laws-20200730
0000703604FALSE00007036042020-07-302020-07-30

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):July 30, 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,Illinois60631
(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 classTrading SymbolName of each exchange on which registered
Common stock, :schemaRef xlink:type="simple" xlink:href="laws-20200730.xsd">00007036042020-07-302020-07-30

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):July 30, 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,Illinois60631
(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 classTrading SymbolName of each exchange on which registered
Common stock, $1.00 par valueLAWSNASDAQ 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 2.02 Results of Operations and Financial Condition.

On July 30, 2020, Lawson Products, Inc. issued a press release announcing its second quarter 2020 results. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.



Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

99.1 Press Release issued on July 30, 2020






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:
July 30, 2020
By: /s/ Ronald J. Knutson
Name: Ronald J. Knutson
Title: Executive Vice President, Chief Financial Officer, Treasurer and Controller






EXHIBIT INDEX


Exhibit NumberDescription
LAWSNASDAQ 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 2.02 Results of Operations and Financial Condition.

On July 30, 2020, Lawson Products, Inc. issued a press release announcing its second quarter 2020 results. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.



Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

99.1 Press Release issued on July 30, 2020






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:
July 30, 2020
By: /s/ Ronald J. Knutson
Name: Ronald J. Knutson
Title: Executive Vice President, Chief Financial Officer, Treasurer and Controller






EXHIBIT INDEX






Document

Lawson Products Announces Second Quarter 2020 Results

CHICAGO, July 30, 2020 - Lawson Products, Inc. (NASDAQ: LAWS) (“Lawson” or the "Company"), a distributor of products and services to the MRO marketplace, today announced results for the second quarter ended June 30, 2020.
Second Quarter Summary Financial HighlightsThree Months Ended June 30,Six Months Ended June 30,
($ in millions, except earnings per share data)20202019Change20202019Change
Net Sales$72.1$96.1(24.9)%$163.2$187.4(12.9)%
Average Daily Net Sales$1.127$1.502(24.9)%$1.275$1.476(13.6)%
Number of Business Days6464128127
Reported Operating Income$0.6$1.6(64.9)%$19.2$7.2168.0%
Adjusted Operating Income (1)
$4.8$7.9(39.8)%$12.7$13.9(8.6)%
Adjusted EBITDA (1)
$6.3$9.4(33.1)%$15.7$16.9(6.6)%
Adjusted EBITDA Margin (1)
8.7%9.8%(110) bps9.6%9.0%+60 bps
Reported Diluted Earnings Per Share$0.07$0.14$(0.07)$1.41  $0.58$0.83
Adjusted Diluted Earnings Per Share (2)
$0.37$0.62$(0.25)$0.93  $1.10$(0.17)

(1) Excludes the impact of stock-based compensation and severance. (See reconciliation in Table 1)
(2) Excludes the impact of stock-based compensation and severance. (See reconciliation in Table 2)

"Lawson reacted quickly to the unprecedented negative impact that COVID-19 had on the economy and the company. We focused on the health and safety of our team including social distancing, protective coverings, increased sanitizing and working remotely whenever possible. Lawson’s team members have been our greatest strength throughout this aberrant period. Through their terrific efforts, commitment and positive attitude, our streamlined team achieved solid adjusted operating results while fortifying our cash and financial position," said Michael DeCata, president and chief executive officer.

"During the quarter, we successfully undertook a series of actions that continued a high level of service to our customers, protected operating margins and maintained our strong financial position. Our adjusted EBITDA margin of 8.7% was a direct result of our actions. Looking ahead, we are focused on improving sales to further leverage our streamlined cost structure and expand operating margins. The current disruptive conditions have challenged us to be more productive in many areas of the organization that will have continuing long-term benefits. Although there is uncertainty about the pandemic and general economy, we believe the actions we’ve taken, their near term results and long-term implications best serve our shareholders and employees by positioning Lawson to achieve solid growth into the future. In addition, we will be opportunistic in utilizing our strong balance sheet and cash position to make accretive acquisitions,” concluded Mr. DeCata.



Highlights

Sales of $72.1 million decreased 24.9% year-over-year. As the quarter developed, sequentially, May Average Daily Sales (ADS) increased nearly 23% over April while June ADS increased another nearly 6% over May. Average daily sales were $1.127 million in the second quarter of 2020 compared to $1.502 million during the same quarter 2019

Reported gross margin was 53.1% for the quarter, the same as a year ago. This was achieved despite a shift in sales mix toward lower margin product categories.

1


Net cash generated from operations in the quarter of $14.7 million was achieved through effective working capital management with a keen focus on preserving our cash position. Lawson ended the quarter in a positive cash position of $8.3 million, net of debt, along with having $97.3 million of availability under its committed credit facility.

