Lawson Products Announces Third Quarter 2018 Results
17.0% Sales Increase Drives Strong Performance
Highlights
-
Sales of
$88.5 million , up 17.0%. Average daily sales ("ADS") increased to$1.405 million during the third quarter of 2018 compared to$1.201 million in the third quarter of 2017 - Lawson segment ADS increased 4.0%, excluding The Bolt Supply House ("Bolt Supply"), primarily due to a 6.6% improvement in sales rep productivity
-
Operating loss of
$2.3 million , including$7.6 million in stock-based compensation expense due to a 39% increase in the market price of the Company's stock price, compared to operating income of$1.1 million in the third quarter of 2017. Non-GAAP adjusted operating income of$5.6 million compared to$3.9 million a year ago, up 44.6%. Adjusted EBITDA of$7.3 million which exceeded the$5.4 million from a year ago, up 34.6% (See reconciliation in Table 2) -
Net loss of
$0.8 million or$0.09 per diluted share. Adjusted net income, excluding stock-based compensation, acquisition costs and severance, was$5.0 million or$0.54 per diluted share (See reconciliation in Table 3) -
Borrowings, net of cash, were
$2.3 million atSeptember 30, 2018 , a reduction of$7.8 million during the quarter, driven by strong cash flows from operations -
Continued to be active with acquisitions by acquiring
Dallas -basedScrew Products, Inc. onOctober 1, 2018
3Q 2018 Summary Financial Highlights | ||||||||
($ in millions) | 3Q18 | 3Q17 | Change | |||||
Net Sales | $88.5 | $75.7 | 17.0% | |||||
Average Daily Net Sales | $1.405 | $1.201 | 17.0% | |||||
Number of Business Days | 63 | 63 | ||||||
Reported Operating Income (Loss) | $(2.3) | $1.1 | NM | |||||
Adjusted Operating Income (1) | $5.6 | $3.9 | 44.6% | |||||
Margin (1) | 6.3% | 5.2% | +120 bps | |||||
Adjusted EBITDA (1) | $7.3 | $5.4 | 34.6% | |||||
Margin (1) | 8.2% | 7.1% | +110 bps |
(1) | Excludes the impact of stock-based compensation, acquisition costs and severance. (See reconciliation in Table 2) | |
“The third quarter results evidenced strong demand, solid execution on
our growth strategy and a continuation of our favorable 2018
performance. We delivered a 17.0% sales increase driven by improved
Lawson sales rep productivity as well as the inclusion of Bolt Supply.
In addition, our adjusted operating income grew by nearly 45%
demonstrating our ability to leverage our existing infrastructure," said
“Subsequent to the quarter, we announced the acquisition of
Third Quarter Results
Net sales increased 17.0% to
Third quarter gross profit increased
Consolidated gross profit as a percentage of sales was 54.3% for the third quarter. Prior to the adoption of ASC 606, consolidated gross profit as a percentage of sales was 58.3% including Bolt Supply. The Lawson segment gross profit percentage, prior to ASC 606, was 60.9% compared to 60.8% in the year ago quarter.
Selling expenses decreased to
General and administrative expenses were
Operating loss in the third quarter of 2018 was
Net loss for the third quarter of 2018 was
Borrowings and Cash Flow
As of
Conference Call
About
Founded in 1952,
For additional information, please visit https://www.lawsonproducts.com or https://www.kent-automotive.com.
