Business Wire | Jul 29, 2021 07:30AM EDT

Lawson Products Announces Second Quarter 2021 Results

Jul. 29, 2021

CHICAGO--(BUSINESS WIRE)--Jul. 29, 2021--Lawson Products, Inc. (NASDAQ: LAWS) ("Lawson" or the "Company"), a leading distributor of products and services to the MRO marketplace, today announced results for the second quarter ended June 30, 2021.

Summary Financial Three months ended June Six months ended JuneHighlights 30, 30,

($ in millions, except 2021 2020 Change 2021 2020 Changeearnings per share data)

Net Sales $106.5 $72.1 47.7% $210.1 $163.2 28.8%

Average Daily Net Sales $1.665 $1.127 47.7% $1.654 $1.275 29.7%

Number of Business Days 64 64 127 128



Reported Operating Income $3.4 $0.6 494.4% $8.2 $19.2 (57.3) %

Adjusted Operating Income $6.8 $4.8 43.0% $14.1 $12.7 11.0%^(1)



Adjusted EBITDA ^(1) $8.8 $6.3 40.5% $18.0 $15.7 14.6%

Adjusted EBITDA Margin ^ 8.3% 8.7% (42 8.6% 9.6% (108(1) bps) bps)



Reported Diluted Earnings $0.31 $0.07 $0.24 $0.70 $1.41 $Per Share (0.71)

Adjusted Diluted Earnings $0.60 $0.37 $0.23 $1.17 $0.93 $0.24Per Share^ (2)

(1)

Excludes the impact of stock-based compensation, severance and employee acquisition costs and other non-recurring items. (See reconciliation in Table 1)

(2)

Excludes the impact of stock-based compensation, severance and employee acquisition costs, and other non-recurring items. (See reconciliation in Table 2)

"Lawson continues to generate solid operating results while maintaining a strong financial position. Despite widely reported global supply chain disruptions, sales grew to $107 million in the second quarter, demonstrating both sequential and year-over-year growth. Our financial performance in this quarter benefited from continuing recovery in our customers' end markets combined with the inclusion of our 2020 Partsmaster acquisition and ongoing operational investments in our business to support sales rep productivity and our distribution capabilities," said Michael DeCata, president and chief executive officer.

"I continue to be encouraged by the positive trends in the quarter, including the organic growth of our business which underscores the value of our well-established vendor managed inventory business model. Additionally, during the quarter we successfully transitioned the Partsmaster sales representatives to the Lawson platform and are now fulfilling their orders through the Lawson distribution network."

"During the quarter, we made the final payment for the acquisition of Partsmaster while ending the quarter with nearly $92 million of available borrowing capacity under our $100 million committed credit facility. Our success has been built around improving sales rep productivity on our strong customer relationships while successfully integrating the Partsmaster acquisition on a reduced cost structure. While continuing to give due respect to the uncertainties and unevenness of the pandemic recovery, we remain in position to continue executing on all three pillars of our strategy to grow through sales rep productivity, expansion of our sales team and make accretive acquisitions on a reduced cost structure," concluded Mr. DeCata.

Highlights

* Achieved second quarter sales of $106.5 million compared to $72.1 million in the prior year quarter and $103.6 million in the first quarter. Sales, excluding Partsmaster, have rebounded to within 3% of pre-pandemic levels. * Reported operating income was $3.4 million in the second quarter of 2021 compared to $0.6 million in the second quarter of 2020. Adjusted operating income was $6.8 million in the second quarter of 2021 compared to $4.8 million reported in the year ago quarter. (See reconciliation in Table 1) * Reported net income of $2.9 million for the quarter, or $0.31 per diluted share compared to $0.07 in the prior year quarter. On an adjusted basis, diluted earnings per share was $0.60 compared to $0.37 in the year ago quarter. (See reconciliation in Table 2) * Ended the quarter with cash on hand, net of borrowings of $0.9 million and $91.9 million of availability under the credit facility after final payment in May 2021 of the $33.0 million accrued acquisition liability for Partsmaster. * In the quarter, the Board of Directors established a special committee of disinterested, independent directors to evaluate the transaction proposed by Luther King Capital Management ("LKCM) as disclosed in a Schedule 13D amendment filed by LKCM on May 17, 2021. The special committee has engaged legal and financial advisors to assist in its evaluation.

