[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the period [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements, including balance sheets, income statements, equity changes, and cash flows, with explanatory notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2021, total assets decreased to $244.5 million from $256.3 million at year-end 2020, primarily due to a significant reduction in cash and cash equivalents used for an acquisition payment Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | $123,660 | $143,062 | | Cash and cash equivalents | $5,855 | $28,393 | | **Total Assets** | **$244,528** | **$256,304** | | **Total Current Liabilities** | $66,228 | $97,995 | | Accrued acquisition liability | $0 | $32,673 | | **Total Liabilities** | **$113,630** | **$133,882** | | **Total Stockholders' Equity** | **$130,898** | **$122,422** | [Condensed Consolidated Statements of Income and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) For the second quarter of 2021, revenue increased significantly to $106.5 million from $72.1 million in Q2 2020, driving net income up to $2.9 million from $0.6 million Q2 Performance Comparison (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Revenue | $106,540 | $72,146 | | Gross Profit | $54,620 | $38,313 | | Operating Income | $3,382 | $569 | | Net Income | $2,935 | $619 | | Diluted EPS | $0.31 | $0.07 | Six-Month Performance Comparison (in thousands, except per share data) | Metric | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | | Revenue | $210,096 | $163,181 | | Gross Profit | $109,180 | $87,234 | | Operating Income | $8,192 | $19,207 | | Net Income | $6,531 | $13,152 | | Diluted EPS | $0.70 | $1.41 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity increased from $122.4 million at the end of 2020 to $130.9 million at June 30, 2021, primarily driven by net income and foreign currency translation adjustments - Total stockholders' equity grew by **$8.5 million** in the first six months of 2021, reaching **$130.9 million**[24](index=24&type=chunk) - Key drivers for the increase in equity were net income of **$6.5 million** (sum of $3.6M in Q1 and $2.9M in Q2) and stock-based compensation of **$1.0 million** (sum of $422k in Q1 and $551k in Q2)[24](index=24&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2021, net cash provided by operating activities was $9.3 million, while net cash used in investing activities was $36.9 million, resulting in a net decrease in cash of $22.5 million Six-Month Cash Flow Summary (in thousands) | Activity | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,292 | $7,837 | | Net cash used in investing activities | ($36,874) | ($720) | | Net cash provided by (used in) financing activities | $4,852 | ($2,435) | | **Decrease in cash** | **($22,533)** | **$4,517** | - A business acquisition payment of **$33.0 million** was the primary use of cash in investing activities[29](index=29&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides critical context to financial statements, detailing the Partsmaster acquisition, segment performance, revenue disaggregation, and COVID-19 related impacts - The company acquired Partsmaster on August 31, 2020, for **$35.3 million**, with the final **$33.0 million** payment made in May 2021, and Partsmaster contributed **$15.3 million** in revenue and **$0.5 million** in operating income in Q2 2021[35](index=35&type=chunk)[36](index=36&type=chunk)[38](index=38&type=chunk) Revenue by Geography (Six Months Ended June 30, in thousands) | Region | 2021 | 2020 | | :--- | :--- | :--- | | United States | $171,234 | $130,679 | | Canada | $38,862 | $32,502 | | **Consolidated Total** | **$210,096** | **$163,181** | - The company has two operating segments: Lawson (VMI service model) and Bolt Supply (branch-based sales), generating **$188.2 million** and **$21.9 million** in revenue respectively for the first six months of 2021[90](index=90&type=chunk)[91](index=91&type=chunk) - Under the CARES Act, the company deferred **$3.5 million** in employer social security payments, with half due in 2021 and the remainder in 2022[94](index=94&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, highlighting the Partsmaster acquisition's impact, sales drivers, and liquidity, with detailed comparisons of operating results - The Partsmaster acquisition contributed **$15.3 million** in revenue for Q2 2021 and **$31.0 million** for the first six months of 2021[99](index=99&type=chunk) - The business climate improved significantly in H1 2021 as pandemic-related restrictions were relaxed compared to 2020, leading to increased business activity and improved operating results[104](index=104&type=chunk) - Average sales rep headcount increased to **1,081** in Q2 2021 from 957 in Q2 2020, with sales per rep per day increasing **33.0%** to **$1,361**[109](index=109&type=chunk) Adjusted Non-GAAP Operating Income Reconciliation (in thousands) | Description | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | GAAP Operating Income | $3,382 | $569 | $8,192 | $19,207 | | Adjustments | $3,457 | $4,212 | $5,858 | ($6,484) | | **Adjusted non-GAAP Operating Income** | **$6,839** | **$4,781** | **$14,050** | **$12,723** | [Results of Operations: Q2 2021 vs. Q2 2020](index=22&type=section&id=Three%20months%20ended%20June%2030%2C%202021%20compared%20to%20quarter%20ended%20June%2030%2C%202020) Total revenue for Q2 2021 increased by 47.7% to $106.5 million, driven by improved business conditions and a $15.3 million contribution from the Partsmaster acquisition Q2 Revenue by Segment (in thousands) | Segment | Q2 2021 | Q2 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Lawson | $94,861 | $63,214 | $31,647 | 50.1% | | Bolt Supply | $11,679 | $8,932 | $2,747 | 30.8% | | **Consolidated** | **$106,540** | **$72,146** | **$34,394** | **47.7%** | - Consolidated gross profit margin decreased to **51.3%** in Q2 2021 from 53.1% in Q2 2020, primarily due to increased freight costs, supply chain disruptions, and inventory reserves for Partsmaster integration[117](index=117&type=chunk)[118](index=118&type=chunk) - General and administrative expenses increased by **$5.6 million**, driven by Partsmaster operating expenses (**$3.3 million**) and costs to evaluate the LKCM proposal (**$1.4 million**), partially offset by a **$1.6 million** decrease in stock-based compensation[120](index=120&type=chunk) [Results of Operations: 6M 2021 vs. 6M 2020](index=25&type=section&id=Six%20months%20ended%20June%2030%2C%202021%20compared%20to%20June%2030%2C%202020) For the first six months of 2021, revenue increased 28.8% to $210.1 million, including a $31.0 million contribution from Partsmaster, though operating income fell due to stock-based compensation adjustments Six-Month Revenue by Segment (in thousands) | Segment | 6M 2021 | 6M 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Lawson | $188,191 | $144,705 | $43,486 | 30.1% | | Bolt Supply | $21,905 | $18,476 | $3,429 | 18.6% | | **Consolidated** | **$210,096** | **$163,181** | **$46,915** | **28.8%** | - General and administrative expenses increased by **$21.2 million** (**66.8%**), driven by a **$10.1 million** increase in stock-based compensation expense, **$7.2 million** from the Partsmaster acquisition, and **$1.4 million** in costs related to the LKCM proposal evaluation[131](index=131&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) The company's cash position decreased to $5.9 million due to the Partsmaster acquisition payment, but it maintains sufficient liquidity with $91.9 million available under its revolving credit facility - Cash and cash equivalents decreased by **$22.5 million**, primarily due to the **$33.0 million** payment for the Partsmaster acquisition[135](index=135&type=chunk) - As of June 30, 2021, the company had **$5.0 million** in outstanding borrowings and **$91.9 million** of availability under its Revolving Credit Facility[139](index=139&type=chunk) - The company was in compliance with all financial covenants as of June 30, 2021[140](index=140&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) This section is inapplicable and has been omitted from the report - Item 3 of Part I is inapplicable and has been omitted from this report[144](index=144&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with ongoing integration of Partsmaster's internal control procedures - The CEO and CFO concluded that disclosure controls and procedures were effective as of the evaluation date[145](index=145&type=chunk) - The company is in the process of integrating the internal control procedures of Partsmaster, which constituted approximately **15%** of total assets as of June 30, 2021[146](index=146&type=chunk) [PART II - OTHER INFORMATION](index=28&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers other required information, including unregistered sales of equity securities and a list of exhibits [Unregistered Sales of Equity Securities and Use of Proceeds](index=28&type=section&id=Item%202.%20Unregistered%20Shares%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - None[149](index=149&type=chunk) [Exhibits](index=28&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, and compensation plans - The exhibits include key corporate governance documents, credit agreements, and executive compensation plans[149](index=149&type=chunk)[151](index=151&type=chunk)