Reported net income was $0.6 million for the quarter, or $0.07 per diluted share compared to $0.14 in the second quarter of 2019. On an adjusted basis excluding stock-based compensation and severance expense, diluted earnings per share were $0.37. (See reconciliation in Table 2)


Second Quarter Results

Net sales in the second quarter of 2020 were $72.1 million compared to $96.1 million in the second quarter of 2019. The decrease year-to-year reflects the economic impact of the COVID-19 pandemic with the most significant decline occurring in April when sales decreased 35%. Sequentially, May sales improved 23% and June sales further improved nearly 6% as average daily sales started to recover during the quarter. During April, the Company experienced a demand surge for its safety and cleaning products with softer trends in its automotive product line. As the quarter progressed, product category mix trends normalized. The Bolt Supply House sales were also impacted by COVID-19 restrictions placed on many of its customers along with additional restrictions on its branch locations. Average daily sales for the full business declined to $1.127 million compared to $1.502 million in the prior year quarter with both quarters having 64 selling days.

Reported gross profit was $38.3 million compared to $51.0 million in the second quarter of 2019, primarily driven by lower sales due to the impact of COVID-19. However, consolidated gross profit as a percentage of sales remained steady at 53.1% for the second quarter of 2020 compared to 2019. The core Lawson MRO segment gross margin excluding service-related costs, was 59.7% in the second quarter 2020, compared to 60.5% a year ago quarter, reflecting reduced operating leverage on a lower sales base, higher net freight costs and a mix shift, primarily during April, toward lower margin safety and cleaning products.

Selling expenses decreased to $16.3 million in the second quarter of 2020 compared to $21.9 million in the prior year. As a percentage of sales, reported selling expenses decreased to 22.6% from 22.8% in the second quarter of 2019. The decrease in selling expense primarily reflects efforts to manage sales employee compensation to be in line with lower sales with fewer sales personnel.

General and administrative expenses decreased $6.2 million to $21.4 million in the second quarter of 2020 compared to $27.6 million in the prior year quarter. The decline in G&A expense is primarily due to initiatives to align the cost structure with the demand environment as well as a decrease in stock-based compensation expense, a portion of which fluctuates with the Company's stock price. Our cost management actions included furloughing 100 employees, temporary compensation reductions, canceling travel and trip awards, eliminating certain less productive sales representative positions and consolidating the Suwanee, GA distribution center operations into the McCook, IL facility. Excluding expenses related to stock-based compensation and severance, general and administrative expenses decreased $4.0 million, a portion of which represent productivity improvements that will benefit the Company on a long-term basis.

Reported operating income in the second quarter of 2020 was $0.6 million compared to operating income of $1.6 million in the prior year quarter. Adjusted non-GAAP operating income was $4.8 million in the second quarter of 2020 compared to $7.9 million in the prior year quarter. (See reconciliation in Table 1) For the quarter, adjusted EBITDA was $6.3 million compared to $9.4 million for the prior year quarter. (See reconciliation in Table 1)

Reported net income for the second quarter of 2020 was $0.6 million, or $0.07 per diluted share compared to net income of $1.3 million, or $0.14 per diluted share, for the same period a year ago.
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Adjusted net income was $3.5 million or $0.37 per diluted share compared to $0.62 a year ago. (See reconciliation in Table 2)

At June 30, 2020, the Company had $10.0 million of unrestricted cash and cash equivalents and an additional $97.3 million of borrowing capacity, net of outstanding letters of credit, under its committed credit facility. Management has strategically prioritized maintaining its strong cash and financial position and remains prepared to act upon opportunities for accretive acquisitions.

Conference Call

Lawson Products, Inc. will conduct a conference call with investors to discuss second quarter 2020 results at 9:00 a.m. Eastern Time on July 30, 2020. The conference call is available by direct dial at 1-877-737-7051 in the U.S. or 1-201-689-8878 from outside of the U.S. A replay of the conference call will be available approximately two hours after completion of the call through August 31, 2020. Callers can access the replay by dialing 1-877-481-4010 in the U.S. or 1-919-882-2331 outside the U.S. The PIN access number for the replay is 35110#. A streaming audio of the call and an archived replay will also be available on the investor relations page of Lawson's website through August 31, 2020.

About Lawson Products, Inc.

Founded in 1952, Lawson Products, Inc., headquartered in Chicago, IL, sells and distributes specialty products to the industrial, commercial, institutional and government maintenance, repair and operations market (MRO). The Company is dedicated to helping customers in the U.S. and Canada lower their total cost of operation by increasing productivity and efficiency. The combination of Lawson Managed Inventory and the Company’s problem-solving professionals ensures customers always have the right parts to handle the job. Through The Bolt Supply House, customers in Western Canada have access to products at several branch locations. Under its Kent Automotive brand, the Company provides collision and mechanical repair products to the automotive aftermarket. 

