Good morning, ladies and gentlemen, and welcome to the Lawson Products Fourth Quarter 2020 Earnings Call. This call will be hosted by Michael DeCata, Lawson Products' President and Chief Executive Officer; and Ron Knutson, Lawson Products' Chief Financial Officer.

During this call, they will be providing an update on business as well as covering relevant financial and operational information. There will be then time for questions and answers.

Please note that statements on this call and in the press release contain forward-looking statements concerning goals, beliefs, expectations, strategies, plans, future operating results and underlying assumptions that are subject to risks and uncertainties that cause actual results to differ materially from those described.

In addition, statements made during this call are based on the company's views as of today. The company anticipates that future developments may cause those views to change. Please consider the information presented in that light.

The company may, at some point, elect to update the forward-looking statements made today but specifically disclaims any obligations to do so. This call is being audio simulcast on the Internet via the Lawson Products Investor Relations page on the company's website, lawsonproducts.com.

A replay of the webcast will be available on the website through March 31, 2020. I will now turn the call over to Lawson Products' CEO, Michael DeCata. Please proceed, sir..

state, local and educational customers; and federal customers. Our market mix continues to shift toward SLED, which now represents 81% of our total government business. Our SLED segment achieved a very high win rate for contracts that we bid on. By contrast, Partsmaster's government business is almost exclusively focused on military.

Lawson was recently awarded a new FedMall contract, which is a purchasing platform used by military procurement. This may result in accelerated military growth during 2021, which combined with SLED focus should result in good growth trajectory for our government segment. Our 3-part growth strategy, while impacted by the pandemic, remains unchanged.

We ended the quarter with approximately 1,100 sales reps, including 200 Partsmaster reps, and we plan to continue incrementally adding reps in underserved territories in 2021. Sales rep productivity remained a key focus area through the pandemic. We realized a 4.8% improvement in sales per rep, per day versus the third quarter of 2020.

We refined the use of new technologies during the pandemic, such as distance learning, and increased use of Microsoft Teams for just-in-time knowledge. Over time, the use of these and other technologies will have the effect of lowering cost of sales while accelerating sales volume and improving sales rep retention.

Let me conclude my remarks by saying that the integration of Partmaster is going very well, and we are achieving consistent monthly sales increases across the company. We believe that 2021 is off to a strong start, supported by the combination of pent-up demand, our operational excellence and our customers' need to maximize their productivity.

Now I'd like to turn it over to Ron for more information on our financial performance..

Thank you, Mike, and good morning, everyone. I'll first provide some key takeaways and business trends during the fourth quarter. I'll then jump into some of the details as well as an update on the integration of Partsmaster. But first, a few highlights for the quarter.

First, consolidated sales improved by $7.9 million or 8.7% over the third quarter and also increased $9.6 million or 10.8% over Q4 of 2019. Sales from Partsmaster for the quarter were $17.2 million.

Excluding Partsmaster, organic average daily sales were essentially flat versus Q3, driven by increases in most core product categories, offset by a decline in PPE products. We exited 2020 with our organic sales at approximately 92% of pre-pandemic levels.

Second, our adjusted EBITDA improved $1.6 million over a year ago quarter to $9 million, or 9.1% of sales versus 8.3% a year ago quarter. Excluding Partsmaster, adjusted EBITDA was $7.1 million compared to $7.3 million a year ago, evidence of our recovery to essentially pre-pandemic profitability levels.

And third, we have proactively managed our working capital and liquidity position to strengthen our balance sheet. We generated $12.5 million of operating cash flow in the fourth quarter and $32.5 million for the full year. We ended the quarter with $28.4 million of cash and cash equivalents.

As previously discussed, we were deemed an essential business early in the second quarter of 2020, which allowed us to continue to service our customers. We have adapted our corporate functions to the current environment and continue to work remotely since the end of March.

Our return to pre-pandemic profitability levels this quarter reflects our ability to adjust our cost structure, all while continuing to fulfill our customer needs during a challenging environment. As we reflect on the fourth quarter, we have continued to see month-to-month improvement in many aspects of our business.

Sales continue to improve, as does our customer service metrics, the number of ship-to locations and our sales rep productivity. Most product categories realized sequential increases over Q3, offset by lower PPE sales.

We continue to make great progress in this environment and continue our focus on driving sales, cost controls and cash flows, all while ensuring the safety of our team. For the quarter, excluding the acquisition, average daily sales declined 8.6% compared to a year ago.

On a Lawson MRO basis, while October decreased from September due to some nonrecurring PPE sales, November average daily sales were up 1.1% over October, and December average daily sales, which typically is a lighter month for us, was up about 0.5% over November.

As Mike previously mentioned, we remain focused on supporting our customers and generating revenue in this environment while ensuring the safety of our teammates. We are now able to perform on-site visits to the majority of our customers.