Second Quarter Results

Net sales in the second quarter of 2021 were $106.5 million, an increase of 47.7% compared to $72.1 million in sales in the second quarter 2020 and an increase of 2.9% compared to first quarter with one additional selling day over the first quarter of 2021. Partsmaster contributed $15.3 million in sales in the second quarter of 2021. Lawson sales, excluding Partsmaster, have continued to strengthen and are running at approximately 97% of pre-pandemic levels. On a consolidated basis, average daily sales were $1.665 million in the second quarter of 2021 compared with $1.644 million in the first quarter 2021 and $1.127 million in the prior year quarter. The year-over-year average daily sales increase was primarily driven by the improved business environment as a year ago quarter was in the early pandemic stage, the inclusion of Partsmaster sales and continued operational investments in the business to support sales rep productivity and expansion of our distribution capabilities.

Gross profit rose $16.3 million to $54.6 million in the second quarter of 2021 compared to $38.3 million in the year ago quarter primarily driven by higher sales and was flat with the first quarter of 2021. Gross profit as a percentage of sales was 51.3% for the second quarter of 2021 compared to 53.1% in the second quarter of 2020 and 52.7% last quarter. The organic Lawson MRO segment gross margin as a percent of sales declined to 57.3% in the second quarter of 2021 compared to 58.7% in the second quarter of 2020 quarter before the classification of certain service-related costs in gross profit. The year-over-year decline was primarily a result of increased freight and additional costs from the global supply chain disruption, additional inventory reserves related to the one-time rationalization of inventory related to the Partsmaster acquisition, and changes in product and customer sales mix. To offset these costs, the Company is currently implementing pricing actions.

Selling expenses were $24.2 million in the second quarter of 2021 compared to $16.3 million in the prior year quarter and $23.8 million in Q1 2021. The growth was primarily driven by higher compensation on increased sales, along with the inclusion of $5.3 million of Partsmaster selling expenses in the quarter. As a percentage of sales, selling expenses were 22.7%, essentially even versus the second quarter last year and down slightly from the 23.0% in the first quarter of 2021 on higher sales.

General and administrative expenses were $27.0 million in the second quarter of 2021 compared to $21.4 million in the prior year quarter and $25.9 million in the first quarter 2021. The increase compared to the prior year was driven by the inclusion of Partsmaster operating expenses of $3.3 million, $1.4 million of costs related to potential acquisitions and partly restored operating expenses on normalized sales volumes. These costs were offset by a decrease in stock-based compensation expense of $1.6 million compared to the second quarter of 2020.

Reported operating income in the second quarter of 2021 was $3.4 million compared to reported operating income of $0.6 million in the second quarter of 2020. Adjusted operating income was $6.8 million for the quarter compared to $4.8 million in the year ago quarter. (See reconciliation in Table 1) For the second quarter of 2021, adjusted EBITDA was 8.3% of sales or $8.8 million compared to $6.3 million for the prior year quarter and $9.1 million in the first quarter of 2021. (See reconciliation in Table 1)

Reported net income was $2.9 million, or $0.31 per diluted share compared to net income of $0.6 million, or $0.07 per diluted share for the year ago quarter and $3.6 million, or $0.39 per diluted share reported in the first quarter of 2021. Adjusted net income was $5.6 million or $0.60 per diluted share compared to $3.5 million or $0.37 per diluted share a year ago and $5.4 million, or $0.58 per diluted share last quarter. (See reconciliation in Table 2) On a year-to-date basis, adjusted net income has improved to $11.0 million or $1.17 per diluted share compared to $8.5 million or $0.93 per diluted share a year ago. (See reconciliation in Table 2)

At June 30, 2021, the Company ended the quarter with cash on hand, net of borrowings, of $0.9 million with $91.9 million, net of drawn letters of credit, of availability under its $100.0 million committed credit facility. The final payment for the Partsmaster acquisition was made in May 2021.

Conference Call

Lawson Products, Inc. will conduct a conference call with investors to discuss second quarter 2021 results at 9:00 a.m. Eastern Time on July 29, 2021. The conference call is available by direct dial at 1-888-506-0062 in the U.S. or 1-973-528-0011 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, 2021. 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 41933#. 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, 2021.