This Release contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 that
involve risks and uncertainties. The terms "may," "should," "could,"
"anticipate," "believe," "continues," "estimate," "expect," "intend,"
"objective," "plan," "potential," "project" and similar expressions are
intended to identify forward-looking statements. These statements are
not guarantees of future performance and involve risks, uncertainties
and assumptions that are difficult to predict. These statements are
based on management's current expectations, intentions or beliefs and
are subject to a number of factors, assumptions and uncertainties that
could cause or contribute to such differences or that might otherwise
impact the business and include the risk factors set forth in Item 1A of
the
-TABLES FOLLOW-
Lawson Products, Inc. | ||||||||||||||||
Condensed Consolidated Statements of Operations | ||||||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Product revenue | $ | 78,377 | $ | 75,651 | $ | 233,744 | $ | 225,274 | ||||||||
Service revenue | 10,153 | — | 29,627 | — | ||||||||||||
Net revenue | 88,530 | 75,651 | 263,371 | 225,274 | ||||||||||||
Product cost of goods sold | 36,979 | 29,646 | 109,667 | 89,249 | ||||||||||||
Service costs | 3,443 | — | 10,247 | — | ||||||||||||
Gross profit | 48,108 | 46,005 | 143,457 | 136,025 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling expenses | 22,175 | 24,354 | 66,119 | 72,964 | ||||||||||||
General & administrative expenses | 28,199 | 20,561 | 72,213 | 58,790 | ||||||||||||
Total SG&A | 50,374 | 44,915 | 138,332 | 131,754 | ||||||||||||
Gain on sale of property | — | — | — | (5,422 | ) | |||||||||||
Operating expenses | 50,374 | 44,915 | 138,332 | 126,332 | ||||||||||||
Operating income (loss) | (2,266 | ) | 1,090 | 5,125 | 9,693 | |||||||||||
Interest expense | (251 | ) | (133 | ) | (755 | ) | (393 | ) | ||||||||
Other income (expense), net | 170 | 843 | (320 | ) | 953 | |||||||||||
Income (loss) before income taxes | (2,347 | ) | 1,800 | 4,050 | 10,253 | |||||||||||
Income tax (benefit) expense | (1,531 | ) | 479 | 436 | 802 | |||||||||||
Net income (loss) | $ | (816 | ) | $ | 1,321 | $ | 3,614 | $ | 9,451 | |||||||
Basic income (loss) per share of common stock | $ | (0.09 | ) | $ | 0.15 | $ | 0.41 | $ | 1.07 | |||||||
Diluted income (loss) per share of common stock | $ | (0.09 | ) | $ | 0.14 | $ | 0.39 | $ | 1.04 | |||||||
Lawson Products, Inc. | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(Dollars in thousands, except share data) | ||||||||
(Unaudited) | ||||||||
September 30, | December 31, | |||||||
2018 | 2017 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 7,663 | $ | 4,416 | ||||
Restricted cash | 800 | 800 | ||||||
Accounts receivable, less allowance for doubtful accounts of $445 | ||||||||
and $476, respectively | 43,561 | 38,575 | ||||||
Inventories, net | 51,154 | 50,928 | ||||||
Miscellaneous receivables and prepaid expenses | 5,077 | 3,728 | ||||||
Total current assets | 108,255 | 98,447 | ||||||
Property, plant and equipment, net | 24,535 | 27,333 | ||||||
Deferred income taxes | 20,457 | 21,248 | ||||||
Goodwill | 19,114 | 19,614 | ||||||
Cash value of life insurance | 13,360 | 11,964 | ||||||
Intangible assets, net | 10,901 | 11,813 | ||||||
Other assets | 339 | 248 | ||||||
Total assets | $ | 196,961 | $ | 190,667 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Revolving lines of credit | $ | 9,918 | $ | 14,543 | ||||
Accounts payable | 16,332 | 12,394 | ||||||
Accrued expenses and other liabilities | 38,583 | 33,040 | ||||||
Total current liabilities | 64,833 | 59,977 | ||||||
Security bonus plan | 12,876 | 12,981 | ||||||
Financing lease obligation | 5,524 | 6,420 | ||||||
Deferred compensation | 6,107 | 5,476 | ||||||
Deferred rent liability | 2,081 | 3,512 | ||||||
Deferred tax liability | 3,073 | 3,115 | ||||||
Other liabilities | 4,445 | 5,696 | ||||||
Total liabilities | 98,939 | 97,177 | ||||||
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 - 8,952,918 and 8,921,302 shares, respectively | ||||||||
Outstanding - 8,919,644 and 8,888,028 shares, respectively | 8,953 | 8,921 | ||||||
Capital in excess of par value | 14,989 | 13,005 | ||||||
Retained earnings | 74,738 | 71,453 | ||||||
Treasury stock – 33,274 shares | (711 | ) | (711 | ) | ||||
Accumulated other comprehensive income | 53 | 822 | ||||||
Total stockholders’ equity | 98,022 | 93,490 | ||||||
Total liabilities and stockholders’ equity | $ | 196,961 | $ | 190,667 | ||||
SEC REGULATION G GAAP RECONCILIATIONS
The Company reports its financial results in accordance with U.S.
generally accepted accounting principles (GAAP). However, the Company's
management believes that certain non-GAAP financial measures may provide
users of this financial information with additional meaningful
comparisons between current results and results in prior operating
periods. Management believes that these non-GAAP financial measures can
provide additional meaningful reflection of underlying trends of the
business because they provide a comparison of historical information
that excludes certain non-operational items that impact the overall
comparability.