We are continuing to offer additional support through phone outreach, internal customer service representatives, e-mail communication and our website, but to a much lesser degree than Q2 and Q3, as our customers have reopened for business and we are able to resume on-site service in many locations.

Consolidated gross margins for the quarter came in at 53.1%. On a stand-alone basis, before the service cost reclassification, our loss in MRO margin was 59.6% for the quarter compared to 58.8% in Q3 and 60.9% the year ago quarter.

The decline from a year ago quarter was primarily driven by the deleveraging effect of fixed distribution center cost over a smaller sales base, higher net freight expense and a shift in sales mix towards lower-margin product categories, including PPE. For the quarter, total operating expenses were $52.7 million compared to $51.4 million a year ago.

The increase was primarily driven by the inclusion of Partsmaster of $8.9 million, a goodwill impairment of $1.9 million related to a 2018 acquisition, higher severance of $343,000 and acquisition costs of $325,000.

These items were offset by lower stock-based compensation expense of $5.4 million and cost actions taken earlier in the year that continue to benefit our financial performance.

Excluding stock-based compensation, severance, acquisition costs, the goodwill impairment and Partsmaster, adjusted operating expenses decreased 8.5% or $3.5 million over a year ago quarter. Our operating loss was $658,000 for the fourth quarter.

On an adjusted basis, inclusive of aggregate stock-based compensation and other nonrecurring expenses of $7.6 million, non-GAAP operating income was $6.9 million compared to adjusted operating income of $7.7 million in Q3 of 2020 and $5.8 million in the year ago quarter. Keep in mind that Q4 of 2020 had 3 fewer selling days than did Q3.

Adjusted EBITDA as percent of sales was 9.1% for the quarter compared to 8.3% a year ago as we adjusted our costs on lower sales. Additionally, Partsmaster contributed $1.8 million of adjusted EBITDA to the quarter.

On an adjusted basis, excluding stock-based compensation and other nonrecurring items, diluted earnings per share were $0.60 for the quarter versus $0.48 in Q4 of 2019. Capital expenditures for the quarter were approximately $400,000, as we eliminated nonessential CapEx to manage our cash flows.

We expect our total CapEx in 2021 to be in the range of approximately $5 million to $6 million. This includes planned upgrades to our Suwanee and McCook infrastructure to allow for increased volume in the future. As an organization, we continue to make investments in the business, in particular, in areas that have a direct impact on sales.

While there is still uncertainty in the marketplace, we continue to make investments in the business and balance our cost structure against our current sales trends. We continue to manage our balance sheet as evidenced by our positive net cash position of $28.4 million at the end of the year.

While we took on debt of $33 million in the third quarter related to the acquisition of Partsmaster from the sellers, we ended the quarter with $66 million of availability under our credit facility. This is net of the $33 million letter of credit issued for the acquisition to secure the payable to the Partsmaster sellers due in May of 2021.

As Mike and I have both stated previously, we are managing through this challenging time with the expectation that we will come out of this environment in a stronger position than how we entered it. The integration of Partsmaster into the organization is progressing as originally planned.

And since the acquisition, Partsmaster results have outperformed our original pro forma, making us feel even better about the strength of our companies on a combined basis and additional growth opportunities in 2021. Before I turn it over for questions, let me comment on the strength and the commitment of our team members.

It's hard to believe that we're coming up on the 1-year mark when the organization was forced to make some dramatic changes in a very uncertain environment. Our team members have been through significant changes over the past year and the entire team has stepped up in every aspect of the business, not to mention taking on a significant acquisition.

Thank you to the entire Lawson, Kent, Bolt Supply, Screw Products, and Partsmaster teams for proving why Lawson Products is a world-class organization. I'll now turn it over to the operator for questions..

[Operator Instructions]. Our first question comes from Kevin Steinke with Barrington Research Associates..

Congratulations on the nice results in this environment..

Thanks, Kevin..

I wanted to start off by asking about -- you mentioned that organic sales for the first 7 weeks of 2021 are above December levels and, I believe, the fourth quarter.

Should we just think about that as slow, steady incremental improvement as we've been seeing here? Or anything more significant? Just trying to characterize the rate of improvement we're seeing as we head into the new year..

Sure, Kevin. This is Ron Knutson. I'll take that, and Mike may want to jump on as well. So January for us, really was a pretty strong month, I would say, in the high single-digit increase over where we exited December.

February tempered off a little bit, primarily due to some of the storms and weather conditions throughout the entire U.S., in particular, in the Southwest. But when we look at kind of on a combined basis for the first, call it, 7 weeks or so -- 6 to 7 weeks, we're in that mid- single-digit increase over where we finished December.