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 and Partsmaster's Vendor Managed Inventory process 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, 2020, Form 10-K filed on February 26, 2021. 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-

^ Excludes the impact of stock-based compensation, severance and employee(1) acquisition costs and other non-recurring items. (See reconciliation in Table 1)

^ Excludes the impact of stock-based compensation, severance and employee(2) acquisition costs, and other non-recurring items. (See reconciliation in Table 2)

"Lawson continues to generate solid operating results while maintaining a strong financial position. Despite widely reported global supply chain disruptions, sales grew to $107 million in the second quarter, demonstrating both sequential and year-over-year growth. Our financial performance in this quarter benefited from continuing recovery in our customers' end markets combined with the inclusion of our 2020 Partsmaster acquisition and ongoing operational investments in our business to support sales rep productivity and our distribution capabilities," said Michael DeCata, president and chief executive officer.

"I continue to be encouraged by the positive trends in the quarter, including the organic growth of our business which underscores the value of our well-established vendor managed inventory business model. Additionally, during the quarter we successfully transitioned the Partsmaster sales representatives to the Lawson platform and are now fulfilling their orders through the Lawson distribution network."

"During the quarter, we made the final payment for the acquisition of Partsmaster while ending the quarter with nearly $92 million of available borrowing capacity under our $100 million committed credit facility. Our success has been built around improving sales rep productivity on our strong customer relationships while successfully integrating the Partsmaster acquisition on a reduced cost structure. While continuing to give due respect to the uncertainties and unevenness of the pandemic recovery, we remain in position to continue executing on all three pillars of our strategy to grow through sales rep productivity, expansion of our sales team and make accretive acquisitions on a reduced cost structure," concluded Mr. DeCata.

Highlights

* Achieved second quarter sales of $106.5 million compared to $72.1 million in the prior year quarter and $103.6 million in the first quarter. Sales, excluding Partsmaster, have rebounded to within 3% of pre-pandemic levels. * Reported operating income was $3.4 million in the second quarter of 2021 compared to $0.6 million in the second quarter of 2020. Adjusted operating income was $6.8 million in the second quarter of 2021 compared to $4.8 million reported in the year ago quarter. (See reconciliation in Table 1) * Reported net income of $2.9 million for the quarter, or $0.31 per diluted share compared to $0.07 in the prior year quarter. On an adjusted basis, diluted earnings per share was $0.60 compared to $0.37 in the year ago quarter. (See reconciliation in Table 2) * Ended the quarter with cash on hand, net of borrowings of $0.9 million and $91.9 million of availability under the credit facility after final payment in May 2021 of the $33.0 million accrued acquisition liability for Partsmaster. * In the quarter, the Board of Directors established a special committee of disinterested, independent directors to evaluate the transaction proposed by Luther King Capital Management ("LKCM) as disclosed in a Schedule 13D amendment filed by LKCM on May 17, 2021. The special committee has engaged legal and financial advisors to assist in its evaluation.

Second Quarter Results

Net sales in the second quarter of 2021 were $106.5 million, an increase of 47.7% compared to $72.1 million in sales in the second quarter 2020 and an increase of 2.9% compared to first quarter with one additional selling day over the first quarter of 2021. Partsmaster contributed $15.3 million in sales in the second quarter of 2021. Lawson sales, excluding Partsmaster, have continued to strengthen and are running at approximately 97% of pre-pandemic levels. On a consolidated basis, average daily sales were $1.665 million in the second quarter of 2021 compared with $1.644 million in the first quarter 2021 and $1.127 million in the prior year quarter. The year-over-year average daily sales increase was primarily driven by the improved business environment as a year ago quarter was in the early pandemic stage, the inclusion of Partsmaster sales and continued operational investments in the business to support sales rep productivity and expansion of our distribution capabilities.

Gross profit rose $16.3 million to $54.6 million in the second quarter of 2021 compared to $38.3 million in the year ago quarter primarily driven by higher sales and was flat with the first quarter of 2021. Gross profit as a percentage of sales was 51.3% for the second quarter of 2021 compared to 53.1% in the second quarter of 2020 and 52.7% last quarter. The organic Lawson MRO segment gross margin as a percent of sales declined to 57.3% in the second quarter of 2021 compared to 58.7% in the second quarter of 2020 quarter before the classification of certain service-related costs in gross profit. The year-over-year decline was primarily a result of increased freight and additional costs from the global supply chain disruption, additional inventory reserves related to the one-time rationalization of inventory related to the Partsmaster acquisition, and changes in product and customer sales mix. To offset these costs, the Company is currently implementing pricing actions.

