Date of Report (Date of earliest event reported): | October 24, 2019 |
LAWSON PRODUCTS, INC. |
(Exact name of registrant as specified in its charter) |
Delaware | 0-10546 | 36-2229304 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
8770 W. Bryn Mawr Ave., Suite 900, Chicago, Illinois | 60631 | |
(Address of principal executive offices) | (Zip Code) | |
(Registrant's telephone number, including area code) | (773) 304-5050 |
Not Applicable |
(Former name or former address, if changed since last report) |
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common stock, $1.00 par value | LAWS | NASDAQ Global Select Market |
LAWSON PRODUCTS, INC. | |||
(Registrant) | |||
Date: | October 24, 2019 | By: /s/ Ronald J. Knutson | |
Name: Ronald J. Knutson | |||
Title: Executive Vice President, Chief Financial Officer, Treasurer and Controller |
Exhibit Number | Description | |
Third Quarter Summary Financial Highlights | Three Months Ended September 30, | |||||
($ in millions, except earnings per share data) | 2019 | 2018 | Change | |||
Net Sales | $94.8 | $88.5 | 7.1% | |||
Average Daily Net Sales | $1.481 | $1.405 | 5.4% | |||
Number of Business Days | 64 | 63 | ||||
Reported Operating Income (Loss) | $6.4 | $(2.3) | NA | |||
Adjusted Operating Income (1) | $8.9 | $5.6 | 58.9% | |||
Adjusted EBITDA (1) | $10.3 | $7.3 | 40.9% | |||
Adjusted EBITDA Margin (1) | 10.9% | 8.3% | +260 bps | |||
Reported Diluted Earnings (loss) Per Share | $0.51 | $(0.09) | $0.60 | |||
Adjusted Diluted Earnings Per Share (2) | $0.69 | $0.59 | $0.10 |
• | Sales of $94.8 million increased 7.1% year-over-year. Average Daily Sales (ADS) increased 5.4% to $1.481 million in the third quarter of 2019 compared to $1.405 million in 2018 with one additional selling day in 2019. |
• | Reported operating income was $6.4 million compared to an operating loss of $2.3 million in the third quarter of 2018. Non-GAAP adjusted operating income excluding stock-based compensation, severance expense and acquisition costs increased 58.9% to $8.9 million from $5.6 million in the year ago quarter. (See reconciliation in Table 1) As a percent of sales adjusted EBITDA improved to 10.9% for the third quarter 2019 from 8.3% in the year ago quarter. |
• | Reported net income was $4.8 million for the quarter, or $0.51 per diluted share compared to a loss per diluted share of $0.09 in third quarter of 2018. On an adjusted basis, diluted earnings per share was $0.69. (See reconciliation in Table 2) |
• | Net cash generated from operations in the quarter of $10.3 million was used to reduce net borrowings by $8.3 million. The quarter ended in a net cash less debt positive position of $6.4 million. |
• | On October 14th, the Company announced a new five-year credit facility increasing its borrowing capacity from $40 million to $100 million, plus an accordion feature to support its acquisition and organic growth strategy. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Product revenue | $ | 84,440 | $ | 78,377 | $ | 252,351 | $ | 233,744 | |||||||
Service revenue | 10,339 | 10,153 | 29,868 | 29,627 | |||||||||||
Total revenue | 94,779 | 88,530 | 282,219 | 263,371 | |||||||||||
Product cost of goods sold | 39,635 | 36,979 | 118,222 | 109,667 | |||||||||||
Service costs | 4,570 | 3,443 | 13,457 | 10,247 | |||||||||||
Gross profit | 50,574 | 48,108 | 150,540 | 143,457 | |||||||||||
Operating expenses: | |||||||||||||||
Selling expenses | 21,255 | 22,175 | 64,864 | 66,119 | |||||||||||
General and administrative expenses | 22,873 | 28,199 | 72,063 | 72,213 | |||||||||||
Operating expenses | 44,128 | 50,374 | 136,927 | 138,332 | |||||||||||
Operating income (loss) | 6,446 | (2,266 | ) | 13,613 | 5,125 | ||||||||||
Interest expense | (138 | ) | (251 | ) | (481 | ) | (755 | ) | |||||||
Other income (expense), net | (13 | ) | 170 | 798 | (320 | ) | |||||||||
Income (loss) before income taxes | 6,295 | (2,347 | ) | 13,930 | 4,050 | ||||||||||
Income tax expense (benefit) | 1,521 | (1,531 | ) | 3,703 | 436 | ||||||||||