Financial Data and Key Metrics Changes - The company achieved consolidated sales growth of 13.8% compared to Q1 2020, and 5.6% compared to Q4 2020, with Partsmaster contributing $15.7 million in sales [5][16] - Adjusted EBITDA for the quarter was $9.1 million, representing 8.8% of sales, with a sequential improvement in organic earnings [16][22] - Gross margin for the quarter was 52.7%, down from 53.7% a year ago, impacted by inventory rationalization and increased freight costs [20][26] Business Line Data and Key Metrics Changes - The Bolt Supply business achieved a 9.1% EBITDA for the quarter, with significant expansions in Calgary and Saskatoon [10] - Strategic accounts saw a 4% sales increase compared to Q4, with strong growth driven by integrated supply partners and new strategic accounts [11][12] - The Kent Automotive business was up 7% sequentially, indicating a recovery in demand as miles driven increase [54] Market Data and Key Metrics Changes - Sales in the government segment increased by 3.7% compared to Q4, driven by state, local, and educational sectors [12] - The company faced supply chain challenges, including labor shortages and raw material increases, which could impact gross margins [13][26] Company Strategy and Development Direction - The company is focused on integrating Partsmaster and expanding into underserved markets, with a three-part growth strategy emphasizing adding sales reps, improving productivity, and growth through acquisitions [14][36] - Investments are being made in distribution center modernization to enhance capacity and efficiency [9][62] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving sequential monthly sales growth throughout 2021, supported by pent-up demand and operational excellence [45][47] - The integration of Partsmaster is progressing well, with no significant issues reported, and is expected to enhance the product offering [50][51] Other Important Information - The company ended the quarter with $26.3 million in cash and equivalents, and $65 million available under its credit facility, positioning it well for future growth initiatives [16][24] - Capital expenditures for the quarter were approximately $800,000, with expectations of $5 million to $6 million for the year, focusing on infrastructure upgrades [23] Q&A Session Summary Question: What was the sales cadence through the quarter? - Management noted strong sales in January, a dip in February due to weather, followed by recovery in March and April, with overall positive trends [28][29] Question: What cost increases have been seen, and how are pricing actions being handled? - The company has experienced supplier price increases but maintains confidence in passing modest increases to customers due to the critical nature of their service [31][32] Question: What is the outlook for MRO gross margins for the rest of the year? - Management expects to maintain gross margins in the high 50% range, despite a dip in Q1 due to inventory reserves [34] Question: Where are the opportunities for adding sales reps? - The company sees opportunities in both densely populated and geographically remote areas, with a focus on increasing sales rep productivity [39][40] Question: How confident is the company in achieving monthly sequential sales growth? - Management is confident due to various factors, including new product offerings and structural cost savings, which support their growth initiatives [46][48] Question: What is the status of the Partsmaster integration? - The integration is progressing smoothly, with inventory positioning largely completed and no significant issues reported [50][51] Question: How is the Kent Automotive business performing? - The Kent Automotive segment is experiencing a positive trend, driven by increased miles driven and gaining market share [54] Question: What is the outlook for selling expenses? - Selling expenses are expected to stabilize, with some increases due to resumed activities, but overall savings from previous years are anticipated to continue [56][58] Question: Is the company still confident in achieving the 25% to 30% incremental adjusted EBITDA margin goal? - Management reaffirmed confidence in achieving this margin goal through top-line sales growth [60]

Acquisition and Revenue - The company acquired Partsmaster for $35.3 million, contributing $15.7 million in revenue and $0.7 million in operating income in Q1 2021[93] - Total sales increased by 13.8% to $103.6 million in Q1 2021 compared to $91.0 million in Q1 2020, with Partsmaster accounting for $15.7 million of this increase[109] - Average daily sales rose by 15.6% to $1.644 million in Q1 2021, with Partsmaster contributing $0.250 million[109] Profitability and Margins - Gross profit increased by $5.6 million to $54.6 million in Q1 2021, with a gross profit margin of 52.7% compared to 53.7% in the prior year[111] - Adjusted non-GAAP operating income was $7.2 million in Q1 2021, down from $7.9 million in Q1 2020, primarily due to lower organic sales[105] - The organic Lawson MRO segment gross margin declined to 58.2% in Q1 2021 from 60.8% in the prior year, impacted by a shift to lower margin products[111] Expenses - Selling expenses increased to $23.8 million in Q1 2021 from $20.0 million in Q1 2020, driven by $5.5 million from the Partsmaster acquisition[1] - General and administrative expenses rose to $25.9 million in Q1 2021 from $10.3 million in Q1 2020, primarily due to an $11.7 million increase in stock-based compensation[2] - Interest expense was $0.3 million in Q1 2021, an increase of $0.2 million compared to Q1 2020, mainly due to interest on the accrued acquisition liability[3] Tax and Other Income - Income tax expense was $1.3 million in Q1 2021, with a 26.0% effective tax rate, compared to $4.9 million and 28.0% in Q1 2020[5] - Other income, net increased by $1.5 million in Q1 2021, primarily due to Canadian currency exchange rate effects[4] Cash and Capital Expenditures - Available cash and cash equivalents were $26.3 million on March 31, 2021, down from $28.4 million on December 31, 2020[6] - Capital expenditures for Q1 2021 were $0.8 million, up from $0.6 million in Q1 2020, primarily for distribution center improvements[7] - The company had $64.4 million of borrowing availability remaining under its Revolving Credit Facility as of March 31, 2021[8] Future Obligations and Strategic Focus - A payment of $33.0 million is due to the sellers of Partsmaster in May 2021, guaranteed under the Purchase Agreement[9] - The company believes cash from operations and available funds under the Credit Agreement are sufficient to meet operating requirements and strategic initiatives[10] Sales and Productivity - The average sales representative headcount increased to 1,083 in Q1 2021 from 998 in Q1 2020, with productivity rising 7.3% to $1,360 per rep per day[103] - The company plans to continue focusing on increasing the productivity of its sales representatives[103] Market Indicators - The PMI index averaged 61.4 in Q1 2021, indicating expansion in the manufacturing sector compared to 50.0 in Q1 2020[102] - The company deferred $3.5 million in employer-side social security payments under the CARES Act, with $1.7 million expected to be paid in 2021[97]

Financial Performance - Revenue for 2020 was $351.6 million, a decrease of 5.2% from $370.8 million in 2019[147] - Gross profit for 2020 was $186.5 million, representing 53.1% of net sales, down from 53.2% in 2019[147] - Operating income increased to $20.6 million in 2020 from $9.1 million in 2019, reflecting improved cost control measures[151] - Net income for 2020 was $15.1 million, a significant increase from $7.2 million in 2019[147] - Adjusted non-GAAP operating income decreased to $27.4 million in 2020 from $28.6 million in 2019, impacted by lower sales[151] - Consolidated revenue decreased by 5.2% to $351.6 million in 2020 from $370.8 million in 2019, primarily due to the COVID-19 pandemic and lower sales to oil and gas customers[154] - Gross profit decreased to $186.5 million in 2020 from $197.4 million in 2019, with a gross profit margin of 53.1%, down from 53.2% in the previous year[155] - Average daily sales decreased to $1.390 million in 2020 compared to $1.471 million in 2019, despite having one more selling day in 2020[154] - Basic income per share rose to $1.68 in 2020 from $0.81 in 2019, marking a substantial increase of 107.4%[202] - Income from operations before income taxes was $20.785 million for the year ended December 31, 2020, compared to $9.674 million in 2019[275] Cash Flow and Liquidity - The company had $28.4 million in unrestricted cash and $66.0 million in borrowing capacity as of December 31, 2020[137] - Cash provided by operating activities was $32.5 million in 2020, significantly higher than $9.2 million in 2019, reflecting stronger operating results[164] - Total cash, cash equivalents, and restricted cash at the end of 2020 amounted to $29,391,000, up from $6,297,000 at the end of 2019[209] - As of December 31, 2020, the company had no borrowings under its Credit Agreement and had borrowing availability of $66.0 million[167] - The company continues to monitor its liquidity and cash flows while managing operating expenses in response to COVID-19[138] Acquisitions - The acquisition of Partsmaster in August 2020 cost $35.3 million, with $2.3 million paid at acquisition and $33.0 million due in May 2021[143] - The Company completed the acquisition of Partsmaster on August 31, 2020, for $35.3 million in cash, resulting in $7.7 million of intangible assets[193] - Partsmaster contributed $22.6 million in sales and $13.2 million in gross profit since its inclusion on August 31, 2020[154][155] - The