So again, I think we've seen a little bit of a bounce back here even this week, I think, a little bit of catch-up and unfortunately, with some of the weather in the Southwest, we were -- physically had to close one of our distribution centers for 3 to 4 days. So we're seeing some catch-up there. But overall, a pretty strong start to the quarter..

Kevin, also, as we have spoken to many customers, strategic account customers, they continue to reiterate that they're depending on us more and more. I think we've made a great impression on a huge number of customers.

Our sales reps have been so dedicated, even under the most challenging circumstances early on in the pandemic, and it continues to be my belief that we will see market expansion as more companies turn to outsource their under-managed inventory or their consumable inventory processes.

And with our operational excellence and the reputation we have in the marketplace, we see the market expanding, and again, that has been reinforced by specific conversations with customers. So we're really optimistic on all fronts looking forward..

That's good to hear. You called out specifically lower PPE sales impacted the sequential comparison in the fourth quarter, although most other product categories grew.

Can you give us kind of a sense of the impact of that change in PPE sales on the sequential sales change?.

Yes. We saw -- Kevin, we saw some very large orders in the second quarter and the third quarter, real spikes when there was just a run on everything. In October, we had some supply chain disruptions, suppliers that were just really tapped out.

Since then, those supply disruptions have been renegotiated and settled, and we feel like we're back on to a good trend. The PPE items that we're talking about have represented about 4% of our total revenue prior to the pandemic.

Now we do expect PPE to be a slightly larger segment for us in the future, and putting aside the second quarter and the third quarter, which were huge spikes, we have now plateaued about 35% to 40% increase over where we had been in these items, these PPE items, prior to the pandemic.

So we step forward, more people, more of our customers recognize us as a PPE supplier. It still is not our primary focus. Fasteners, our core items, our foundational items are really what differentiate us. But we do have the ability, and we have seen a step-up in the long-term trajectory of PPE. But the specific disruption in October has been cleared..

Okay. All right. So there was kind of no meaningful -- I just wonder how much of a headwind it was sequentially so we can kind of get a sense of kind of the underlying trends, excluding PPE. Again, if you don't have it, that's okay. Just trying to see if we can call that out..

Yes. So Kevin, just to Mike's point, we're up about 35% year-over-year on our average daily sales versus Q4 a year ago. When we look at, on an ADS basis, Q3 of this year, our PPE on an ADS basis, was about $87,000 a day and Q4 was about $60,000 a day.

It did impact us, as you spread that decrease from Q3 into Q4, but to Mike's point, I mean, we saw elevated demands in both Q2 and Q3. But it seems like it's kind of settled in now on the Q4 activities.

And so it will provide us some opportunity for -- in the first quarter, and then to your point, we'll have some headwinds against this into the second and third quarter of 2021..

Okay. No, that's fine. That's helpful. Appreciate that.

How should we think about incremental adjusted EBITDA margins on a consolidated basis as we head into 2021? Obviously, including Partsmaster, you used to talk about that -- obviously, this assumes continued sales growth and improving organic sales growth, but you used to talk about that 25% to 30% target for the organic Lawson MRO business.

But just wondering how we should think about that on a consolidated basis..

Yes. So Kevin, this is Ron. I'll take that one. So I would say, first of all, we -- and both Mike and I commented on this. Our overall results for 2020, we are very pleased that adjusted EBITDA of $34.1 million or 9% of sales. Historically, we've talked about achieving that 10% mark, which certainly we did for some quarters during 2019.

So to be able to achieve the 9.7% in this challenging environment, we feel really good about that percentage and being able to get our way back to pre-pandemic profitability levels. But looking into 2021, that 25% to 30%, we're still very comfortable with that from an operating leverage and from a flow-through standpoint.

So I know that, that number is one that we publicly have discussed in the past, and we're still committed to achieving that. I would say that, historically, kind of putting 2020 aside, we've actually outperformed that guidance a little bit.

But going into 2021, we're still comfortable on a consolidated basis, achieving that level of operating flow-through..

pandemic, with very little prior experience, any of us haven't lived through this kind of an environment before and the assertive and very quick actions we took; at the same time, we were making a large acquisition, which has gone extraordinarily well, gives us even more confidence looking forward in our ability to manage the future, accommodate whatever happens and still prosper in any environment, really.

And we're more confident about that now, because we've been tested recently, than we have ever been..

Great. Yes, that's helpful color.

How should we think about underlying G&A expenses trending in 2021? Are there any meaningful costs that still need to come back into the business as you recover here from the pandemic? Or any comments on that?.

No, Kevin. I would say that Q4 is a pretty good run rate for us. In particular, on the G&A type of items, most of that -- the activity around -- the furlough activities and so forth are behind us. And certainly, I mean, the selling expenses certainly will vary as they -- as sales increase.

But if you look at that historical selling expenses as a percent of sales, that continues to march down as a percent of sales. So we are getting some leverage off of some of the fixed costs within that bucket.