Net income (loss) | $ | 4,774 | $ | (816 | ) | $ | 10,227 | $ | 3,614 | ||||||
Basic income (loss) per share of common stock | $ | 0.53 | $ | (0.09 | ) | $ | 1.14 | $ | 0.41 | ||||||
Diluted income (loss) per share of common stock | $ | 0.51 | $ | (0.09 | ) | $ | 1.09 | $ | 0.39 |
September 30, | December 31, | ||||||
2019 | 2018 | ||||||
ASSETS | (Unaudited) | ||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 8,626 | $ | 11,883 | |||
Restricted cash | 800 | 800 | |||||
Accounts receivable, less allowance for doubtful accounts of $614 and $549, respectively | 45,162 | 37,682 | |||||
Inventories, net | 54,894 | 52,887 | |||||
Miscellaneous receivables and prepaid expenses | 4,270 | 3,653 | |||||
Total current assets | 113,752 | 106,905 | |||||
Property, plant and equipment, net | 16,932 | 23,548 | |||||
Deferred income taxes | 17,372 | 20,592 | |||||
Goodwill | 20,582 | 20,079 | |||||
Cash value of life insurance | 14,440 | 12,599 | |||||
Intangible assets, net | 12,468 | 13,112 | |||||
Lease assets | 11,917 | — | |||||
Other assets | 275 | 307 | |||||
Total assets | $ | 207,738 | $ | 197,142 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Revolving lines of credit | $ | 2,195 | $ | 10,823 | |||
Accounts payable | 16,325 | 15,207 | |||||
Lease obligation | 3,781 | — | |||||
Accrued expenses and other liabilities | 37,873 | 40,179 | |||||
Total current liabilities | 60,174 | 66,209 | |||||
Security bonus plan | 11,969 | 12,413 | |||||
Lease obligation | 10,360 | 5,213 | |||||
Deferred compensation | 5,915 | 5,304 | |||||
Deferred tax liability | 2,879 | 2,761 | |||||
Other liabilities | 3,460 | 6,069 | |||||
Total liabilities | 94,757 | 97,969 | |||||
Stockholders’ equity: | |||||||
Preferred stock, $1 par value: | |||||||
Authorized - 500,000 shares, Issued and outstanding — None | — | — | |||||
Common stock, $1 par value: | |||||||
Authorized - 35,000,000 shares Issued - 9,042,597 and 9,005,716 shares, respectively Outstanding - 8,956,981 and 8,955,930 shares, respectively | 9,043 | 9,006 | |||||
Capital in excess of par value | 17,626 | 15,623 | |||||
Retained earnings | 89,502 | 77,338 | |||||
Treasury stock – 85,616 and 49,786 shares, respectively | (2,595 | ) | (1,234 | ) | |||
Accumulated other comprehensive loss | (595 | ) | (1,560 | ) | |||
Total stockholders’ equity | 112,981 | 99,173 | |||||
Total liabilities and stockholders’ equity | $ | 207,738 | $ | 197,142 |
LAWSON PRODUCTS, INC. |
SEC REGULATION G GAAP RECONCILIATIONS |
Table 1 - Reconciliation of GAAP Operating Income (Loss) to Adjusted Non-GAAP Operating Income and Adjusted EBITDA | |||||||||||||||
(Dollars in thousands) | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||||
September 30, | September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Operating income (loss) as reported per GAAP | $ | 6,446 | $ | (2,266 | ) | $ | 13,613 | $ | 5,125 | ||||||
Stock-based compensation (1) | 2,374 | 7,637 | 7,621 | 8,694 | |||||||||||
Severance expense | 30 | 31 | 1,542 | 723 | |||||||||||
Acquisition related costs | — | 168 | — | 168 | |||||||||||
Discontinued operation accrual (2) | — | — | — | 529 | |||||||||||
Lease termination gain | — | — | — | (164 | ) | ||||||||||
Adjusted non-GAAP operating Income | 8,850 | 5,570 | 22,776 | 15,075 | |||||||||||
Depreciation and amortization (3) | 1,468 | 1,755 | 4,401 | 5,120 | |||||||||||
Non-GAAP adjusted EBITDA | $ | 10,318 | $ | 7,325 | $ | 27,177 | $ | 20,195 |
Three Months Ended September 30, | |||||||||||||||
2019 | 2018 | ||||||||||||||
Amount | Diluted EPS (2) | Amount | Diluted EPS (2) | ||||||||||||
Net income (loss), as reported per GAAP | $ | 4,774 | $ | 0.51 | $ | (816 | ) | $ | (0.09 | ) | |||||
Pretax adjustments: | |||||||||||||||
Stock-based compensation | 2,374 | 0.25 | 7,637 | 0.86 | |||||||||||
Severance expense | 30 | 0.01 | 31 | — | |||||||||||
Acquisition related costs | — | — | 168 | 0.02 | |||||||||||
Pretax adjustments | 2,404 | 0.26 | 7,836 | 0.88 | |||||||||||
Tax effect (1) | (709 | ) | (0.08 | ) | (1,740 | ) | (0.20 | ) | |||||||