Selling expenses were $24.2 million in the second quarter of 2021 compared to $16.3 million in the prior year quarter and $23.8 million in Q1 2021. The growth was primarily driven by higher compensation on increased sales, along with the inclusion of $5.3 million of Partsmaster selling expenses in the quarter. As a percentage of sales, selling expenses were 22.7%, essentially even versus the second quarter last year and down slightly from the 23.0% in the first quarter of 2021 on higher sales.

General and administrative expenses were $27.0 million in the second quarter of 2021 compared to $21.4 million in the prior year quarter and $25.9 million in the first quarter 2021. The increase compared to the prior year was driven by the inclusion of Partsmaster operating expenses of $3.3 million, $1.4 million of costs related to potential acquisitions and partly restored operating expenses on normalized sales volumes. These costs were offset by a decrease in stock-based compensation expense of $1.6 million compared to the second quarter of 2020.

Reported operating income in the second quarter of 2021 was $3.4 million compared to reported operating income of $0.6 million in the second quarter of 2020. Adjusted operating income was $6.8 million for the quarter compared to $4.8 million in the year ago quarter. (See reconciliation in Table 1) For the second quarter of 2021, adjusted EBITDA was 8.3% of sales or $8.8 million compared to $6.3 million for the prior year quarter and $9.1 million in the first quarter of 2021. (See reconciliation in Table 1)

Reported net income was $2.9 million, or $0.31 per diluted share compared to net income of $0.6 million, or $0.07 per diluted share for the year ago quarter and $3.6 million, or $0.39 per diluted share reported in the first quarter of 2021. Adjusted net income was $5.6 million or $0.60 per diluted share compared to $3.5 million or $0.37 per diluted share a year ago and $5.4 million, or $0.58 per diluted share last quarter. (See reconciliation in Table 2) On a year-to-date basis, adjusted net income has improved to $11.0 million or $1.17 per diluted share compared to $8.5 million or $0.93 per diluted share a year ago. (See reconciliation in Table 2)

At June 30, 2021, the Company ended the quarter with cash on hand, net of borrowings, of $0.9 million with $91.9 million, net of drawn letters of credit, of availability under its $100.0 million committed credit facility. The final payment for the Partsmaster acquisition was made in May 2021.

Conference Call

Lawson Products, Inc. will conduct a conference call with investors to discuss second quarter 2021 results at 9:00 a.m. Eastern Time on July 29, 2021. The conference call is available by direct dial at 1-888-506-0062 in the U.S. or 1-973-528-0011 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, 2021. 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 41933#. 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, 2021.

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 and Partsmaster's Vendor Managed Inventory process 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, 2020, Form 10-K filed on February 26, 2021. 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-

Lawson Products, Inc.

Condensed Consolidated Statements of Income

(Dollars in thousands, except per share data)

(Unaudited)

Three Months Ended Six Months Ended June 30, June 30,

2021 2020 2021 2020



Net sales 106,540 72,146 210,096 163,181

Cost of goods sold 51,920 33,833 100,916 75,947

Gross profit 54,620 38,313 109,180 87,234



Operating expenses:

Selling expenses 24,235 16,306 48,037 36,290

General and administrative 27,003 21,438 52,951 31,737 expenses

Operating expenses 51,238 37,744 100,988 68,027



Operating income 3,382 569 8,192 19,207



Interest expense (268 ) (72 ) (591 ) (187 )

Other income (expense), net 639 511 1,011 (600 )



Income before income taxes 3,753 1,008 8,612 18,420

Income tax expense 818 389 2,081 5,268



Net income $ 2,935 $ 619 $ 6,531 $ 13,152



Basic income per share of $ 0.32 $ 0.07 $ 0.72 $ 1.46 common stock



Diluted income per share of $ 0.31 $ 0.07 $ 0.70 $ 1.41 common stock

Lawson Products, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share data)

June 30,

December 31,

2021

2020

ASSETS

(Unaudited)

Current assets:

Cash and cash equivalents

$

5,855

$

28,393

Restricted cash

1,003

998

Accounts receivable, less allowance for doubtful accounts of $680 and $654, respectively