Company acquired Partsmaster for a purchase price of $35.3 million in cash, with $2.3 million paid at closing and the remaining $33.0 million due in May 2021[247][248] Expenses and Cost Management - Selling expenses decreased to $76.8 million in 2020 from $85.3 million in 2019, representing 21.8% of sales compared to 23.0% in 2019[157] - General and administrative expenses decreased to $89.2 million in 2020 from $102.9 million in 2019, primarily due to a reduction in stock-based compensation and other cost control measures[158] - The Company recorded severance costs of $2.077 million in 2020, resulting in an ending balance of $1.251 million in the reserve for severance[303] Assets and Liabilities - Total current assets increased to $143.1 million as of December 31, 2020, compared to $106.4 million as of December 31, 2019[199] - Accounts receivable increased to $44.5 million in 2020, up from $38.8 million in 2019, reflecting a growth of approximately 14.3%[199] - Total liabilities increased to $133.9 million in 2020 from $96.4 million in 2019, indicating a rise of approximately 38.9%[199] - The Company has a current liability for accrued acquisition liability of $32.7 million as of December 31, 2020[199] Goodwill and Intangible Assets - The Company recorded a goodwill impairment charge of $1.9 million related to the Screw Products reporting unit[159] - The Company's consolidated goodwill balance as of December 31, 2020, was $35.2 million, with the Bolt reporting unit's goodwill at $13.8 million[190] - Goodwill increased from $20.9 million in 2019 to $35.2 million in 2020, reflecting the cost of business acquisitions exceeding the fair value of identifiable net assets[226] - The gross carrying amount of intangible assets was $23.638 million as of December 31, 2020, with a net carrying value of $18.503 million[273] Taxation - Total income tax expense for the year ended December 31, 2020, was $5.672 million, compared to $2.453 million for the year ended December 31, 2019, representing an increase of 131.0%[277] - The effective income tax rate for 2020 was 27.3%, up from 25.4% in 2019[277] - The Company recorded $35.2 million of tax-deductible goodwill from recent acquisitions, which may provide future tax benefits[281] - As of December 31, 2020, the company had $7.2 million of U.S. federal net operating loss carryforwards, expiring beginning in 2030, and $7.7 million of state net operating loss carryforwards, expiring through 2034[277] Stock and Compensation - The Company repurchased 47,504 shares of its common stock in 2020 at a cost of $3.3 million[241][242] - The Company contributed $2.9 million to its 401(k) plan in 2020, down from $3.2 million in 2019[307] - As of December 31, 2020, the outstanding Stock Performance Rights (SPRs) were 581,000, with an intrinsic value of $14.6 million[320] - Compensation expenses related to Restricted Stock Awards (RSAs) were $1.2 million in 2020, down from $1.3 million in 2019[322]

Lawson Products, Inc. (LAWS) Q3 2020 Earnings Conference Call October 29, 2020 9:00 AM ET Company Participants Michael DeCata - President and Chief Executive Officer Ron Knutson - Chief Financial Officer Conference Call Participants Carl Schemm - KeyBanc Capital Markets Kevin Steinke - Barrington Research Operator Good morning, ladies and gentlemen, and welcome to the Lawson Products Third Quarter 2020 Earnings Call. This call will be hosted by Michael DeCata, Lawson Products’ President and Chief Executive ...

PART I - FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the period ended September 30, 2020 [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flows, reflecting the Partsmaster acquisition and COVID-19 impacts [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows total assets increased to **$251.3 million** and liabilities to **$130.0 million** by September 30, 2020, largely due to the Partsmaster acquisition Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 (Unaudited) | Dec 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$251,269** | **$204,429** | | Cash and cash equivalents | $17,193 | $5,495 | | Inventories, net | $62,218 | $55,905 | | Goodwill | $36,428 | $20,923 | | Intangible assets, net | $18,727 | $12,335 | | **Total Liabilities** | **$130,015** | **$96,428** | | Accrued acquisition liability | $32,476 | $— | | Accounts payable | $22,466 | $13,789 | | **Total Stockholders' Equity** | **$121,254** | **$108,001** | [Condensed Consolidated Statements of Income and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Q3 2020 revenue decreased to **$90.3 million** with net income at **$1.7 million**, while nine-month net income increased to **$14.9 million** despite lower revenue Q3 2020 vs Q3 2019 Performance (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Total revenue | $90,277 | $94,779 | | Gross profit | $47,225 | $50,574 | | Operating income | $2,001 | $6,446 | | Net income | $1,738 | $4,774 | | Diluted EPS | $0.19 | $0.51 | Nine Months 2020 vs 2019 Performance (in thousands, except per share data) | Metric | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | | Total revenue | $253,458 | $282,219 | | Gross profit | $134,459 | $150,540 | | Operating income | $21,208 | $13,613 | | Net income | $14,890 | $10,227 | | Diluted EPS | $1.60 | $1.09 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly improved to **$20.0 million** for the nine months ended September 30, 2020, leading to an **$11.7 million** increase in cash Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $20,023 | $8,041 | | Net cash used in investing activities | $(3,611) | $(1,392) | | Net cash used in financing activities | $(4,640) | $(10,165) | | **Increase (decrease) in cash** | **$11,698** | **$(3,257)** | | Cash at end of period | $17,995 | $9,426 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, the **$35.3 million** Partsmaster acquisition, segment revenue recognition, credit facility compliance, and the operational impacts of the COVID-19 pandemic - On August 31, 2020, the Company acquired Partsmaster for **$35.3 million**, paying **$2.3 million** in cash at closing with the remaining **$33.0 million** due in May 2021. The acquisition is intended to expand sales coverage and product lines[34](index=34&type=chunk)[35](index=35&type=chunk) - The Partsmaster acquisition added **$16.0 million** in goodwill, **$5.0 million** in customer relationships (10-year life), and **$2.8 million** in trade names (5-year life). Partsmaster contributed **$5.4 million** in revenue in Q3 2020 post-acquisition[36](index=36&type=chunk)[38](index=38&type=chunk) - The Company operates two segments: the Lawson segment, which uses a sales representative network for vendor-managed inventory (VMI) services, and the Bolt Supply segment, which sells through 14 branch locations in Western Canada[32](index=32&type=chunk)[87](index=87&type=chunk) - The COVID-19 pandemic has caused lost revenue, supply chain limitations, and reduced customer demand. The company has taken mitigation steps, including deferring social security payments under the CARES Act and utilizing the Canadian Emergency Wage Subsidy (CEWS) program[89](index=89&type=chunk)[90](index=90&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial impacts of the Partsmaster acquisition and COVID-19, noting a Q3 sales decrease but a nine-month operating income increase due to cost controls and strong liquidity [Results of Operations - Q3 2020 vs. Q3 2019](index=22&type=section&id=Results%20of%20Operations%20-%20Q3%202020%20vs.%20Q3%202019) Q3 2020 total sales decreased **4.7%** to **$90.3 million** due to COVID-19, with operating income falling to **$2.0 million** impacted by lower sales and increased G&A expenses Q3 2020 vs Q3 2019 Segment Revenue (in thousands) | Segment | Q3 2020 | Q3 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Lawson | $79,806 | $83,461 | $(3,655) | (4.4)% | | Bolt Supply | $10,471 | $11,318 | $(847) | (7.5)% | | **Consolidated** | **$90,277** | **$94,779** | **$(4,502)** | **(4.7)%** | - Sales productivity (sales per rep per day) decreased **4.6%** to **$1,249**, primarily due to the negative impacts of COVID-19[112](index=112&type=chunk) - General and administrative expenses increased by **$3.2 million** (**14.0%**), driven by a **$2.4 million** increase in stock-based compensation, **$1.5 million** in Partsmaster expenses, and **$0.5 million** in acquisition costs[123](index=123&type=chunk) Reconciliation of GAAP to Non-GAAP Adjusted Operating Income - Q3 (in thousands) | Metric | Q3 2020 | Q3 2019 | | :--- | :--- | :--- | | Operating income (GAAP) | $2,001 | $6,446 | | Stock based compensation | $4,746 | $2,374 | | Severance expense | $488 | $30 | | Acquisition costs | $473 | $— | | **Adjusted non-GAAP operating income** | **$7,708** | **$8,850** | [Results of Operations - Nine Months 2020 vs. Nine Months 2019](index=25&type=section&id=Results%20of%20Operations%20-%20Nine%20Months%202020%20vs.