Lawson Products, Inc., a distributor of products and services to the MRO marketplace, announced results for the third quarter ended Sept. 30.
Highlights
- Sales of $88.5 million, up 17.0 percent. 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 percent, excluding The Bolt Supply House ("Bolt Supply"), primarily due to a 6.6 percent improvement in sales rep productivity
- Operating loss of $2.3 million, including $7.6 million in stock-based compensation expense due to a 39 percent 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 percent. Adjusted EBITDA of $7.3 million which exceeded the $5.4 million from a year ago, up 34.6 percent (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 at Sept. 30, 2018, a reduction of $7.8 million during the quarter, driven by strong cash flows from operations
- Continued to be active with acquisitions by acquiring Dallas-based Screw Products, Inc. on Oct. 1, 2018
| 3Q 2018 Summary Financial Highlights | ||||||||
| ($ 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 Michael DeCata, president and chief executive officer.
“Subsequent to the quarter, we announced the acquisition of Dallas-based Screw Products, Inc., a $3.0 million dollar customized fastener and component distributor that will expand our customer base in the job shop/manufacturing market segment. We will continue to make strategically-focused and disciplined investments. We remain confident that we will achieve continued earnings growth fueled by both organic sales and accretive acquisitions,” said DeCata.
Third Quarter Results
Net sales increased 17.0 percent to $88.5 million for the third quarter of 2018 compared to $75.7 million in 2017. Sales were positively impacted by a 6.6% improvement in the Lawson segment sales rep productivity compared to the third quarter of 2017 and the inclusion of Bolt Supply sales of $9.8 million. Average daily sales grew to $1.405 million compared to $1.201 million in the prior year quarter with 63 selling days in both quarters.
Third quarter gross profit increased $2.1 million to $48.1 million compared to $46.0 million in 2017, primarily due to increased sales and the acquisition of Bolt Supply. This was offset by $3.4 million due to the adoption of Accounting Standards Codification 606 ("ASC 606") on January 1, 2018. Under ASC 606, certain costs were reclassified from selling expenses to cost of sales. (See Table 1)
Consolidated gross profit as a percentage of sales was 54.3 percent for the third quarter. Prior to the adoption of ASC 606, consolidated gross profit as a percentage of sales was 58.3 percent including Bolt Supply. The Lawson segment gross profit percentage, prior to ASC 606, was 60.9 percent compared to 60.8 percent in the year ago quarter.
Selling expenses decreased to $22.2 million in the third quarter compared to $24.4 million a year ago. This decrease reflects the inclusion of $0.8 million of Bolt Supply expenses offset by $3.4 million of selling expenses now reported within gross profit. Selling expenses decreased to 25.0 percent from 32.2 percent of sales in the year ago quarter primarily due fixed selling costs leveraged over a higher sales base, the adoption of the new revenue recognition standard and the inclusion of Bolt Supply, which has lower selling expenses as a percent of sales.
General and administrative expenses were $28.2 million in the third quarter of 2018 compared to $20.6 million in the year ago quarter. The increase in general and administrative expense was driven by a $5.3 million increase in stock-based compensation in the third quarter of 2018 compared to the third quarter of 2017 and the inclusion of $2.2 million of general and administrative expenses for Bolt Supply. Excluding stock-based compensation, general and administrative expenses were 23.2 percent of sales for the quarter compared to 24.1 percent in the prior year third quarter.
Operating loss in the third quarter of 2018 was $2.3 million compared to income of $1.1 million a year ago. Adjusted non-GAAP operating income increased to $5.6 million in the third quarter of 2018 compared to $3.9 million in the year ago quarter. (See reconciliation in Table 2) The growth in adjusted non-GAAP operating income from a year ago was generated by an improvement of $1.0 million in the Lawson segment and the contribution of $0.7 million from Bolt Supply.
Net loss for the third quarter of 2018 was $0.8 million, or $0.09 per diluted share compared to net income of $1.3 million, or $0.14 per diluted share, for the same period a year ago. Net income for the third quarter of 2018 was negatively impacted by an increase in the market price of the Company's common stock price which resulted in a charge for stock-based compensation of $7.6 million, or $0.64 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 and Cash Flow
As of Sept. 30, the Company had $9.9 million of borrowings under its revolving credit facility and cash and cash equivalents of $7.7 million. On a net basis, this represents a reduction of $7.8 million in the third quarter of 2018 primarily driven by improved earnings and working capital management. On a year-to-date basis, the Company has generated cash flows from operating activities of $10.2 million.