Total adjustments, net of tax | 1,695 | 0.18 | 6,096 | 0.68 | |||||||||||
Non-GAAP adjusted net income | $ | 6,469 | $ | 0.69 | $ | 5,280 | $ | 0.59 |
(1) | Tax effected at quarterly effective tax rate of 29.5% for 2019 and 22.2% for 2018 which excludes the benefit of discrete items |
(2) | Pretax adjustments to diluted EPS calculated on 9.4 million and 8.9 million diluted shares for 2019 and 2018, respectively |
Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | ||||||||||||||
Amount | Diluted EPS (2) | Amount | Diluted EPS (2) | ||||||||||||
Net Income, as reported per GAAP | $ | 10,227 | $ | 1.09 | $ | 3,614 | $ | 0.39 | |||||||
Pretax adjustments: | |||||||||||||||
Stock-based compensation | 7,621 | 0.81 | 8,694 | 0.94 | |||||||||||
Severance expense | 1,542 | 0.17 | 723 | 0.08 | |||||||||||
Acquisition related costs | — | — | 168 | 0.02 | |||||||||||
Discontinued operation accrual | — | — | 529 | 0.06 | |||||||||||
Lease termination gain | — | — | (164 | ) | (0.02 | ) | |||||||||
Pretax adjustments | 9,163 | 0.98 | 9,950 | 1.08 | |||||||||||
Tax effect (1) | (2,657 | ) | (0.28 | ) | (3,333 | ) | (0.36 | ) | |||||||
Total adjustments, net of tax | 6,506 | 0.70 | 6,617 | 0.72 | |||||||||||
Non-GAAP adjusted net income | $ | 16,733 | $ | 1.79 | $ | 10,231 | $ | 1.11 |
(1) | Tax effected at quarterly effective tax rate of 29.0% for 2019 and 33.4% for 2018 which excludes the benefit of discrete items |
(2) | Pretax adjustments to diluted EPS calculated on 9.4 million and 9.3 million diluted shares for 2019 and 2018, respectively |
Table 3 - Historic Core Lawson Segment Sales and Sales Rep Productivity | |||||||||||||||||||
(Dollars in Thousands) | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
Three Months Ended | |||||||||||||||||||
Sep. 30 2019 | Jun. 30 2019 | Mar. 31 2019 | Dec. 31 2018 | Sep. 30 2018 | |||||||||||||||
Number of business days | 64 | 64 | 63 | 61 | 63 | ||||||||||||||
Average daily net sales (dollars in thousands) | $ | 1,295 | $ | 1,316 | $ | 1,297 | $ | 1,258 | $ | 1,249 | |||||||||
Year over year increase | 3.7 | % | 4.4 | % | 6.9 | % | 5.6 | % | 4.0 | % | |||||||||
Sequential quarter increase (decrease) | (1.6 | )% | 1.5 | % | 3.1 | % | 0.7 | % | (0.9 | )% | |||||||||
Average active sales rep. count (1) | 989 | 980 | 991 | 989 | 967 | ||||||||||||||
Period-end active sales rep count | 993 | 982 | 986 | 994 | 978 | ||||||||||||||
Sales per rep. per day | $ | 1.309 | $ | 1.343 | $ | 1.308 | $ | 1.272 | $ | 1.292 | |||||||||
Year over year increase | 1.3 | % | 3.0 | % | 4.4 | % | 5.4 | % | 6.6 | % | |||||||||
Sequential quarter increase (decrease) | (2.5 | )% | 2.7 | % | 2.8 | % | (1.5 | )% | (0.9 | )% |
(1) | Average active sales rep count represents the average of the month-ends sales representative count |
Table 4 - Consolidated Quarterly Results | |||||||||||||||||||
(Dollars in Thousands) | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
Three Months Ended | |||||||||||||||||||
Sep. 30 2019 | Jun. 30 2019 | Mar. 31 2019 | Dec. 31 2018 | Sep. 30 2018 | |||||||||||||||
Average daily net sales | $ | 1,481 | $ | 1,502 | $ | 1,450 | $ | 1,414 | $ | 1,405 | |||||||||
Year over year increase | 5.4 | % | 6.3 | % | 8.2 | % | 7.0 | % | 17.0 | % | |||||||||
Sequential quarter increase (decrease) | (1.4 | )% | 3.6 | % | 2.5 | % | 0.6 | % | (0.5 | )% | |||||||||
Net Sales | $ | 94,779 | $ | 96,097 | $ | 91,343 | $ | 86,266 | $ | 88,530 | |||||||||
Gross profit (1) | 50,574 | 51,043 | 48,923 | 46,083 | 48,108 | ||||||||||||||
Gross profit percentage (1) | 53.4 | % | 53.1 | % | 53.6 | % | 53.4 | % | 54.3 | % | |||||||||
Selling, general & administrative expenses | $ | 44,128 | $ | 49,420 | $ | 43,379 | $ | 41,998 | $ | 50,374 | |||||||||
Operating income (loss) | $ | 6,446 | $ | 1,623 | $ | 5,544 | $ | 4,085 | $ | (2,266 | ) |
(1) | Reflects the adoption of ASC 606 - Revenue Recognition effective January 1, 2018 including the classification of certain selling costs as a reduction of gross profit |