UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): | November 7, 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) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common stock, $1.00 par value | LAWS | NASDAQ Global Select Market | ||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 7.01 Regulation FD Disclosure.
Lawson Products, Inc. (the "Company") has updated its Investor Presentation (the “Presentation”) which is furnished as Exhibit 99.1 to this Report on Form 8-K. A copy of the Presentation is also available on the Company’s website at www.lawsonproducts.com.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits:
99.1 Investor Presentation Third Quarter 2019
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
LAWSON PRODUCTS, INC. | ||
(Registrant) | ||
Date: November 7, 2019 | By: /s/ Ronald J. Knutson | |
Name: Ronald J. Knutson | ||
Title: Executive Vice President, Chief Financial Officer, Treasurer and Controller | ||
EXHIBIT INDEX
Exhibit Number | Description | |
Investor Presentation Third Quarter 2019 Presenters: Michael DeCata, President & CEO Ronald Knutson, EVP & CFO © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Lawson Products, Inc. "Safe Harbor" Statement under the Securities Litigation Reform Act of 1995: This presentation 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 actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences or that might otherwise impact the business include: failure to retain a talented workforce including productive sales representatives; the inability of management to successfully implement strategic initiatives; failure to manage change; the ability to adequately fund our operating and working capital needs through cash generated from operations; the ability to meet the covenant requirements of our line of credit; disruptions of the Company’s information and communication systems; the effect of general economic and market conditions; inventory obsolescence; work stoppages and other disruptions at transportation centers or shipping ports; changing customer demand and product mixes; increases in commodity prices; violations of environmental protection regulations; a negative outcome related to tax matters; and, all other factors discussed in the Company’s “Risk Factors” set forth in its Annual Report on Form 10-K for the year ended December 31, 2018. The Company undertakes no obligation to update any such factors or to publicly announce the results of any revisions to any forward-looking statements contained herein whether as a result of new information, future events or otherwise. 2 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Lawson Products: At a Glance • Leading service based provider of consumables in MRO market • Serves industrial, commercial, institutional and government markets in all 50 states, Canada, Mexico, Puerto Rico and the Caribbean • Headquartered in Chicago, IL – Strategically located distribution centers – Workforce ~1,600 (~ 1,000 sales reps) • Supplies a comprehensive line of products to the MRO marketplace • VMI and private label drives high gross margins Fasteners Cutting Tools Chemicals Hydraulics Other 3 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Competitive Advantages and Differentiators What differentiates Lawson: • Service intensive “high touch” value proposition • Vendor managed inventory or “keep fill” • Deep product knowledge • Broad geographic sales and service coverage throughout the US and Canada • Leverage investments in sales team, facilities and technology to enable outstanding customer service • Lowest total cost 4 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Our Commitment to our 70,000+ Customers High touch service and technical expertise drives customer relationships Before After One Company, Zero Headaches Inventory Management Options Access to Industry Knowledge & Expertise • Comprehensivelineofproducts • LawsonManagedInventory • Productrecommendationsfrom your Lawson Representative • Hundredsofpre-builtassortments • Industrialvending • Applicationadvicefromourtest and application engineers • Unlimited sourcing of hard-to-find • Self-service inventory • Complimentary on-site safety & items management product usage training 5 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Customer and Product Profile Customer Mix Product Mix Aftermarket Automotive Supplies 8% Safety Kent Electrical 5% Automotive Bolt Supply 11% 11% 15% Welding and Cutting Tools Metal Repair and Abrasives 2% Strategic Government 13% 14% Other 11% Specialty 10% Other Chemicals 2% 12% Regional Accounts Fluid Power Fastening 47% 15% Systems 23% Retain over 90% of customer revenues from year to year 6 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Lawson Growth Strategy Sales Growth Driven By New Sales Sales Rep Acquisitions Reps Productivity Foundational Support ERP Network Sales Lean Six Website Optimization Transformation Sigma 7 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