%20Nine%20Months%202019) Nine-month revenue decreased **10.2%** to **$253.5 million**, yet operating income increased to **$21.2 million** primarily due to a **$14.3 million** reduction in general and administrative expenses Nine Months 2020 vs 2019 Revenue (in thousands) | Segment | Nine Months 2020 | Nine Months 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Lawson | $224,511 | $250,895 | $(26,384) | (10.5)% | | Bolt Supply | $28,947 | $31,324 | $(2,377) | (7.6)% | | **Consolidated** | **$253,458** | **$282,219** | **$(28,761)** | **(10.2)%** | - General and administrative expenses decreased by **$14.3 million**, primarily due to a **$10.4 million** decrease in stock-based compensation expense. Cost control measures related to COVID-19 also contributed[134](index=134&type=chunk) Reconciliation of GAAP to Non-GAAP Adjusted Operating Income - Nine Months (in thousands) | Metric | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | | Operating income (GAAP) | $21,208 | $13,613 | | Stock based compensation | $(2,767) | $7,621 | | Severance expense | $1,520 | $1,542 | | Acquisition costs | $555 | $— | | **Adjusted non-GAAP operating income** | **$20,516** | **$22,776** | [Liquidity and Capital Resources](index=27&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$17.2 million** cash and **$66.0 million** credit facility availability, sufficient to fund operations and the upcoming **$33.0 million** Partsmaster acquisition payment - As of September 30, 2020, the company had **$17.2 million** in cash and cash equivalents and **$66.0 million** of borrowing availability under its credit facility[140](index=140&type=chunk)[143](index=143&type=chunk) - A payment of **$33.0 million** for the Partsmaster acquisition is due in May 2021. This is secured by a letter of credit and is recorded as a **$32.5 million** current liability on the balance sheet[147](index=147&type=chunk) - In Q1 2020, the company repurchased **47,504 shares** for its public buyback program. No shares were repurchased under this program in Q2 or Q3[142](index=142&type=chunk) - The company was in compliance with all debt covenants as of September 30, 2020, including an EBITDA to fixed charges ratio of **4.73** (vs. **1.15** required) and a total net leverage ratio of **0.71** (vs. **3.25** required)[68](index=68&type=chunk)[144](index=144&type=chunk) [Quantitative and Qualitative Disclosure About Market Risk](index=28&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) This section is inapplicable and has been omitted from the report - Item 3 of Part I is inapplicable and has been omitted from this report[149](index=149&type=chunk) [Controls and Procedures](index=28&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective as of September 30, 2020, excluding the recently acquired Partsmaster's internal controls, with no material changes during the quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of the evaluation date[150](index=150&type=chunk) - Management excluded the internal controls of the newly acquired Partsmaster from its assessment of internal control effectiveness for the quarter, as the acquisition occurred on August 31, 2020[151](index=151&type=chunk) PART II - OTHER INFORMATION This section addresses other information, including updated risk factors related to the COVID-19 pandemic, details on equity security sales, and a list of filed exhibits [Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, primarily highlighting new significant risks associated with the COVID-19 pandemic, including revenue loss, supply chain disruptions, and potential asset impairment - The COVID-19 pandemic is identified as a significant new risk factor[155](index=155&type=chunk) - Key pandemic-related risks include lost revenue, supply chain disruptions, reduced customer demand, and limitations on the sales force's ability to visit customers[156](index=156&type=chunk)[158](index=158&type=chunk) - The pandemic could negatively impact future financial performance, potentially leading to impairment losses on goodwill and other intangible assets[161](index=161&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Shares%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2020, the company repurchased **12,077 shares** to satisfy employee tax withholding, with approximately **$4.5 million** remaining for future repurchases under the authorized program Share Repurchases for Q3 2020 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2020 | 357 | $31.25 | | August 2020 | 11,720 | $36.22 | | September 2020 | — | — | | **Total** | **12,077** | | - The shares repurchased during the quarter were for satisfying employee tax withholding obligations, not part of the public buyback plan[164](index=164&type=chunk) - Approximately **$4.5 million** remains authorized for future repurchases under the company's stock repurchase program[164](index=164&type=chunk)[165](index=165&type=chunk) [Exhibits](index=30&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including financial statements in Inline XBRL format and certifications from the CEO and CFO - Filed exhibits include financial statements in Inline XBRL format[167](index=167&type=chunk) - Certifications by the CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act are included as exhibits[168](index=168&type=chunk) [Signatures](index=31&type=section&id=SIGNATURES) The report is duly signed and authorized by the President and CEO, and the Executive Vice President and CFO, on October 29, 2020 - The report was signed on October 29, 2020, by the company's principal executive officer and principal financial officer[171](index=171&type=chunk)

Lawson Products, Inc. (LAWS) Q2 2020 Earnings Conference Call July 30, 2020 9:00 AM ET Company Participants Michael DeCata – President and Chief Executive Officer Ron Knutson – Chief Financial Officer Conference Call Participants Kevin Steinke – Barrington Research Operator Good morning, ladies and gentlemen, and welcome to the Lawson Products Second Quarter 2020 Earnings Call. This call will be hosted by Michael DeCata, Lawson Products' President and Chief Executive Officer, and Ron Knutson, Lawson Product ...

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Lawson Products, Inc. as of June 30, 2020, reflecting a decrease in revenue and net income for Q2 2020 due to the COVID-19 pandemic [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet as of June 30, 2020, shows a decrease in total assets and liabilities, leading to an increase in total stockholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (Unaudited) | December 31, 2019 | | :--- | :--- | :--- | | **Total Current Assets** | $105,738 | $106,422 | | **Total Assets** | $195,707 | $204,429 | | **Total Current Liabilities** | $39,608 | $56,930 | | **Total Liabilities** | $76,663 | $96,428 | | **Total Stockholders' Equity** | $119,044 | $108,001 | [Condensed Consolidated Statements of Income and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) For Q2 2020, total revenue decreased to **$72.1 million** from **$96.1 million**, with net income falling to **$0.6 million** from **$1.3 million**, while six-month net income significantly increased to **$13.2 million** from **$5.5 million** Income Statement Summary (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | $72,146 | $96,097 | $163,181 | $187,440 | | **Gross Profit** | $38,313 | $51,043 | $87,234 | $99,966 | | **Operating Income** | $569 | $1,623 | $19,207 | $7,167 | | **Net Income** | $619 | $1,307 | $13,152 | $5,453 | | **Diluted EPS** | $0.07 | $0.14 | $1.41 | $0.58 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities for the six months ended June 30, 2020, significantly improved to **$7.8 million** from **$2.2 million** used in the prior year, driven by higher net income and favorable working capital changes Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $7,837 | $(2,233) | | **Net cash used in investing activities** | $(720) | $(944) | | **Net cash used in financing activities** | $(2,435) | $(2,107) | | **Increase (decrease) in cash** | $4,517 | $(4,968) | | **Cash, cash equivalents and restricted cash at end of period** | $10,814 | $7,715 | [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, segment performance, and the impact of **COVID-19 pandemic**, including the utilization of the **Canadian Emergency Wage Subsidy (CEWS) program** - The company operates through two segments: the **Lawson segment**, which distributes MRO products via a sales representative network in the U.S. and Canada, and the **Bolt Supply House segment**, which operates **14 branches** in Western Canada[31](index=31&type=chunk)[88](index=88&type=chunk) - The **COVID-19 pandemic** reduced the ability of sales reps to perform on-site **VMI services**, resulting in a lower allocation of revenue and costs to the service component in **Q2 2020**[43](index=43&type=chunk) - The company utilized the **Canadian Emergency Wage Subsidy (CEWS) program**, recording a **$0.9 million subsidy** in **Q2 2020**, which was recognized as a reduction to selling, general and administrative expenses[91](index=91&type=chunk) Segment Revenue for Three Months Ended June 30 (in thousands) | Segment | 2020 | 2019 | | :--- | :--- | :--- | | Total Lawson Revenue | $63,214 | $84,967 | | Bolt Supply | $8,932 | $11,130 | | **Consolidated Total** | **$72,146** | **$96,097** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the significant negative impact of the **COVID-19 pandemic** on sales and operations, leading to a **24.9% decrease** in total sales for Q2 2020, while maintaining a strong liquidity position through cost-control measures [COVID-19 Pandemic Impact and Company Response](index=18&type=section&id=COVID-19%20Pandemic%20Impact%20and%20Company%20Response) The **COVID-19 pandemic** negatively impacted the company's performance by disrupting customer visits, **VMI services**, and supply chains, prompting cost-saving measures to maintain financial stability - The **pandemic** negatively impacted operations, including the ability of sales reps to call on customers and perform **VMI services**, leading to a **decrease in