46,228

44,515

Inventories, net

63,029

61,867

Miscellaneous receivables and prepaid expenses

7,545

7,289

Total current assets

123,660

143,062

Property, plant and equipment, net

17,439

15,800

Deferred income taxes

19,456

18,482

Goodwill

35,674

35,176

Cash value of life insurance

16,895

16,185

Intangible assets, net

17,592

18,503

Right of use assets

13,483

8,764

Other assets

329

332

Total assets

$

244,528

$

256,304

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

23,787

22,262

Accrued acquisition liability

-

32,673

Lease obligation

4,417

4,568

Accrued expenses and other liabilities

38,024

38,492

Total current liabilities

66,228

97,995

Revolving line of credit

5,000

-

Security bonus plan

10,958

11,262

Lease obligation

10,611

5,738

Deferred compensation

11,493

10,461

Deferred tax liability

3,560

2,841

Other liabilities

5,780

5,585

Total liabilities

113,630

133,882

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 - 9,304,366 and 9,287,625 shares, respectively Outstanding - 9,077,512 and 9,061,039 shares, respectively

9,304

9,288

Capital in excess of par value

20,798

19,841

Retained earnings

108,140

101,609

Treasury stock - 226,854 and 226,586 shares, respectively

(9,028

)

(9,015

)

Accumulated other comprehensive income (loss)

1,684

699

Total stockholders' equity

130,898

122,422

Total liabilities and stockholders' equity

$

244,528

$

256,304

Lawson Products, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share data)

June 30, December 31,

2021 2020

ASSETS (Unaudited)

Current assets:

Cash and cash equivalents $ 5,855 $ 28,393

Restricted cash 1,003 998

Accounts receivable, less allowance for doubtful 46,228 44,515 accounts of $680 and $654, respectively

Inventories, net 63,029 61,867

Miscellaneous receivables and prepaid expenses 7,545 7,289

Total current assets 123,660 143,062



Property, plant and equipment, net 17,439 15,800

Deferred income taxes 19,456 18,482

Goodwill 35,674 35,176

Cash value of life insurance 16,895 16,185

Intangible assets, net 17,592 18,503

Right of use assets 13,483 8,764

Other assets 329 332

Total assets $ 244,528 $ 256,304



LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable 23,787 22,262

Accrued acquisition liability - 32,673

Lease obligation 4,417 4,568

Accrued expenses and other liabilities 38,024 38,492

Total current liabilities 66,228 97,995



Revolving line of credit 5,000 -

Security bonus plan 10,958 11,262

Lease obligation 10,611 5,738

Deferred compensation 11,493 10,461

Deferred tax liability 3,560 2,841

Other liabilities 5,780 5,585

Total liabilities 113,630 133,882



Stockholders' equity:

Preferred stock, $1 par value:

Authorized - 500,000 shares, Issued and outstanding - - - None

Common stock, $1 par value:

Authorized - 35,000,000 sharesIssued - 9,304,366 and 9,287,625 shares,respectively 9,304 9,288 Outstanding - 9,077,512 and 9,061,039 shares,respectively

Capital in excess of par value 20,798 19,841

Retained earnings 108,140 101,609

Treasury stock - 226,854 and 226,586 shares, (9,028 ) (9,015 )respectively

Accumulated other comprehensive income (loss) 1,684 699

Total stockholders' equity 130,898 122,422

Total liabilities and stockholders' equity $ 244,528 $ 256,304

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, 2021 and 2020, and three months ended March 31, 2021. 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.

LAWSON PRODUCTS, INC.

SEC REGULATION G GAAP RECONCILIATIONS



The Company reports its financial results in accordance with U.S. generallyaccepted accounting principles (GAAP). However, the Company's managementbelieves that certain non-GAAP financial measures may provide users of thisfinancial information with additional meaningful comparisons between currentresults and results in prior operating periods. Management believes that thesenon-GAAP financial measures can provide additional meaningful reflection ofunderlying trends of the business because they provide a comparison ofhistorical information that excludes certain non-operational items that impactthe overall comparability. See Tables below for supplemental financial data andcorresponding reconciliations to GAAP financial measures for the three and sixmonths ended June 30, 2021 and 2020, and three months ended March 31, 2021.Non-GAAP financial measures should be viewed in addition to, and not as analternative for, the Company's reported results prepared in accordance withGAAP.

