Date of Report (Date of earliest event reported): | February 27, 2020 |
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, $1.00 par value | LAWS | NASDAQ Global Select Market |
LAWSON PRODUCTS, INC. | |||
(Registrant) | |||
Date: | February 27, 2020 | By: /s/ Ronald J. Knutson | |
Name: Ronald J. Knutson | |||
Title: Executive Vice President, Chief Financial Officer, Treasurer and Controller |
Exhibit Number | Description | |
Summary Financial Highlights | Three Months Ended December 31, | Year Ended December 31, | ||||||||||
($ in millions, except earnings per share data) | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||
Net Sales | $88.6 | $86.3 | 2.7% | $370.8 | $349.6 | 6.0% | ||||||
Average Daily Net Sales | $1.452 | $1.414 | 2.7% | $1.471 | $1.393 | 5.6% | ||||||
Number of Business Days | 61 | 61 | 252 | 251 | ||||||||
Reported Operating (Loss) Income | $(4.5) | $4.1 | NA | $9.1 | $9.2 | (1.6)% | ||||||
Adjusted Operating Income (1) | $5.8 | $3.3 | 75.8% | $28.6 | $18.4 | 55.5% | ||||||
Adjusted EBITDA (1) | $7.3 | $5.1 | 45.0% | $34.5 | $25.2 | 36.7% | ||||||
Adjusted EBITDA Margin (1) | 8.3% | 5.9% | +240 bps | 9.3% | 7.2% | +210 bps | ||||||
Reported Diluted (Loss) Earnings Per Share | $(0.34) | $0.28 | $(0.62) | $0.77 | $0.67 | $0.10 | ||||||
Adjusted Diluted Earnings Per Share (2) | $0.48 | $0.22 | $0.26 | $2.33 | $1.39 | $0.94 |
• | 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. (See table above and reconciliation in Table 1) 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. (See table above and reconciliation in Table 2) |
• | 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. (See table above and reconciliation in Table 1) 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 (See table above and reconciliation in Table 2) |
• | 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. |
Three Months Ended December 31, | Twelve Months Ended December 31, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Product revenue | $ | 78,344 | $ | 76,460 | $ | 330,695 | $ | 310,204 | |||||||
Service revenue | 10,222 | 9,806 | 40,090 | 39,433 | |||||||||||
Net revenue | 88,566 | 86,266 | 370,785 | 349,637 | |||||||||||
Product cost of goods sold | 37,082 | 35,826 | 155,304 | 145,493 | |||||||||||
Service cost | 4,670 | 4,357 | 18,127 | 14,604 | |||||||||||
Gross profit | 46,814 | 46,083 | 197,354 | 189,540 | |||||||||||
Operating expenses: | |||||||||||||||
Selling expenses | 20,478 | 21,523 | 85,342 | 87,642 | |||||||||||
General & administrative expenses | 30,883 | 20,475 | 102,946 | 92,688 | |||||||||||
Operating expenses | 51,361 | 41,998 | 188,288 | 180,330 | |||||||||||
Operating income (loss) | (4,547 | ) | 4,085 | 9,066 | 9,210 | ||||||||||
Interest expense | (122 | ) | (254 | ) | (603 | ) | (1,009 | ) | |||||||
Other (expenses) income, net | 413 | (1,018 | ) | 1,211 | (1,338 | ) | |||||||||
Income (loss) before income taxes | (4,256 | ) | 2,813 | 9,674 | 6,863 | ||||||||||
Income tax (benefit) expense | (1,250 | ) | 213 | 2,453 | 649 | ||||||||||
Net income (loss) | $ | (3,006 | ) | $ | 2,600 | $ | 7,221 | $ | 6,214 | ||||||
Basic income (loss) per share of common stock | $ | (0.34 | ) | $ | 0.29 | $ | 0.81 | $ | 0.70 | ||||||
Diluted income (loss) per share of common stock | $ | (0.34 | ) | $ | 0.28 | $ | 0.77 | $ | 0.67 |
December 31, 2019 | December 31, 2018 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 5,495 | $ | 11,883 | |||
Restricted cash | 802 | 800 | |||||
Accounts receivable, less allowance for doubtful accounts | 38,843 | 37,682 | |||||
Inventories, net | 55,905 | 52,887 | |||||
Miscellaneous receivables and prepaid expenses | 5,377 | 3,653 | |||||
Total current assets | 106,422 | 106,905 | |||||