Lawson Products ships from several strategically located distribution centers to customers in all 50 states, Puerto Rico, Canada, Mexico, and the Caribbean.

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 December 31, 2019, Form 10-K filed on February 27, 2020. The Company undertakes no obligation to update any such factor or to publicly announce the results of any revisions to any forward-looking statements whether as a result of new information, future events or otherwise.

-TABLES FOLLOW-

3


Lawson Products, Inc.
Condensed Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
 
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Product revenue$64,571  $85,996  $145,906  $167,911  
Service revenue7,575  10,101  17,275  19,529  
Total revenue72,146  96,097  163,181  187,440  
Product cost of goods sold31,063  40,580  68,868  78,587  
Service costs2,770  4,474  7,079  8,887  
Gross profit
38,313  51,043  87,234  99,966  
Operating expenses:
Selling expenses16,306  21,867  36,290  43,609  
General and administrative expenses21,438  27,553  31,737  49,190  
Operating expenses37,744  49,420  68,027  92,799  
Operating income569  1,623  19,207  7,167  
Interest expense(72) (146) (187) (343) 
Other income (expense), net511  339  (600) 811  
Income before income taxes
1,008  1,816  18,420  7,635  
Income tax expense389  509  5,268  2,182  
Net income$619  $1,307  $13,152  $5,453  
Basic income per share of common stock
$0.07  $0.15  $1.46  $0.61  
Diluted income per share of common stock
$0.07  $0.14  $1.41  $0.58  





4


Lawson Products, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share data)
June 30,December 31,
20202019
ASSETS(Unaudited)
Current assets:
Cash and cash equivalents$10,012  $5,495  
Restricted cash802  802  
Accounts receivable, less allowance for doubtful accounts of $961 and $593, respectively33,968  38,843  
Inventories, net54,910  55,905  
Miscellaneous receivables and prepaid expenses6,046  5,377  
Total current assets105,738  106,422  
Property, plant and equipment, net14,872  16,546  
Deferred income taxes19,218  21,711  
Goodwill20,150  20,923  
Cash value of life insurance14,716  14,969  
Intangible assets, net11,250  12,335  
Right of use assets9,507  11,246  
Other assets256  277  
Total assets$195,707  $204,429  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable11,492  13,789  
Lease obligation3,921  3,830  
Accrued expenses and other liabilities24,195  39,311  
Total current liabilities39,608  56,930  
Revolving line of credit1,712  2,271  
Security bonus plan11,832  11,840  
Lease obligation7,427  9,504  
Deferred compensation6,186  6,370  
Deferred tax liability6,094  6,188  
Other liabilities3,804  3,325  
Total liabilities76,663  96,428  
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 - 9,201,315 and 9,190,171 shares, respectively
Outstanding - 9,007,411 and 9,043,771 shares, respectively
9,201  9,190  
Capital in excess of par value19,029  18,077  
Retained earnings99,648  86,496  
Treasury stock – 193,904 and 146,400 shares, respectively(7,517) (5,761) 
Accumulated other comprehensive income (loss)(1,317) (1) 
Total stockholders’ equity119,044  108,001  
Total liabilities and stockholders’ equity$195,707  $204,429  



5



  LAWSON PRODUCTS, INC.
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. See Tables below for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three and six months ended June 30, 2020 and 2019. 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.
Table 1 - Reconciliation of GAAP Operating Income
to Adjusted Non-GAAP Operating Income and Adjusted EBITDA
(Dollars in thousands)
(Unaudited)
Three Months EndedSix Months Ended
June 30,June 30,
2020201920202019
Operating income as reported per GAAP$569  $1,623  $19,207  $7,167  
Stock-based compensation (1)
3,187  4,839  (7,513) 5,247  
Severance expense1,025  1,485  1,032  1,512  
Adjusted non-GAAP operating Income4,781  7,947  12,726  13,926  
Depreciation and amortization1,511  1,455  3,020  2,933  
Non-GAAP adjusted EBITDA$6,292  $9,402  $15,746  $16,859  

(1) A portion of stock-based compensation expense varies with the Company's stock price