Table 1 - Reconciliation of GAAP Operating Income

to Adjusted Non-GAAP Operating Income and Adjusted EBITDA

(Dollars in thousands)

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 2021

March 31, 2021

June 30, 2020

June 30, 2021

June 30, 2020

Operating income as reported per GAAP

$

3,382

$

4,810

$

569

$

8,192

$

19,207

Stock-based compensation (1)

1,574

1,000

3,187

2,574

(7,513

)

Inventory reserves (2)

500

825

-

1,325

-

Severance and employee acquisition costs

29

576

1,025

605

1,032

Costs related to potential acquisitions (3)

1,354

-

-

1,354

-

Adjusted non-GAAP operating Income

6,839

7,211

4,781

14,050

12,726

Depreciation and amortization

2,004

1,935

1,511

3,939

3,020

Non-GAAP adjusted EBITDA

$

8,843

$

9,146

$

6,292

$

17,989

$

15,746

Table 1 - Reconciliation of GAAP Operating Income

to Adjusted Non-GAAP Operating Income and Adjusted EBITDA

(Dollars in thousands)

(Unaudited)



Three Months Ended Six Months Ended

June March June June 30, June 30, 30, 31, 30, 2021 2020 2021 2021 2020



Operating income as reported $ 3,382 $ 4,810 $ 569 $ 8,192 $ 19,207 per GAAP

Stock-based compensation^ (1) 1,574 1,000 3,187 2,574 (7,513 )

Inventory reserves ^(2) 500 825 - 1,325 -

Severance and employee 29 576 1,025 605 1,032 acquisition costs

Costs related to potential 1,354 - - 1,354 - acquisitions^ (3)

Adjusted non-GAAP operating 6,839 7,211 4,781 14,050 12,726 Income

Depreciation and amortization 2,004 1,935 1,511 3,939 3,020

Non-GAAP adjusted EBITDA $ 8,843 $ 9,146 $ 6,292 $ 17,989 $ 15,746

(1)

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

(2)

Expense for Partsmaster inventory rationalization plan and write-down of personal protective equipment product to net realizable value

(3)

Including costs related to the evaluation of the LKCM proposal disclosed in a Schedule 13D amendment filed May 17, 2021

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

(2) Expense for Partsmaster inventory rationalization plan and write-down of personal protective equipment product to net realizable value

(3) Including costs related to the evaluation of the LKCM proposal disclosed in a Schedule 13D amendment filed May 17, 2021

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, 2021

March 31, 2021

June 30, 2020

Amount

Diluted EPS (5)

Amount

Diluted EPS (5)

Amount

Diluted EPS (5)

Net income, as reported per GAAP

$

2,935

$

0.31

$

3,596

$

0.39

$

619

$

0.07

Pretax adjustments:

Stock-based compensation (1)

1,574

0.17

1,000

0.11

3,187

0.34

Inventory reserves (2)

500

0.05

825

0.09

-

-

Severance expense and employee acquisition costs

29

-

576

0.06

1,025

0.11

Costs related to potential acquisitions (3)

1,354

0.15

-

-

-

-

Pretax adjustments

3,457

0.37

2,401

0.26

4,212

0.45

Tax effect (4)

(754

)

(0.08

)

(624

)

(0.07

)

(1,365

)

(0.15

)

Total adjustments, net of tax

2,703

0.29

1,777

0.19

2,847

0.30

Non-GAAP adjusted net income

$

5,638

$

0.60

$

5,373

$

0.58

$

3,466

$

0.37

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, 2021 March 31, 2021 June 30, 2020

Amount Diluted Amount Diluted Amount Diluted EPS ^(5) EPS ^(5) EPS ^(5)

Net income,as reported $ 2,935 $ 0.31 $ 3,596 $ 0.39 $ 619 $ 0.07 per GAAP

Pretax adjustments:

Stock-basedcompensation 1,574 0.17 1,000 0.11 3,187 0.34 ^ (1)

Inventoryreserves ^ 500 0.05 825 0.09 - - (2)

Severanceexpense andemployee 29 - 576 0.06 1,025 0.11 acquisitioncosts

Costsrelated topotential 1,354 0.15 - - - - acquisitions^ (3)