On
TABLE 1 - Impact of ASC 606 on Condensed Consolidated Statements of Income (Loss) (Unaudited) | ||||||||||||
Three Months Ended September 30, 2018 | ||||||||||||
Pro-Forma as if | ||||||||||||
Service | previous | |||||||||||
Revenues and | accounting | |||||||||||
Costs | guidance was in | |||||||||||
(Dollars in thousands) | As Reported | Adjustments | effect | |||||||||
Product revenue | $ | 78,377 | $ | 10,207 | $ | 88,584 | ||||||
Service revenue | 10,153 | (10,153 | ) | — | ||||||||
Net Revenue | 88,530 | 54 | 88,584 | |||||||||
Product cost of goods sold | 36,979 | — | 36,979 | |||||||||
Service costs | 3,443 | (3,443 | ) | — | ||||||||
Total cost of goods sold | 40,422 | (3,443 | ) | 36,979 | ||||||||
Gross profit | 48,108 | 3,497 | 51,605 | |||||||||
Gross profit percentage | 54.3 | % | 58.3 | % | ||||||||
Selling expenses | 22,175 | 3,468 | 25,643 | |||||||||
General and administrative expenses | 28,199 | — | 28,199 | |||||||||
Operating expenses | 50,374 | 3,468 | 53,842 | |||||||||
Operating income (loss) | $ | (2,266 | ) | $ | 29 | $ | (2,237 | ) |
Nine Months Ended September 30, 2018 | |||||||||||||
Pro-Forma as if | |||||||||||||
Service | previous | ||||||||||||
Revenues and | accounting | ||||||||||||
Costs | guidance was in | ||||||||||||
(Dollars in thousands) | As Reported | Adjustments | effect | ||||||||||
Product revenue | $ | 233,744 | $ | 29,609 | $ | 263,353 | |||||||
Service revenue | 29,627 | (29,627 | ) | — | |||||||||
Net Revenue | 263,371 | (18 | ) | 263,353 | |||||||||
Product cost of goods sold | 109,667 | — | 109,667 | ||||||||||
Service costs | 10,247 | (10,247 | ) | — | |||||||||
Total cost of goods sold | 119,914 | (10,247 | ) | 109,667 | |||||||||
Gross profit | 143,457 | 10,229 | 153,686 | ||||||||||
Gross profit percentage | 54.5 | % | 58.4 | % | |||||||||
Selling expenses | 66,119 | 10,092 | 76,211 | ||||||||||
General and administrative expenses | 72,213 | — | 72,213 | ||||||||||
Operating expenses | 138,332 | 10,092 | 148,424 | ||||||||||
Operating income | $ | 5,125 | $ | 137 | $ | 5,262 | |||||||
Table 2 - Reconciliation of GAAP Operating Income to Non-GAAP Adjusted Operating Income and | |||||||||||||||
Adjusted EBITDA | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended September 30, | |||||||||||||||
2018 | 2017 | ||||||||||||||
Lawson |
Bolt Supply | ||||||||||||||
(Dollars in thousands) |
Segment |
Segment | Consolidated | Consolidated | |||||||||||
Operating income (loss), as reported per GAAP | $ | (2,955 | ) | $ | 689 | $ | (2,266 | ) | $ | 1,090 | |||||
Stock-based compensation (1) | 7,637 | — | 7,637 | 2,337 | |||||||||||
Severance expense | 27 | 4 | 31 | 139 | |||||||||||
Acquisition related costs | 168 | — | 168 | 286 | |||||||||||
Non-GAAP adjusted operating income | 4,877 | 693 | 5,570 | 3,852 | |||||||||||
Depreciation and amortization | $ | 1,691 | $ | 64 | $ | 1,755 | $ | 1,591 | |||||||
Non-GAAP adjusted EBITDA | $ | 6,568 | $ | 757 | $ | 7,325 | $ | 5,443 |
(1) | A portion of stock-based compensation expense varies with the Company's stock price |
Table 3 - Reconciliation of GAAP Net Income and Diluted EPS to Non-GAAP Adjusted Net Income and | ||||||||||||||||
Adjusted Diluted EPS (Unaudited) | ||||||||||||||||
(Dollars in thousands, except per share amounts) | Three Months Ended September 30, | |||||||||||||||
2018 | 2017 | |||||||||||||||
Amount | Diluted EPS (2) | Amount | Diluted EPS | |||||||||||||
Net Income (loss), as reported per GAAP | $ | (816 | ) | $ | (0.09 | ) | $ | 1,321 | $ | 0.14 | ||||||
Pretax adjustments: | ||||||||||||||||