6


Table 2 - Reconciliation of GAAP Net Income and Diluted EPS to
Non-GAAP Adjusted Net Income and Adjusted Diluted EPS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended June 30,
20202019
Amount
Diluted EPS (3)
Amount
Diluted EPS (3)
Net income, as reported per GAAP$619  $0.07  $1,307  $0.14  
Pretax adjustments:
Stock-based compensation (1)
3,187  0.34  4,839  0.52  
Severance expense1,025  0.111,485  0.16  
Pretax adjustments4,212  0.45  6,324  0.68  
Tax effect (2)
(1,365) (0.15) (1,771) (0.20) 
Total adjustments, net of tax2,847  0.30  4,553  0.48  
Non-GAAP adjusted net income$3,466  $0.37  $5,860  $0.62  

(1)  A portion of stock-based compensation expense varies with the Company's stock price
(2) Tax effected at quarterly effective tax rate of 32.4% for 2020 and 28.0% for 2019 which excludes the effect of discrete items
(3) Pretax adjustments to diluted EPS calculated on 9.298 million and 9.381 million diluted shares for the second quarter 2020 and the second quarter 2019, respectively



Six Months Ending June 30,
20202019
Amount
Diluted EPS (3)
Amount
Diluted EPS (3)
Net Income, as reported per GAAP$13,152  $1.41  $5,453  $0.58  
Pretax adjustments:
Stock-based (benefit) compensation (1)
(7,513) (0.81) 5,247  0.56  
Severance expense1,032  0.12  1,512  0.16  
Pretax adjustments(6,481) (0.69) 6,759  0.72  
Tax effect (2)
1,854  0.21  (1,933) (0.20) 
Total adjustments, net of tax(4,627) (0.48) 4,826  0.52  
Non-GAAP adjusted net income$8,525  $0.93  $10,279  $1.10  

(1)  A portion of stock-based compensation expense varies with the Company's stock price
(2) Tax effected at quarterly effective tax rate of 28.6% for 2020 and 28.6% for 2019 which excludes the effect of discrete items
(3) Pretax adjustments to diluted EPS calculated on 9.327 million and 9.348 million diluted shares for 2020 and 2019, respectively



7



Table 3 - Historic Core Lawson Segment Sales and Sales Rep Productivity
(Dollars in Thousands)
(Unaudited)
Three Months Ended
Jun. 30 2020Mar. 31 2020Dec. 31 2019Sep. 30 2019Jun. 30 2019
Number of business days64  64  61  64  64  
Average daily net sales (dollars in thousands)$979  $1,265  $1,279  $1,295  $1,316  
Year over year increase (decrease)(25.6)%(2.5)%1.7 %3.7 %4.4 %
Sequential quarter increase (decrease)(22.6)%(1.1)%(1.2)%(1.6)%1.5 %
Average active sales rep. count (1)
957  998  1,002  989  980  
Period-end active sales rep count938  993  1,006  993  982  
Sales per rep. per day$1.023  $1.268  $1.276  $1.309  $1.343  
Year over year increase (decrease)(23.8)%(3.1)%0.3 %1.3 %3.0 %
Sequential quarter increase (decrease)(19.3)%(0.6)%(2.5)%(2.5)%2.7 %

(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
Jun. 30 2020Mar. 31 2020Dec. 31 2019Sep. 30 2019Jun. 30 2019
Average daily net sales$1,127  $1,422  $1,452  $1,481  $1,502  
Year over year increase(25.0)%(1.9)%2.7 %5.4 %6.3 %
Sequential quarter increase (decrease)(20.7)%(2.1)%(2.0)%(1.4)%3.6 %
Net Sales$72,146  $91,035  $88,566  $94,779  $96,097  
Gross profit38,313  48,921  46,814  50,574  51,043  
Gross profit percentage53.1 %53.7 %52.9 %53.4 %53.1 %
Selling, general & administrative expenses$37,744  $30,283  $51,361  $44,128  $49,420  
Operating income (loss)$569  $18,638  $(4,547) $6,446  $1,623  



Contact

Investor Relations:
Lawson Products, Inc.
Ronald J. Knutson
Executive Vice President and Chief Financial Officer
773-304-5665

8
v3.20.2
Cover
Jul. 30, 2020
Cover [Abstract]  
Document Type 8-K
Document Period End Date Jul. 30, 2020
Entity Registrant Name LAWSON PRODUCTS, INC.
Amendment Flag false
Entity Central Index Key 0000703604
Entity Incorporation, State or Country Code DE
Entity File Number 0-10546
Entity Tax Identification Number 36-2229304
Entity Address, Address Line One 8770 W. Bryn Mawr Ave., Suite 900,
Entity Address, City or Town Chicago,
Entity Address, State or Province IL
Entity Address, Postal Zip Code 60631
City Area Code (773)
Local Phone Number 304-5050
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Common stock, $1.00 par value
Trading Symbol LAWS
Security Exchange Name NASDAQ
Entity Emerging Growth Company false