Pretax 3,457 0.37 2,401 0.26 4,212 0.45 adjustments

Tax effect^ (754 ) (0.08 ) (624 ) (0.07 ) (1,365 ) (0.15 )(4)

Totaladjustments, 2,703 0.29 1,777 0.19 2,847 0.30 net of tax

Non-GAAPadjusted net $ 5,638 $ 0.60 $ 5,373 $ 0.58 $ 3,466 $ 0.37 income

(1)

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

(2)

Expense for Partsmaster inventory rationalization plan and write-down of personal protective equipment product to net realizable value

(3)

Including costs related to the evaluation of the LKCM proposal disclosed in a Schedule 13D amendment filed May 17, 2021

(4)

Tax effected at quarterly effective tax rate of 21.8% for the three months ended June 30, 2021, 26.0% for the three months ended March 31, 2021 and 32.4% for the three months ended June 30, 2020

(5)

Diluted EPS calculated on 9.349 million for the second quarter of 2021, 9.328 million for the first quarter 2021 and 9.298 million diluted shares for second quarter 2020

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

(2) Expense for Partsmaster inventory rationalization plan and write-down of personal protective equipment product to net realizable value

(3) Including costs related to the evaluation of the LKCM proposal disclosed in a Schedule 13D amendment filed May 17, 2021

Tax effected at quarterly effective tax rate of 21.8% for the three months(4) ended June 30, 2021, 26.0% for the three months ended March 31, 2021 and 32.4% for the three months ended June 30, 2020

Diluted EPS calculated on 9.349 million for the second quarter of 2021,(5) 9.328 million for the first quarter 2021 and 9.298 million diluted shares for second quarter 2020

Six Months Ended

June 30, 2021

June 30, 2020

Amount

Diluted EPS (5)

Amount

Diluted EPS (5)

Net income, as reported per GAAP

$

6,531

$

0.70

$

13,152

$

1.41

Pretax adjustments:

Stock-based compensation (1)

2,574

0.28

(7,513

)

(0.81

)

Inventory reserves (2)

1,325

0.14

-

-

Severance expense and employee acquisition costs

605

0.06

1,032

0.12

Costs related to potential acquisitions (3)

1,354

0.15

-

-

Pretax adjustments

5,858

0.63

(6,481

)

(0.69

)

Tax effect (4)

(1,418

)

(0.16

)

1,854

0.21

Total adjustments, net of tax

4,440

0.47

(4,627

)

(0.48

)

Non-GAAP adjusted net income

$

10,971

$

1.17

$

8,525

$

0.93

Six Months Ended

June 30, 2021 June 30, 2020

Amount Diluted Amount Diluted EPS ^(5) EPS ^(5)

Net income, as reported per GAAP $ 6,531 $ 0.70 $ 13,152 $ 1.41

Pretax adjustments:

Stock-based compensation^ (1) 2,574 0.28 (7,513 ) (0.81 )

Inventory reserves ^(2) 1,325 0.14 - -

Severance expense and employee 605 0.06 1,032 0.12 acquisition costs

Costs related to potential 1,354 0.15 - - acquisitions^ (3)

Pretax adjustments 5,858 0.63 (6,481 ) (0.69 )

Tax effect^ (4) (1,418 ) (0.16 ) 1,854 0.21

Total adjustments, net of tax 4,440 0.47 (4,627 ) (0.48 )

Non-GAAP adjusted net income $ 10,971 $ 1.17 $ 8,525 $ 0.93

(1)

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

(2)

Expense for Partsmaster inventory rationalization plan and write-down of personal protective equipment product to net realizable value

(3)

Including costs related to the evaluation of the LKCM proposal disclosed in a Schedule 13D amendment filed May 17, 2021

(4)

Tax effected at the effective tax rate of 24.2% for the six months ended June 30, 2021 and 28.6% for the six months ended June 30, 2020

(5)

Diluted EPS calculated on 9.342 million diluted shares for the six months ended June 30, 2021 and 9.327 million diluted shares for six months ended June 30, 2020

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

(2) Expense for Partsmaster inventory rationalization plan and write-down of personal protective equipment product to net realizable value

(3) Including costs related to the evaluation of the LKCM proposal disclosed in a Schedule 13D amendment filed May 17, 2021

(4) Tax effected at the effective tax rate of 24.2% for the six months ended June 30, 2021 and 28.6% for the six months ended June 30, 2020