Property, plant and equipment, net | 16,546 | 23,548 | |||||
Deferred income taxes | 21,711 | 20,592 | |||||
Goodwill | 20,923 | 20,079 | |||||
Cash value of life insurance | 14,969 | 12,599 | |||||
Intangible assets, net | 12,335 | 13,112 | |||||
Right of use assets | 11,246 | — | |||||
Other assets | 277 | 307 | |||||
Total assets | $ | 204,429 | $ | 197,142 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Revolving lines of credit | $ | — | $ | 10,823 | |||
Accounts payable | 13,789 | 15,207 | |||||
Lease obligation | 3,830 | — | |||||
Accrued expenses and other liabilities | 39,311 | 40,179 | |||||
Total current liabilities | 56,930 | 66,209 | |||||
Revolving line of credit | 2,271 | — | |||||
Security bonus plan | 11,840 | 12,413 | |||||
Lease obligation | 9,504 | 5,213 | |||||
Deferred compensation | 6,370 | 5,304 | |||||
Deferred tax liability | 6,188 | 2,761 | |||||
Deferred rent liability | — | 1,963 | |||||
Other liabilities | 3,325 | 4,106 | |||||
Total liabilities | 96,428 | 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 – 9,190,171 and 9,005,716 shares, respectively Outstanding – 9,043,771 and 8,955,930 shares, respectively | 9,190 | 9,006 | |||||
Capital in excess of par value | 18,077 | 15,623 | |||||
Retained earnings | 86,496 | 77,338 | |||||
Treasury stock – 146,400 and 49,786 shares held, respectively | (5,761 | ) | (1,234 | ) | |||
Accumulated other comprehensive loss | (1 | ) | (1,560 | ) | |||
Total stockholders’ equity | 108,001 | 99,173 | |||||
Total liabilities and stockholders’ equity | $ | 204,429 | $ | 197,142 |
LAWSON PRODUCTS, INC. |
REGULATION G GAAP RECONCILIATIONS |
Table 1 - Reconciliation of GAAP Operating Income (Loss) to Adjusted Non-GAAP Operating Income and EBITDA | |||||||||||||||
(Dollars in thousands) | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Operating income as reported per GAAP | $ | (4,547 | ) | $ | 4,085 | $ | 9,066 | $ | 9,210 | ||||||
Stock-based compensation (1) | 10,167 | (1,186 | ) | 17,788 | 7,508 | ||||||||||
Severance expense | 214 | 126 | 1,756 | 849 | |||||||||||
Building impairment | — | 231 | — | 231 | |||||||||||
Acquisition related costs | — | 62 | — | 230 | |||||||||||
Discontinued operations accrual | — | — | — | 529 | |||||||||||
Real estate gain | — | — | — | (164 | ) | ||||||||||
Adjusted non-GAAP operating Income | 5,834 | 3,318 | 28,610 | 18,393 | |||||||||||
Depreciation and amortization | 1,492 | 1,735 | 5,893 | 6,855 | |||||||||||
Non-GAAP adjusted EBITDA | $ | 7,326 | $ | 5,053 | $ | 34,503 | $ | 25,248 |
Table 2 - Reconciliation of GAAP Net Income (Loss) and Diluted EPS to Non-GAAP Adjusted Net Income and Adjusted Diluted EPS (Unaudited) | |||||||||||||||
(Dollars in thousands, except per share amounts) | Three Months Ended December 31, | ||||||||||||||
2019 | 2018 | ||||||||||||||
Amount | Diluted EPS (2) | Amount | Diluted EPS (2) | ||||||||||||
Net Income as reported per GAAP | $ | (3,006 | ) | $ | (0.34 | ) | $ | 2,600 | $ | 0.28 | |||||
Pretax adjustments: | |||||||||||||||
Stock-based compensation | 10,167 | 1.13 | (1,186 | ) | (0.12 | ) | |||||||||
Severance expense | 214 | 0.03 | 126 | 0.01 | |||||||||||
Building impairment | — | — | 231 | 0.02 | |||||||||||
Acquisition related costs | — | — | 62 | 0.01 | |||||||||||
Pretax adjustments | 10,381 | 1.16 | (767 | ) | (0.08 | ) | |||||||||
Tax effect on adjustments (1) | (3,052 | ) | (0.34 | ) | (198 | ) | (0.02 | ) | |||||||
Total adjustments, net of tax | $ | 7,329 | $ | 0.82 | $ | (569 | ) | $ | (0.06 | ) | |||||
Non-GAAP adjusted net income | $ | 4,323 | $ | 0.48 | $ | 2,031 | $ | 0.22 |
(1) | Tax effected at effective tax rate of 29.4% for 2019 and 25.8% for 2018 which excludes discrete items |