sales**[99](index=99&type=chunk)[101](index=101&type=chunk) - The company implemented cost-saving measures such as **furloughing ~100 employees**, **reducing salaries**, **canceling travel**, and **cutting non-critical capital expenditures**[102](index=102&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) For Q2 2020, revenue fell **24.9%** to **$72.1 million** due to **COVID-19 pandemic** impacts, while six-month operating income rose **168.0%** to **$19.2 million** primarily from reduced **stock-based compensation expense** Q2 2020 vs Q2 2019 Performance (in thousands) | Metric | Q2 2020 | Q2 2019 | Change (%) | | :--- | :--- | :--- | :--- | | **Revenue** | $72,146 | $96,097 | (24.9)% | | **Gross Profit** | $38,313 | $51,043 | (24.9)% | | **Operating Income** | $569 | $1,623 | (65.0)% | | **Net Income** | $619 | $1,307 | (52.6)% | Six Months 2020 vs Six Months 2019 Performance (in thousands) | Metric | Six Months 2020 | Six Months 2019 | Change (%) | | :--- | :--- | :--- | :--- | | **Revenue** | $163,181 | $187,440 | (12.9)% | | **Gross Profit** | $87,234 | $99,966 | (12.7)% | | **Operating Income** | $19,207 | $7,167 | 168.0% | | **Net Income** | $13,152 | $5,453 | 141.2% | - The significant increase in **six-month operating income** was primarily due to a **$12.8 million decrease** in **stock-based compensation expense**, a portion of which varies with the company's stock price[130](index=130&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) As of **June 30, 2020**, the company maintained a strong liquidity position with **$10.0 million in cash** and **$97.3 million of availability** under its **credit facility**, sufficient to fund operations for the next 12 months - The company's **liquidity position** as of **June 30, 2020** included **$10.0 million in cash** and **$97.3 million of availability** under its **credit facility**[134](index=134&type=chunk)[137](index=137&type=chunk) - In **Q1 2020**, the company **repurchased 47,504 shares of its common stock** at an average price of **$36.93**[136](index=136&type=chunk) - The company was in compliance with all **debt covenants** as of **June 30, 2020**[138](index=138&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=25&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) This item is noted as **inapplicable** and has been **omitted** from the report - Item 3 of Part I, regarding quantitative and qualitative disclosures about market risk, is **inapplicable** and has been **omitted** from this report[142](index=142&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the **CEO** and **CFO**, concluded that the company's **disclosure controls and procedures** were **effective** as of June 30, 2020, with no material changes in **internal control over financial reporting** during the quarter - The **CEO** and **CFO** concluded that the company's **disclosure controls and procedures** were **effective** as of the end of the period covered by the report[143](index=143&type=chunk) - **No changes** in **internal control over financial reporting** occurred during the quarter that **materially affected**, or are reasonably likely to **materially affect**, internal controls[144](index=144&type=chunk) [PART II - OTHER INFORMATION](index=25&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1A. Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) This section highlights the material risks associated with the **COVID-19 pandemic**, including **lost revenue**, **supply chain disruption**, and potential for **impairment of intangible assets and goodwill** - The **COVID-19 pandemic** is presented as a **significant risk factor**, with potential impacts including **lost revenue**, **supply chain disruption**, **reduced customer demand**, and **limitations on the sales force**[148](index=148&type=chunk) - A change in the company's **'essential business' status** could result in **temporary closures** of its business or distribution facilities[149](index=149&type=chunk) - The pandemic could **negatively impact future financial performance**, potentially leading to **impairment of intangible assets and goodwill**[152](index=152&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=26&type=section&id=Item%202.%20Unregistered%20Shares%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no **shares** were **repurchased** during Q2 2020, with approximately **$4.5 million remained available** under the authorized **$7.5 million stock repurchase program** as of June 30, 2020 - **No shares** of the company's common stock were **repurchased** during the three months ended **June 30, 2020**[154](index=154&type=chunk) - As of **June 30, 2020**, approximately **$4.5 million remained available** for **repurchase** under the company's authorized **$7.5 million stock repurchase program**[154](index=154&type=chunk) [Item 6. Exhibits](index=27&type=section&id=Item%206.%20Exhibits%20Index) This section lists the exhibits filed with the Form 10-Q, including **Sarbanes-Oxley certifications** for the **CEO** and **CFO**, and **financial statements** formatted in **Inline XBRL** - Lists filed exhibits, including **Sarbanes-Oxley certifications** for the **CEO** and **CFO**[156](index=156&type=chunk) - Includes **financial statements** and cover page data formatted in **Inline XBRL** as required by the **SEC**[156](index=156&type=chunk)[157](index=157&type=chunk)

Financial Data and Key Metrics Changes - Consolidated sales contracted by 0.3% year-over-year, totaling $91 million compared to $91.3 million in Q1 2019 [14][22] - Adjusted EBITDA margin increased over 200 basis points to 10.4% of sales versus 8.2% a year ago, resulting in an adjusted EBITDA increase of nearly 27% [14][34] - Reported operating income was $18.6 million for Q1, inclusive of a stock-based compensation benefit of $10.7 million, compared to $5.5 million a year ago [34] Business Line Data and Key Metrics Changes - Strategic accounts achieved 1.7% growth, with 14.3% growth excluding two oil and gas customers negatively impacted by oil price declines [15] - Bolt Supply grew by 8.4% year-over-year for the quarter [15] - Government accounts contracted by 1.8% for the quarter, indicating broad-based softness [15] Market Data and Key Metrics Changes - Average daily sales for January, February, and March were $1.447 million, $1.468 million, and $1.356 million respectively, showing a decline in March [23] - April average daily sales for MRO business trended at approximately 61% of sales compared to the first two weeks of March, resulting in a decline of approximately 35% year-over-year [29] Company Strategy and Development Direction - The company is focused on maintaining safety and health protocols while continuing to service customers during the COVID-19 pandemic [5][9] - Actions taken include salary reductions, furloughing employees, and consolidating distribution centers to manage costs effectively [11][37] - The company aims to emerge from the current environment stronger and more resilient, with a commitment to innovation and customer service [18][60] Management's Comments on Operating Environment and Future Outlook - Management noted that the economic impact of COVID-19 began to manifest in the second half of March, with continued softness into April [21] - The company remains proactive in supporting customers and generating revenue despite challenging conditions [30] - Management expressed confidence in the company's ability to recover and grow post-pandemic, emphasizing the importance of customer loyalty and employee commitment [51][60] Other Important Information - The company ended the quarter with $4.1 million in cash and cash equivalents, with an additional $88 million available under its credit facility [22][39] - Total operating expenses decreased to $30.3 million from $43.4 million a year ago, reflecting effective cost management [32] Q&A Session Summary Question: Has there been any stabilization in sales as April progressed? - Management confirmed that stabilization has been observed throughout the weeks in April, with consistent trends [42] Question: How are the cost reductions distributed across various categories? - Cost reductions are primarily within selling and G&A expenses, with a significant portion being fixed costs [43][44] Question: Is the consolidation of the Georgia distribution center a permanent action? - Management indicated that the consolidation is volume-based and intends to bring back furloughed employees as demand increases [45] Question: What percentage of customers are deemed essential? - Management noted that while many customers are in essential sectors, they do not track this ratio specifically [46] Question: How has the process for winning new customers changed during the downturn? - Management reported that some new customers are more receptive due to being underserved by existing suppliers, presenting an opportunity for growth [50] Question: When will new sales reps start? - New sales rep start dates have been deferred until at least July 1, primarily due to training logistics [58]

[PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2020 [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Lawson Products, Inc.'s unaudited condensed consolidated financial statements and detailed notes for Q1 2020 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows a slight decrease in total assets and total liabilities from December 31, 2019, to March 31, 2020, while total stockholders' equity increased **Condensed Consolidated Balance Sheets (Dollars in thousands)** | Item | March 31, 2020 (Unaudited) | December 31, 2019 | | :--------------------------------------------------------------------------------------------------------------- | :------------------------- | :------------------ | | Total assets | $198,415 | $204,429 | | Total liabilities | $81,680 | $96,428 | | Total stockholders' equity | $116,735 | $108,001 | | Cash and cash equivalents | $4,095 | $5,495 | | Accounts receivable, less allowance for doubtful accounts | $41,406 | $38,843 | | Inventories, net | $56,182 | $55,905 | | Accrued expenses and other liabilities | $18,960 | $39,311 | [Condensed Consolidated Statements of Income and Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) For the three months ended March 31, 2020, the company reported a slight decrease in total revenue but a significant increase in operating income and net income compared to the same period in 2019, primarily driven by a stock-based compensation benefit **Condensed Consolidated Statements of Income and Comprehensive Income (Dollars in thousands, except per share data)** | Item | Three Months Ended March 31, 2020 (Unaudited) | Three Months Ended March 31, 2019 (Unaudited) | | :-------------------------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total revenue | $91,035 | $91,343 | | Gross profit | $48,921 | $48,923 | | Operating income | $18,638 | $5,544 | | Net income | $12,533 | $4,146 | | Basic income per share of common stock | $1.39 | $0.46 | | Diluted income per share of common stock | $1.34 | $0.44 | | Adjustment for foreign currency translation | $(2,494) | $675 | | Net comprehensive income | $10,039 | $4,821 | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) Stockholders' equity increased from $108.0 million at January 1, 2020, to $116.7 million at March 31, 2020, primarily due to net income, partially offset by treasury share repurchases and foreign currency translation adjustments **Condensed Consolidated Statements of Changes in Stockholders' Equity (Dollars in thousands)** | Item | Balance at January 1, 2020 | Net Income | Treasury Shares Repurchased | Adjustment for Foreign Currency Translation | Stock-Based Compensation | Balance at March 31, 2020 | | :-------------------------------------------------------------------------------------------------------------------------------------------- | :------------------------- | :--------- | :-------------------------- | :------------------------------------------ | :----------------------- | :------------------------ | | Total Stockholders' Equity | $108,001 | $12,533 | $(1,756) | $(2,494) | $451 | $116,735 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company used $6.9 million in operating activities and $0.6 million in investing activities, while generating $6.4 million from financing activities, resulting in a net decrease of $1.4 million in cash, cash equivalents, and restricted cash for Q1 2020 **Condensed Consolidated Statements of Cash Flows (Dollars in thousands)** | Activity | Three Months Ended March 31, 2020 (Unaudited) | Three Months Ended March 31, 2019 (Unaudited) | | :---------------------------------------------------------------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash used in operating activities | $(6,888) | $(10,501) | | Net cash used in investing activities | $(551) | $(248) | | Net cash provided by financing activities | $6,366 | $2,256 | | Effect of exchange rate changes on cash and cash equivalents | $(327) | $213 | | Decrease in cash, cash equivalents and restricted cash | $(1,400) | $(8,280) | | Cash, cash equivalents and restricted cash at end of period | $4,897 | $4,403 | | Net cash paid for income taxes | $198 | $99 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, specific financial items, segment performance, and COVID-19 risks for the condensed consolidated financial statements [Note 1 — Basis of Presentation and Summary of Significant Accounting Policies](index=11&type=section&id=Note%201%20%E2%80%94%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim information, covering Lawson and Bolt Supply segments - Company operates two segments: Lawson (MRO products, VMI, US/Canada) and Bolt Supply (MRO products, branches, Western Canada)[29](index=29&type=chunk) [Note 2 - Revenue Recognition](index=11&type=section&id=Note%202%20-%20Revenue%20Recognition) Revenue is recognized from product sales and VMI services, disaggregated by geographic area and product type, with the US and Fastening Systems being largest - Revenue is recognized from two performance obligations: **product sales** (control transfer) and **VMI services** (deferred until provided)[30](index=30&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) **Disaggregated Revenue by Geographic Area (Three Months Ended March 31, Dollars in thousands)** | Geographic Area | 2020 | 2019 | | :-------------- | :--- | :--- | | United States | $73,584 | $74,048 | | Canada | $17,451 | $17,295 | | Consolidated Total | $91,035 | $91,343 | **Disaggregated Revenue by Product Type (Three Months Ended March 31, %)** | Product Type | 2020 (%) | 2019 (%) | | :----------- | :------- | :------- | | Fastening Systems | 22.8% | 23.5% | | Fluid Power | 14.2% | 15.2% | | Cutting Tools and Abrasives | 13.3% | 13.3% | | Specialty Chemicals | 11.2% | 11.3% | | Electrical | 10.8% | 11.5% | | Aftermarket Automotive Supplies | 8.2% | 8.4% | | Safety | 6.3% | 4.6% | | Welding and Metal Repair | 1.4% | 1.7% | | Other | 11.8% | 10.5% | | Consolidated Total | 100.0% | 100.0% | [Note 3 — Restricted Cash](index=12&type=section&id=Note%203%20%E2%80%94%20Restricted%20Cash) The company maintains $0.8 million in restricted cash as collateral for commercial card processing services - **$0.8 million** in restricted cash serves as collateral for commercial card processing services[43](index=43&type=chunk) [Note 4 — Inventories, Net](index=12&type=section&id=Note%204%20%E2%80%94%20Inventories,%20Net) Net inventories were $56.2 million at March 31, 2020, with a $4.5 million reserve for obsolete and excess inventory **Inventories, Net (Dollars in thousands)** | Item | March 31, 2020 | December 31, 2019 | | :-------------------------------------------------- | :------------- | :---------------- | | Inventories, gross | $60,668 | $60,500 | | Reserve for obsolete and excess inventory | $(4,486) | $(4,595) | | Inventories, net | $56,182 | $55,905 | [Note 5 - Goodwill](index=13&type=section&id=Note%205%20-%20Goodwill) Goodwill decreased to $19.6 million due to foreign exchange impact, with a COVID-19 related impairment trigger identified for both reporting units **Goodwill Activity (Dollars in thousands)** | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Beginning balance | $20,923 | $20,079 | | Impact of foreign exchange | $(1,368) | $372 | | Ending balance | $19,555 | $20,451 | - Identified goodwill impairment "trigger event" for Lawson and Bolt reporting units as of March 31, 2020, due to adverse changes in the business climate related to COVID-19[46](index=46&type=chunk) - The Bolt reporting unit's fair value exceeded its carrying value by less than **10%** (**$12.4 million** goodwill allocated to Bolt)[47](index=47&type=chunk) [Note 6 - Intangible Assets](index=13&type=section&id=Note%206%20-%20Intangible%20Assets) Net intangible assets were $11.3 million, primarily trade names and customer relationships, with an impairment trigger identified due to COVID-19 **Intangible Assets, Net (Dollars in thousands)** | Asset Class | Gross Carrying Amount (Mar 31, 2020) | Accumulated Amortization (Mar 31, 2020) | Net Carrying Value (Mar 31, 2020) | Gross Carrying Amount (Dec 31, 2019) | Accumulated Amortization (Dec 31, 2019) | Net Carrying Value (Dec 31, 2019) | | :--------------------- | :----------------------------------- | :-------------------------------------- | :-------------------------------- | :----------------------------------- | :-------------------------------------- | :-------------------------------- | | Trade names | $7,890 | $(2,067) | $5,823 | $8,422 | $(2,020) | $6,402 | | Customer relationships | $6,980 | $(1,527) | $5,453 | $7,337 | $(1,404) | $5,933 | | Total | $14,870 | $(3,594) | $11,276 | $15,759 | $(3,424) | $12,335 | - Amortization expense of **$0.3 million** related to intangible assets was recorded in General and administrative expenses for the three months ended March 31, 2020 and 2019, respectively[49](index=49&type=chunk) - Identified an impairment "trigger event" for definite life intangible assets as of March 31, 2020, due to adverse changes in the business climate related to COVID-19, but undiscounted future cash flows exceeded the net carrying value[50](index=50&type=chunk) [Note 7 - Leases](index=13&type=section&id=Note%207%20-%20Leases) Total lease assets were $10.2 million and liabilities $12.2 million at March 31, 2020, with weighted average terms of 3.5 years for operating leases **Net Lease Cost (Dollars in thousands)** | Lease Type | Classification | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------------------ | :---------------- | :-------------------------------- | :-------------------------------- | | Consolidated Operating Lease Expense | Operating expenses | $1,187 | $1,195 | | Consolidated Financing Lease Amortization | Operating expenses | $52 | $48 | | Consolidated Financing Lease Interest | Interest expense | $7 | $6 | | Net Lease Cost | | $1,246 | $1,169 | **Lease Assets and Liabilities (Dollars in thousands)** | Item | March 31, 2020 | December 31, 2019 | | :---------------------------------------------------------------------------------------------------- | :------------- | :---------------- | | Total ROU operating lease assets | $9,573 | $10,592 | | Total ROU financing lease assets | $605 | $654 | | Total lease assets | $10,178 | $11,246 | | Total current lease obligations | $3,825 | $3,830 | | Total long term lease obligation | $8,331 | $9,504 | **Weighted Average Lease Terms and Interest Rates (As of March 31, 2020)** | Lease Type | Weighted Average Term in Years | Weighted Average Interest Rate (%) | | :----------------- | :----------------------------- | :----------------------------- | | Operating Leases | 3.5 | 5.1% | | Financing Leases | 2.7 | 5.4% | [Note 8 — Credit Agreement](index=15&type=section&id=Note%208%20%E2%80%94%20Credit%20Agreement) The company has a $100.0 million revolving credit agreement, with $10.5 million borrowed and $87.5 million available, in compliance with covenants - Entered into a five-year credit agreement for **$100.0 million** of revolving commitments, maturing on October 11, 2024[62](index=62&type=chunk) **Credit Agreement Status (As of March 31, 2020, Dollars in thousands)** | Item | Amount | | :---------------------------- | :------- | | Borrowings | $10,460 | | Credit Availability Remaining | $87,500 | | Weighted Average Interest Rate (Q1 2020) | 4.04% | **Quarterly Financial Covenants (As of March 31, 2020)** | Covenant | Requirement Ratio | Actual Ratio | | :---------------------------- | :---------- | :----- | | EBITDA to fixed charges ratio | 1.15 : 1.00 | 7.13 : 1.00 | | Total net leverage ratio | 3.25 : 1.00 | 0.19 : 1.00 | Company was in compliance with its required debt covenants [Note 9 - Stock Repurchase Program](index=16&type=section&id=Note%209%20-%20Stock%20Repurchase%20Program) In Q1 2020, the company repurchased 47,504 shares for $1.76 million at $36.93 per share, with $4.5 million remaining - Board of Directors authorized a program in Q2 2019 to repurchase up to **$7.5 million** of common stock[69](index=69&type=chunk) **Stock Repurchase Activity (Three Months Ended March 31, 2020)** | Period | Total Number of Shares Purchased | Average Price Paid per Share (Dollars) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (Dollars) | | :------------------------------ | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------- | | March 1 to March 31, 2020 | 47,504 | $36.93 | 47,504 | $4,512,000 | [Note 10 — Severance Reserve](index=16&type=section&id=Note%2010%20%E2%80%94%20Severance%20Reserve) The severance reserve decreased to $0.55 million at March 31, 2020, due to payments exceeding new charges **Severance Reserve Activity (Dollars in thousands)** | Item | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Balance at beginning of period | $909 | $359 | | Charged to earnings | $7 | $27 | | Payments | $(365) | $(123) | | Balance at end of period | $551 | $263 | [Note 11 — Stock-Based Compensation](index=16&type=section&id=Note%2011%20%E2%80%94%20Stock-Based%20Compensation) The company recorded a significant $10.7 million stock-based compensation benefit in Q1 2020, primarily due to changes in common stock market value - Recorded a stock-based compensation benefit of **$10.7 million** for Q1 2020, compared to an expense of **$0.4 million** for Q1 2019, primarily due to changes in the market value of the company's common stock[71](index=71&type=chunk) - The accrued liability for Stock Performance Rights (SPRs) decreased from **$14.9 million** (Dec 31, 2019) to **$3.7 million** (Mar 31, 2020) due to changes in the market value of common stock[71](index=71&type=chunk) - Issued **6,847 Restricted Stock Units (RSUs)** to key employees, **5,500 RSUs** to an executive, **22,284 Market Stock Units (MSUs)** to key employees, and **10,852 Performance Awards (PAs)** to key employees in Q1 2020[72](index=72&type=chunk)[73](index=73&type=chunk)[75](index=75&type=chunk) [Note 12 — Income Taxes](index=17&type=section&id=Note%2012%20%E2%80%94%20Income%20Taxes) Income tax expense for Q1 2020 was $4.9 million, with an effective tax rate of 28.0%, higher due to state taxes and uncertain positions **Income Tax Expense and Effective Tax Rate (Dollars in thousands)** | Period | Income Tax Expense | Effective Tax Rate (%) | | :----- | :----------------- | :----------------- | | Q1 2020 | $4,879 | 28.0% | | Q1 2019 | $1,673 | 28.8% | - The effective tax rate is higher than the U.S. statutory rate due primarily to state taxes and the recording of reserves for uncertain tax positions[76](index=76&type=chunk) [Note 13 — Contingent Liabilities](index=17&type=section&id=Note%2013%20%E2%80%94%20Contingent%20Liabilities) The company has a minimal environmental remediation liability at its Decatur, Alabama site, with a plan approved and injections completed - Identified hazardous substances in soil and groundwater at a site in Decatur, Alabama, from historical operations prior to company ownership[79](index=79&type=chunk) - Remediation plan approved by ADEM in 2018, with chemical injections completed in Q1 2019 and ongoing monitoring[80](index=80&type=chunk) - Company believes the **minimal remaining environmental remediation liability** will be sufficient to cover the remaining cost of the plan[80](index=80&type=chunk) [Note 14 – Segment Information](index=18&type=section&id=Note%2014%20%E2%80%93%20Segment%20Information) The Lawson segment saw a slight revenue decrease but significant operating income increase, while Bolt Supply showed revenue and operating income growth **Segment Revenue (Dollars in thousands)** | Segment | 2020 | 2019 | | :------------------ | :----- | :----- | | Lawson product revenue | $71,791 | $73,039 | | Lawson service revenue | $9,700 | $9,428 | | Total Lawson revenue | $81,491 | $82,467 | | Bolt Supply | $9,544 | $8,876 | | Consolidated total | $91,035 | $91,343 | **Segment Gross Profit (Dollars in thousands)** | Segment | 2020 | 2019 | | :------------------ | :----- | :----- | | Lawson product gross profit | $39,729 | $40,604 | | Lawson service gross profit | $5,391 | $5,015 | | Total Lawson gross profit | $45,120 | $45,619 | | Bolt Supply | $3,801 | $3,304 | | Consolidated total | $48,921 | $48,923 | **Segment Operating Income (Dollars in thousands)** | Segment | 2020 | 2019 | | :---------- | :----- | :----- | | Lawson | $18,094 | $5,458 | | Bolt Supply | $544 | $86 | | Consolidated total | $18,638 | $5,544 | [Note 15 - COVID-19 Risks and Uncertainties](index=19&type=section&id=Note%2015%20-%20COVID-19%20Risks%20and%20Uncertainties) The COVID-19 pandemic negatively impacts revenue, supply chain, and demand, prompting mitigation efforts like remote work and cost-cutting - COVID-19 pandemic negatively impacted revenue, ability to source high demand products, sales force functions, customer demand, and timely customer payments[85](index=85&type=chunk) - Company is defined as an essential business in Illinois, allowing operations, but temporary closures of distribution facilities or Bolt branches remain a risk[87](index=87&type=chunk) - Mitigation actions include Lawson sales reps reaching out via phone/fax/internet, Bolt branches offering curbside pickup, monitoring customer liquidity, and managing supply chain to ensure inventory fulfillment[89](index=89&type=chunk) - Cost-cutting measures include furloughing approximately **100 employees**, reducing salaries, canceling travel, consolidating a distribution center, and eliminating non-critical capital expenditures[90](index=90&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, condition, and results for the quarter, including the significant impact of the COVID-19 pandemic [Overview](index=20&type=section&id=Overview) The MRO distribution industry is fragmented and impacted by manufacturing, with flat PMI growth and decreased sales representative productivity in Q1 2020 - The Maintenance, Repair and Operations (MRO) distribution industry is highly fragmented and significantly impacted by the overall strength of the U.S. manufacturing sector[93](index=93&type=chunk) **PMI Index (Average Monthly)** | Period | PMI Index | Indication | | :----- | :-------- | :--------- | | Q1 2020 | 50.0 | Flat rate of growth | | Q1 2019 | 55.4 | Expansion | **Sales Force and Productivity** | Metric | Q1 2020 | Q1 2019 | Change | | :------------------------------------ | :------ | :------ | :----- | | Average sales representatives | 998 | 991 | +7 | | Lawson segment sales per rep per day | $1,268 | $1,308 | -3.1% | [COVID-19 Pandemic](index=20&type=section&id=COVID-19%20Pandemic) The COVID-19 pandemic significantly impacted MRO and Bolt Supply business models, leading to remote outreach, curbside pickup, and cost reductions - The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility in financial markets, leading to substantial uncertainty for the company's future results[95](index=95&type=chunk) - The MRO business model (onsite sales visits) and Bolt Supply business model (branch foot traffic) are negatively impacted by social distancing guidelines and government-mandated shelter-in-place orders[97](index=97&type=chunk) - Mitigation efforts include MRO sales reps reaching out via phone/fax/internet, Bolt branches offering curbside pickup, monitoring customer liquidity, and ensuring supply chain integrity[98](index=98&type=chunk)[99](index=99&type=chunk) - Company actions include furloughing approximately **100 employees**, reducing salaries, canceling travel, consolidating a distribution center, and eliminating non-critical capital expenditures[101](index=101&type=chunk) [Revenue and Gross