Diluted EPS calculated on 9.342 million diluted shares for the six months(5) ended June 30, 2021 and 9.327 million diluted shares for six months ended June 30, 2020

Table 3 - Historic Lawson Segment (Including Partsmaster) Sales and Sales Rep Productivity

(Dollars in Thousands)

(Unaudited)

Three Months Ended

Jun. 30, 2021

Mar. 31, 2021

Dec. 31, 2020

Sep. 30, 2020

Jun. 30, 2020

Number of business days

64

63

61

64

64

Average daily net sales (1)

$

1,471

$

1,473

$

1,439

$

1,240

$

979

Year over year increase (decrease)

50.3

%

16.4

%

12.5

%

(4.2

)%

(25.6

)%

Sequential quarter increase (decrease)

(0.1

)%

2.4

%

16.0

%

26.7

%

(22.6

)%

Average active sales rep. count (1), (2)

1,081

1,083

1,099

993

957

Period-end active sales rep count

1,086

1,079

1,090

1,120

938

Sales per rep. per day

$

1.361

$

1.360

$

1.309

$

1.249

$

1.023

Year over year increase (decrease)

33.0

%

7.3

%

2.6

%

(4.6

)%

(23.8

)%

Sequential quarter increase (decrease)

0.1

%

3.9

%

4.8

%

22.1

%

(19.3

)%

Table 3 - Historic Lawson Segment (Including Partsmaster) Sales and Sales RepProductivity

(Dollars in Thousands)

(Unaudited)

Three Months Ended

Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, 2021 2021 2020 2020 2020



Number of business 64 63 61 64 64 days



Average daily net $ 1,471 $ 1,473 $ 1,439 $ 1,240 $ 979 sales ^(1)

Year over year 50.3 % 16.4 % 12.5 % (4.2 ) (25.6 )increase (decrease) % %

Sequential quarter (0.1 ) 2.4 % 16.0 % 26.7 % (22.6 )increase (decrease) % %



Average active sales 1,081 1,083 1,099 993 957 rep. count ^(1), (2)

Period-end active 1,086 1,079 1,090 1,120 938 sales rep count



Sales per rep. per $ 1.361 $ 1.360 $ 1.309 $ 1.249 $ 1.023 day

Year over year 33.0 % 7.3 % 2.6 % (4.6 ) (23.8 )increase (decrease) % %

Sequential quarter 0.1 % 3.9 % 4.8 % 22.1 % (19.3 )increase (decrease) %

(1)

Quarters ended June 30, 2021, March 31, 2021, December 31, 2020 and September 30, 2020 include Partsmaster revenue of $15.3 million, $15.7 million, $17.2 million and $5.4 million, respectively, and weighted average reps counts of 186, 186,196 and 67, respectively

(2)

Average active sales representative count represents the average of the month-end sales representative counts

Quarters ended June 30, 2021, March 31, 2021, December 31, 2020 and(1) September 30, 2020 include Partsmaster revenue of $15.3 million, $15.7 million, $17.2 million and $5.4 million, respectively, and weighted average reps counts of 186, 186,196 and 67, respectively

(2) Average active sales representative count represents the average of the month-end sales representative counts

Table 4 - Consolidated Quarterly Results

(Dollars in Thousands)

(Unaudited)

Three Months Ended

Jun. 30, 2021

Mar. 31, 2021

Dec. 31, 2020

Sep. 30, 2020

Jun. 30, 2020

Average daily net sales

$

1,665

$

1,644

$

1,609

$

1,411

$

1,127

Year over year increase (decrease)

47.7

%

15.6

%

10.8

%

(4.7

)%

(25.0

)%

Sequential quarter increase (decrease)

1.3

%

2.2

%

14.0

%

25.2

%

(20.7

)%

Net Sales

$

106,540

$

103,556

$

98,133

$

90,277

$

72,146

Gross profit

54,620

54,560

52,079

47,225

38,313

Gross profit percentage

51.3

%

52.7

%

53.1

%

52.3

%

53.1

%

Selling, general & administrative expenses

$

51,238

$

49,750

$

52,737

$

45,224

$

37,744

Operating income (loss)

$

3,382

$

4,810

$

(658

)

$

2,001

$

569

View source version on businesswire.com: https://www.businesswire.com/news/home/20210729005123/en/

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