Stock-based compensation | 7,637 | 0.82 | 2,337 | 0.26 | ||||||||||||
Severance expense | 31 | 0.00 | 139 | 0.02 | ||||||||||||
Acquisition related costs | 168 | 0.02 | 286 | 0.03 | ||||||||||||
Pretax adjustments | 7,836 | 0.84 | 2,762 | 0.31 | ||||||||||||
Tax effect (1) | (2,014 | ) | (0.21 | ) | (735 | ) | (0.08 | ) | ||||||||
Total adjustments, net of tax | 5,822 | 0.63 | 2,027 | 0.23 | ||||||||||||
Non-GAAP adjusted net income | $ | 5,006 | $ | 0.54 | $ | 3,348 | $ | 0.37 |
(1) |
Tax effected at quarterly effective tax rate of 26.6% for 2017 and 25.7% for 2018 which excludes the benefit of discrete items |
|
(2) | Pretax adjustments to diluted EPS calculated on 9.322 million of diluted shares |
LAWSON PRODUCTS, INC. | ||||||||||||||||||||
TABLE 4 - QUARTERLY RESULTS (UNAUDITED) | ||||||||||||||||||||
Historic Lawson Segment Sales Representative and Productivity | ||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||
Sep. 30 | Jun. 30 | Mar. 31 | Dec. 31 | Sep. 30 | ||||||||||||||||
2018 | 2018 | 2018 | 2017 | 2017 | ||||||||||||||||
Number of business days | 63 | 64 | 63 | 61 | 63 | |||||||||||||||
Average daily net sales (Dollars in thousands) | $ | 1,249 | $ | 1,260 | $ | 1,213 | $ | 1,191 | $ | 1,201 | ||||||||||
Year over year increase | 4.0 | % | 7.5 | % | 4.0 | % | 6.1 | % | 9.5 | % | ||||||||||
Sequential quarter increase (decrease) | (0.9 | )% | 3.9 | % | 1.8 | % | (0.8 | )% | 2.5 | % | ||||||||||
Average active sales rep. count (1) | 967 | 966 | 968 | 987 | 991 | |||||||||||||||
Period-end active sales rep. count | 978 | 968 | 966 | 983 | 988 | |||||||||||||||
Sales per rep. per day | $ | 1,292 | $ | 1,304 | $ | 1,253 | $ | 1,207 | $ | 1,212 | ||||||||||
Year over year increase | 6.6 | % | 9.1 | % | 6.4 | % | 8.3 | % | 11.3 | % | ||||||||||
Sequential quarter increase (decrease) | (0.9 | )% | 4.1 | % | 3.8 | % | (0.4 | )% | 1.4 | % |
(1) | Average active sales rep count represents the average of the month-ends sales representative count |
LAWSON PRODUCTS, INC. | ||||||||||||||||||||
TABLE 5 - CONSOLIDATED QUARTERLY RESULTS (UNAUDITED) | ||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||
Sep. 30 | Jun. 30 | Mar. 31 | Dec. 31 | Sep. 30 | ||||||||||||||||
(Dollars in thousands) | 2018 | 2018 | 2018 | 2017 | 2017 | |||||||||||||||
Average daily net sales | $ | 1,405 | $ | 1,412 | $ | 1,341 | $ | 1,322 | $ | 1,201 | ||||||||||
Year over year increase | 17.0 | % | 20.5 | % | 15.0 | % | 17.8 | % | 9.5 | % | ||||||||||
Sequential quarter increase (decrease) | (0.5 | )% | 5.3 | % | 1.4 | % | 10.1 | % | 2.5 | % | ||||||||||
Net Sales | $ | 88,530 | $ | 90,382 | $ | 84,459 | $ | 80,633 | $ | 75,651 | ||||||||||
Gross profit (1) | 48,108 | 49,131 | 46,218 | 46,993 | 46,005 | |||||||||||||||
Gross profit percentage (1) | 54.3 | % | 54.4 | % | 54.7 | % | 58.3 | % | 60.8 | % | ||||||||||
Selling, general & administrative expenses | $ | 50,374 | $ | 43,577 | $ | 44,381 | $ | 46,750 | $ | 44,915 | ||||||||||
Operating income (loss) | $ | (2,266 | ) | $ | 5,554 | $ | 1,837 | $ | 243 | $ | 1,090 |
(1) | Reflects the adoption of ASC 606 effective January 1, 2018 including the reclassification of $3.4 million, $3.1 million, and $3.5 million of selling expense as a reduction of gross profit in the three months ended September 30, 2018, June 30, 2018 and March 31, 2018, respectively. | |
View source version on businesswire.com: https://www.businesswire.com/news/home/20181025005112/en/
Source:
Investor Relations:
Lawson Products, Inc.
Ronald J.
Knutson
Executive Vice President and Chief Financial Officer
773-304-5665