earnings per share increasing to $2.33 compared to $1.39 in 2018. (See reconciliation in Table 2)

Cash Position and Cash Flow

At December 31, 2019, the Company had $6.3 million of cash and cash equivalents, outstanding borrowings of $2.3 million and borrowing availability of $96.7 million. For the full year, the Company generated $9.2 million of cash flows from operating activities primarily driven by improved earnings and effective working capital management, partially offset by the settlement of stock-performance rights.

Capital expenditures for the fourth quarter were approximately $0.6 million and $2.0 million for the full year. The Company expects capital expenditures for 2020 to be between approximately $3.0 – $4.0 million.

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