2019 Focus: Actions Across the Value Chain Driving Growth Add New Sales Reps and Drive Rep Productivity Customer Product Sales Process / Sourcing / Service / Order Management / DC Operations Sales Reps Purchasing Entry Pricing • Increase sales rep • Reduction of • Leverage vendor • Reduce cycle time • Supplier count cycle times drop-ship • Refine “Pull” negotiation • Onboarding • Order pad programs strategy process process/training • Consolidation of • Fleet maintenance • Freight • Vendor metrics • Sales shipments focus enhancements • Electronic Management • Sales service reps • Pricing • Minimize communication dashboard enhancements backorders • EDI with • Website • Improve service customers levels • Forecasting tool Information Technology – Integration of Web and SAP Lean Six Sigma 8 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Longer Sales Rep Tenure Drives Rep Productivity 350 $500,000 $450,000 300 $400,000 250 $350,000 s s p e l e a R $300,000 S s 200 l e a l u a n S n f $250,000 A O r e e g a b 150 r m $200,000 e v u A N 100 $150,000 $100,000 50 $50,000 0 $0 < 12 Mos. 1 - 2 Yrs. 3 - 5 Yrs. 5 - 10 Yrs. > 10 Yrs. Tenure With Lawson (as of 9/30/19) Number of Reps Average Annual Sales 9 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Historical Financial Performance Recent sales growth and earnings expansion providing financial flexibility Consolidated Revenues Adjusted Reg G EBITDA $35,000 $400,000 $30,000 $350,000 $25,000 $20,000 $300,000 $15,000 $10,000 $250,000 $5,000 $200,000 $0 2014 2015 2016 2017 2018 TTM 2014 2015 2016 2017 2018 TTM 9/30/19 9/30/19 Net Cash/(Debt) Quarterly Adjusted Reg G EBITDA $15,000 $12,000 2019 2019 $10,000 $10,000 2019 2018 2018 $5,000 $8,000 2018 2017 2018 $6,000 2017 $0 2014 2015 2016 2017 2018 9/30/2019 $4,000 2017 2017 -$5,000 $2,000 -$10,000 $0 -$15,000 Q1 Q2 Q3 Q4 10 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Financial Highlights for Third Quarter 2019 • Adjusted Reg G EBITDA margin improving 10.9% in Q3 2019 v. 8.3% in Q3 2018 Continued investment in new sales reps and rep productivity • Sales increased 7.1% YOY (7.4% excluding currency fluctuation) • MRO Lawson/Kent gross margins consistent at 60.9% • Key trends MRO operating leverage of 54%; 1.3% increase in sales rep productivity Continued government strength; +30% YOY Growth across multiple segments and product categories Cash flow from operations of $10.3 million in Q3 11 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Capital Allocation Priorities Maintain Strong • $8.6 million cash on hand and positive cash position of $6.4 million at the end Balance Sheet of Q3 • Consistent free cash flow generation • Increased our borrowing capacity to $100.0 million (additional $50.0 million Reinvest for Growth accordion) with our new borrowing agreement • Capital expenditures expected to be $2.0 - $3.0 million in 2019 • Growth initiatives: add new reps and increase sales rep productivity Pursue • Bolt-on acquisitions to enhance core growth strategies Disciplined M&A • Closed Screw Products Inc. acquisition on 10/1/18 • Share repurchase to offset award dilution; opportunistic purchases Return Capital • $7.5 million stock repurchase program announced on May 16, 2019; $6.3 million remaining after repurchase of shares worth $1.2 million in August 2019 12 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Lawson Products: Poised for Growth • Leverage Current Infrastructure • Continued Sales Growth • Foundational Investments Completed • Operational Excellence • Large Fragmented Market 13 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