(2) | Pretax adjustments to diluted EPS calculated on 8.961 million and 9.367 million of diluted shares for 2019 and 2018, respectively |
(Dollars in thousands, except per share amounts) | Twelve Months Ended December 31, | ||||||||||||||
2019 | 2018 | ||||||||||||||
Amount | Diluted EPS (2) | Amount | Diluted EPS (2) | ||||||||||||
Net Income as reported per GAAP | $ | 7,221 | $ | 0.77 | $ | 6,214 | $ | 0.67 | |||||||
Pretax adjustments: | |||||||||||||||
Stock-based compensation | 17,788 | 1.90 | 7,508 | 0.81 | |||||||||||
Severance expense | 1,756 | 0.18 | 849 | 0.09 | |||||||||||
Building impairment | — | — | 231 | 0.02 | |||||||||||
Acquisition related costs | — | — | 230 | 0.02 | |||||||||||
Discontinued operations accrual | — | — | 529 | 0.06 | |||||||||||
Real estate gain | — | — | (164 | ) | (0.02 | ) | |||||||||
Pretax adjustments | 19,544 | 2.08 | 9,183 | 0.98 | |||||||||||
Tax effect on adjustments (1) | (4,964 | ) | (0.52 | ) | (2,369 | ) | (0.26 | ) | |||||||
Total adjustments, net of tax | 14,580 | 1.56 | 6,814 | 0.72 | |||||||||||
Non-GAAP adjusted net income | $ | 21,801 | $ | 2.33 | $ | 13,028 | $ | 1.39 |
(1) | Tax effected at effective tax rate of 25.4% and 25.8% for 2019 and 2018, respectively, which excludes discrete items |
(2) | Pretax adjustments to diluted EPS calculated on 9.376 million and 9.273 million of diluted shares for 2019 and 2018, respectively |
Lawson Products Core Business | |||||||||||||||||||
Table 3 - Quarterly Data (Unaudited) | |||||||||||||||||||
Historical Lawson Segment Sales Representative and Productivity Information | |||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Three Months Ended | |||||||||||||||||||
Dec. 31 2019 | Sep. 30 2019 | Jun. 30 2019 | Mar. 31 2019 | Dec. 31 2018 | |||||||||||||||
Number of business days | 61 | 64 | 64 | 63 | 61 | ||||||||||||||
Average daily net sales | $ | 1,279 | $ | 1,295 | $ | 1,316 | $ | 1,297 | $ | 1,258 | |||||||||
Year over year increase | 1.7 | % | 3.7 | % | 4.4 | % | 6.9 | % | 5.6 | % | |||||||||
Sequential quarter (decrease) increase | (1.2 | )% | (1.6 | )% | 1.5 | % | 3.1 | % | 0.7 | % | |||||||||
Average active sales rep count (1) | 1,002 | 989 | 980 | 991 | 989 | ||||||||||||||
Period-end active sales rep count | 1,006 | 993 | 982 | 986 | 994 | ||||||||||||||
Sales per rep per day | $ | 1.276 | $ | 1.309 | $ | 1.343 | $ | 1.308 | $ | 1.272 | |||||||||
Year over year increase | 0.3 | % | 1.3 | % | 3.0 | % | 4.4 | % | 5.4 | % | |||||||||
Sequential quarter (decrease) increase | (2.5 | )% | (2.5 | )% | 2.7 | % | 2.8 | % | (1.5 | )% |
(1) | Average active sales representative count represents the average of the month-end sales representative counts |
Lawson Products, Inc. | |||||||||||||||||||
Table 4 - Consolidated Quarterly Results (Unaudited) | |||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Three Months Ended | |||||||||||||||||||
Dec. 31 2019 | Sep. 30 2019 | Jun. 30 2019 | Mar. 31 2019 | Dec. 31 2018 | |||||||||||||||
Average daily net sales | $ | 1,452 | $ | 1,481 | $ | 1,502 | $ | 1,450 | $ | 1,414 | |||||||||
Year over year increase | 2.7 | % | 5.4 | % | 6.3 | % | 8.2 | % | 7.0 | % | |||||||||
Sequential quarter (decrease) increase | (2.0 | )% | (1.4 | )% | 3.6 | % | 2.5 | % | 0.6 | % | |||||||||
Net sales | $ | 88,566 | $ | 94,779 | $ | 96,097 | $ | 91,343 | $ | 86,266 | |||||||||
Gross profit | 46,814 | 50,574 | 51,043 | 48,923 | 46,083 | ||||||||||||||
Gross profit percentage | 52.9 | % | 53.4 | % | 53.1 | % | 53.6 | % | 53.4 | % | |||||||||
Selling, general & administrative expenses | $ | 51,361 | $ | 44,128 | $ | 49,420 | $ | 43,379 | $ | 41,998 | |||||||||
Operating (loss) income | $ | (4,547 | ) | $ | 6,446 | $ | 1,623 | $ | 5,544 | $ | 4,085 |