Profits](index=24&type=section&id=Revenue%20and%20Gross%20Profits) Consolidated sales were flat at $91.0 million, impacted by COVID-19, with Lawson sales declining and Bolt Supply improving, while gross profit remained flat **Revenue by Segment (Three Months Ended March 31, Dollars in thousands)** | Segment | 2020 | 2019 | Increase (Decrease) Amount | Increase (Decrease) % | | :------------ | :----- | :----- | :------------------------- | :-------------------- | | Lawson | $81,491 | $82,467 | $(976) | (1.2)% | | Bolt Supply | $9,544 | $8,876 | $668 | 7.5% | | Consolidated | $91,035 | $91,343 | $(308) | (0.3)% | **Gross Profit by Segment (Three Months Ended March 31, Dollars in thousands)** | Segment | 2020 | 2019 | Increase (Decrease) Amount | Increase (Decrease) % | | :------------ | :----- | :----- | :------------------------- | :-------------------- | | Lawson | $45,120 | $45,619 | $(499) | (1.1)% | | Bolt Supply | $3,801 | $3,304 | $497 | 15.0% | | Consolidated | $48,921 | $48,923 | $(2) | —% | **Gross Profit Margin by Segment (Three Months Ended March 31, %)** | Segment | 2020 | 2019 | | :------------ | :----- | :----- | | Lawson | 55.4% | 55.3% | | Bolt Supply | 39.8% | 37.2% | | Consolidated | 53.7% | 53.6% | - Consolidated sales were negatively impacted by the onset of the COVID-19 pandemic in mid-March 2020 and decreases in sales to Government customers[110](index=110&type=chunk) - Lawson segment total sales were negatively impacted by a **3.1% decline** in sales productivity of Lawson sales representatives[111](index=111&type=chunk) [Selling, General and Administrative Expenses](index=24&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) Selling expenses decreased by 8.1% due to lower incentives and travel, while G&A expenses significantly decreased by 52.4% due to a stock-based compensation benefit **Selling Expenses (Three Months Ended March 31, Dollars in thousands)** | Segment | 2020 | 2019 | Increase (Decrease) Amount | Increase (Decrease) % | | :------------ | :----- | :----- | :------------------------- | :-------------------- | | Lawson | $19,187 | $20,953 | $(1,766) | (8.4)% | | Bolt Supply | $797 | $789 | $8 | 1.0% | | Consolidated | $19,984 | $21,742 | $(1,758) | (8.1)% | **General and Administrative Expenses (Three Months Ended March 31, Dollars in thousands)** | Segment | 2020 | 2019 | Increase (Decrease) Amount | Increase (Decrease) % | | :------------ | :----- | :----- | :------------------------- | :-------------------- | | Lawson | $7,839 | $19,208 | $(11,369) | (59.2)% | | Bolt Supply | $2,460 | $2,429 | $31 | 1.3% | | Consolidated | $10,299 | $21,637 | $(11,338) | (52.4)% | - The decrease in selling expense as a percent of sales is primarily due to lower incentives, travel, and commission due to the impact of COVID-19 in the second half of March and better leveraging fixed selling expenses[114](index=114&type=chunk) - The lower general and administrative expense was primarily driven by a **$10.7 million stock-based compensation benefit** in Q1 2020[115](index=115&type=chunk) [Interest Expense](index=25&type=section&id=Interest%20Expense) Interest expense decreased to $0.1 million in Q1 2020 from $0.2 million in Q1 2019, primarily due to lower outstanding borrowing levels **Interest Expense (Dollars in thousands)** | Period | 2020 | 2019 | | :----- | :--- | :--- | | Q1 | $(115) | $(197) | - Interest expense decreased primarily as a result of lower outstanding borrowing levels[117](index=117&type=chunk) [Other Income (Expense), Net](index=25&type=section&id=Other%20Income%20(Expense),%20Net) Other income (expense), net, increased by $1.6 million in Q1 2020, primarily due to Canadian currency exchange rate changes **Other Income (Expense), Net (Dollars in thousands)** | Period | 2020 | 2019 | Change | | :----- | :----- | :----- | :----- | | Q1 | $(1,111) | $472 | $(1,583) | - Other income (expense), net, increased **$1.6 million** in Q1 2020 over the prior year quarter primarily due to the effect of a change in the Canadian currency exchange rate[118](index=118&type=chunk) [Income Tax Expense](index=25&type=section&id=Income%20Tax%20Expense) Income tax expense increased to $4.9 million in Q1 2020 from $1.7 million in Q1 2019, with effective tax rates of 28.0% and 28.8% respectively **Income Tax Expense and Effective Tax Rate (Three Months Ended March 31, Dollars in thousands)** | Period | Income Tax Expense | Effective Tax Rate (%) | | :----- | :----------------- | :----------------- | | Q1 2020 | $4,879 | 28.0% | | Q1 2019 | $1,673 | 28.8% | [Liquidity and Capital Resources](index=26&type=section&id=Liquidity%20and%20Capital%20Resources) Cash decreased to $4.1 million, with improved operating cash flow, increased capital expenditures, and cash generated from financing activities, maintaining sufficient liquidity **Cash and Cash Equivalents (Dollars in millions)** | Period | Amount | | :----------- | :----- | | March 31, 2020 | $4.1 | | December 31, 2019 | $5.5 | **Cash Flow Activities (Three Months Ended March 31, Dollars in millions)** | Activity | 2020 | 2019 | | :-------------------------------- | :----- | :----- | | Net cash used by operations | $(6.9) | $(10.5) | | Capital expenditures | $(0.6) | $(0.2) | | Cash from financing activities | $6.4 | $2.3 | - Repurchased **47,504 shares** of common stock at an average purchase price of **$36.93** in Q1 2020, with **$4.5 million** remaining availability under the program[123](index=123&type=chunk) - As of March 31, 2020, the company had **$10.5 million** of borrowings under its Credit Agreement and **$87.5 million** of credit availability remaining, net of outstanding letters of credit[123](index=123&type=chunk) - Management believes cash provided by operations and funds available under the Credit Agreement are sufficient to fund operating requirements, strategic initiatives, and capital improvements over the next 12 months, including potential COVID-19 impacts[125](index=125&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=27&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) This item is inapplicable and has been omitted from the report - Item 3 of Part I is inapplicable and has been omitted from this report[128](index=128&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of March 31, 2020, with no material changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[129](index=129&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended March 31, 2020, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[130](index=130&type=chunk) [PART II - OTHER INFORMATION](index=28&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers other information including risk factors, equity security sales, and exhibit index [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) The primary new risk factor is the COVID-19 pandemic, posing significant threats to operations, financial performance, supply chains, and cybersecurity - A new material risk factor is related to the COVID-19 pandemic, with no other material changes from the risk factors disclosed in the Annual Report on Form 10-K[134](index=134&type=chunk) - The COVID-19 pandemic negatively impacts the global economy, supply chains, financial markets, and the company's ability to execute business strategies, with the full extent of the effect being uncertain[135](index=135&type=chunk) - Potential impacts include temporary closure of distribution facilities or Bolt branch locations, negative effects on sales due to social distancing and shelter-in-place orders, challenges in collecting receivables, and vendor supply disruptions[136](index=136&type=chunk)[137](index=137&type=chunk) - COVID-19 may lead to impairment losses related to goodwill and other long-lived assets due to potential detrimental impacts on future financial performance[138](index=138&type=chunk) - Increased remote work due to the pandemic can exacerbate risks related to internal controls and cybersecurity[139](index=139&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=29&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In March 2020, the company repurchased 47,504 shares for $1.76 million under its stock repurchase program, with $4.5 million remaining **Stock Repurchase Summary (Three Months Ended March 31, 2020)** | Period | Total Number of Shares Purchased | Average Price Paid per Share (Dollars) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (Dollars) | | :------------------------------ | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------- | | March 1 to March 31, 2020 | 47,504 | $36.93 | 47,504 | $4,512,000 | [Item 6. Exhibits Index](index=29&type=section&id=Item%206.%20Exhibits%20Index) This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, and XBRL-related documents - Includes certifications of the Chief Executive Officer and Chief Financial Officer (Exhibits **31.1**, **31.2**, **32**)[142](index=142&type=chunk) - Includes XBRL Instance Document and Taxonomy Extension Documents (Exhibits **101.INS**, **101.SCH**, **101.CAL**, **101.DEF**, **101.LAB**, **101.PRE**)[142](index=142&type=chunk) [SIGNATURES](index=30&type=section&id=SIGNATURES) The report was signed on April 30, 2020, by Michael G. DeCata, President and Chief Executive Officer, and Ronald J. Knutson, Executive Vice President, Chief Financial Officer, Treasurer and Controller - Report signed on **April 30, 2020**, by Michael G. DeCata, President and Chief Executive Officer, and Ronald J. Knutson, Executive Vice President, Chief Financial Officer, Treasurer and Controller[145](index=145&type=chunk)[146](index=146&type=chunk)