DSG(DSGR) - 2020 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements 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 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 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 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 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][88] - 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] - 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] 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 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 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][101] - The company implemented cost-saving measures such as furloughing ~100 employees, reducing salaries, canceling travel, and cutting non-critical capital expenditures[102] Results of Operations 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] Liquidity and Capital Resources 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][137] - In Q1 2020, the company repurchased 47,504 shares of its common stock at an average price of $36.93[136] - The company was in compliance with all debt covenants as of June 30, 2020[138] Item 3. Quantitative and Qualitative Disclosure About Market Risk 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] Item 4. Controls and Procedures 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] - 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] PART II - OTHER INFORMATION Item 1A. Risk Factors 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] - A change in the company's 'essential business' status could result in temporary closures of its business or distribution facilities[149] - The pandemic could negatively impact future financial performance, potentially leading to impairment of intangible assets and goodwill[152] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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] Item 6. Exhibits 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] - Includes financial statements and cover page data formatted in Inline XBRL as required by the SEC[156][157]