For More Information Contact: Ronald J. Knutson EVP, CFO Investor Relations (773) 304-5665 ron.knutson@lawsonproducts.com And see our Website at http://www.lawsonproducts.com/company-info/investor-relations.jsp 14 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Appendices 15 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Significant Activities Appendix P-1 August 2011 Implemented SAP October 2011 Commenced construction of new McCook, Ill distribution center May 2012 Relocated corporate headquarters June 2012 Restructured senior team. Announced $20M cost savings plan Transitioned packaging facility to McCook, Ill distribution center August 2012 Entered into new five-year $40M credit facility Announced new CEO and President, Michael G. DeCata October 2012 Consolidated Vernon Hills distribution center into McCook, Ill November 2012 Rolled out new website to existing web customers December 2012 Completed transition of U.S. independent agents to employees April 2013 Roll-out of new website to new web customers April/May 2013 McCook DC begins to ship customer orders November 2013 Entered into sub-lease of headquarters space to generate $2.9M of future cash savings December 2013 Ended year with over 800 sales reps – First increase in 8 years February 2014 Closed on Automatic Screw Machine Products sale for net proceeds of $12.1M June 2014 Entered into sale-leaseback of Reno distribution facility for net proceeds of $8.3M December 2014 Ended year with over 900 sales reps February 2015 Held North American sales meeting September 2015 Completed West Coast Fasteners acquisition March 2016 Completed Perfect Products of Michigan acquisition May 2016 Completed F. B. Feeney acquisition June 2016 Expanded sales team to over 1,000 sales reps September 2016 Extended credit facitlity to August, 2020 November 2016 Completed Mattic Industries acquisition March 2017 Consolidated Fairfield, NJ distribution operations into McCook, Ill and Suwanee, GA May 2017 Sold Fairfield, NJ distribution center for a gain of $5.4M October 2017 Completed Bolt Supply House acquisition April 2018 Opened MRO distribution center in Calgary, Canada October 2018 Completed Screw Products acquisition and added Bolt Supply branch June 2019 Achieved Q2 9.8% adjusted EBITDA, net of ASC 842 impact of 0.3% September 2019 Achieved Q3 10.9% adjusted EBITDA; hired VP, M&A October 2019 Entered into new five-year $100M credit facility, with additional $50 million accordion feature 16 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Appendix P-2 Regulation G – GAAP Reconciliation Non GAAP Reconciliation of Adjusted EBITDA to Sales Percentage The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, the Company's management believes that certain non-GAAP financial measures may provide users of this financial information additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain non-operational, non-recurring or intermittently recurring items that impact the overall comparability. See the table below for supplemental financial data and corresponding reconciliations to GAAP financial measures for quarterly adjusted EBITDA as a percentage of net sales. Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. ($ in thousands) Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Net Sales $ 74,617 $ 75,006 $ 75,651 $ 80,633 $ 84,459 $ 90,382 $ 88,530 $ 86,266 $ 91,343 $ 96,097 $ 94,779 Operating Income (Loss) 712 7,891 1,090 243 1,837 5,554 (2,266) 4,085 5,544 1,623 6,446 Depreciation & Amortization 1,705 1,644 1,591 1,830 1,686 1,679 1,755 1,735 1,478 1,455 1,468 EBITDA 2,417 9,535 2,681 2,073 3,523 7,233 (511) 5,820 7,022 3,078 7,914 Excluded Costs Severance 465 (9) 139 144 628 64 31 126 27 1,485 30 Stock Based Compensation (Benefit) (30) 415 2,337 384 970 87 7,637 (1,186) 408 4,839 2,374 Acquisition Related Costs - - 286 425 - - 168 62 - - - Loss/(Gain) on Disposal of Property - (5,422) - - - - - - - - - Lease termination gain - - - - - (164) - - - - - Discontinued operation accrual - - - - - 529 - - - - - Building Impairment - - - - - - - 231 - - - Reg G Adjusted EBITDA $ 2,852 $ 4,519 $ 5,443 $ 3,026 $ 5,121 $ 7,749 $ 7,325 $ 5,053 $ 7,457 $ 9,402 $ 10,318 Adjusted EBITDA % of Sales 3.8% 6.0% 7.2% 3.8% 6.1% 8.6% 8.3% 5.9% 8.2% 9.8% 10.9% 17 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.
Consolidated Balance Sheet Appendix P-4 September30, December31, 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 45,162 37,682 and $549, respectively 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 9,043 9,006 Outstanding - 8,956,981 and 8,955,930 shares, respectively 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 18 © 2019 Lawson Products, Inc. All rights reserved. Confidential Material, Reproduction, In Whole or in Part, Prohibited.