But on the G&A side, we are about $1.5 million lower than where we were a year ago just on the MRO side of the business versus -- Q4 of this year versus Q4 of last year. So I think that that's a pretty good benchmark. We did talk about G&A expenses being in the $20 million per quarter on -- just on the MRO side of the business.

And now a year ago, we were at about $18 million. And for this quarter, we were at about $16.5 million. So we continue to march that number down and feel pretty comfortable with the run rate that we saw in the fourth quarter..

Kevin, we've talked about Lean Six Sigma all along since 2013. And since 2013, our G&A headcount has come down sequentially every year. Again, '20 being a real step back for COVID reasons. But beyond that, this has become part of our DNA, and our team really stepped up in this challenging environment.

And because of Lean Six Sigma, they had the ability to prioritize the most important work and shed non-value-added or redundant work.

And the underpinning of the Lean Six Sigma, process mapping, all the things we've been through for all these years and everybody in the company has gone through it, really enabled every individual to step up and do what was important in this very tough environment. We feel great about the structural cost savings that we will be able to achieve.

And again, we think about this as a percent of sales, not -- yes, absolute numbers, too. But percent of sales is really the primary measure of our G&A effectiveness as we see it..

Right. Yes, that makes sense. Can I just -- I want to ask quickly about the goodwill impairment charge.

Should we just kind of think of that as a function of lower sales related to that piece of the business driven by the pandemic? And still kind of feel good about the long-term outlook for that portion of the business?.

Yes, Kevin, that's exactly right. We are very much committed to the business. We feel good about the business.

It was affected by the pandemic just like in so many other aspects of the broader nature of our value proposition, when customers slow down their hours of operation, their machine time utilization, their production in the case of Screw Products, we see an ebb and flow based on our customers' production volume whether it's machine time or units produced.

And that's what we experienced at Screw Products. Underneath it, we've dedicated some very strong resource to Screw Products, and people were -- people are very capable and very committed, and we have great faith in them. And they've got a long track record with Lawson.

So yes, the short answer is we feel good about the business, and it's just the nature of COVID that affected the goodwill impairment..

Yes, Kevin, I would just add, and I think where -- and I think Mike hit it spot on. We have tremendous confidence in that kind of business that we did acquire. And the accounting rules around this get a little complex relative to when to take an impairment charge and so forth.

So unfortunately, we found ourselves in the case that many other organizations did this year as well in making sure that we complied with the technical accounting rules, which require the impairment. But feel good about the overall piece of the business..

[Operator Instructions]. Our next question comes from Carl Schemm with Keybanc Capital Markets..

A leading distributor focused on vending and VMI is using technology to reduce the direct labor and cost to serve. I think you guys have talked a bit about VMI and Partsmaster-managed inventory, but I was just hoping you would dig a little more into what initiatives LAWS has in place to stay competitive there..

Yes. Thank you, Carl, for that question. Yes, we are very much committed to optimizing the vendor-managed inventory, we call it service-intensive vendor-managed inventory because a lot of people use that term, and it can manifest itself in different ways, depending upon how it's being executed.

When we say that, we mean that our sales reps for our 85,000 now customers, with the addition of Partsmaster, visit the customer about every 10 days. But having said that, there is still a place and we're very much committed and are deploying vending machines, and there's certain kinds of products that are well placed in vending machines.

And again, vending machines, as an example, constrains supply. So if you have items that are [indiscernible] items, that's ideal for vending. Or if you have items that you need to track, like PPE and safety. If someone is injured, and they're taking bandages or band aids out of a machine, you want to know that because you may have an OSHA recordable.

So there is a proper place for the technology, and we have embraced it, we're using it, we've got a bunch of them deployed. And yet you would not ideally use a vending machine for $0.0025 flat washer. It's a piece of -- very expensive piece of capital equipment and $0.0025 flat washers in it is probably not the idea.

So generally, we would use that technology, optimize for the products that make sense and the circumstances and the locations that make sense. And still even in a vending machine, someone has to open the vending machine and replenish the content, whereas some parts are not ideally suited for vending.

Beyond vending, just modeling replenishment cycles and looking at how frequent sales reps should be visiting customers, based on the frequency of consumption, and that varies by season, it varies by project. That's the analytical orientation that Lawson brings to how we do everything.

And again, that analytical orientation, combined with Lean Six Sigma, has become part of our DNA. We look at it every day and every way. So it's a combination of analysis, the use of vending machines and the appropriate use of people. And by the way, our sales reps, many times we talk about our sales reps in the context of replenishment.

But because our sales reps are visiting customers on average every 10 days, customers know that we're there to solve problems for them. And as all the executives, we all make sales calls, a little bit different in COVID, obviously. But we all make sales calls. And inevitably, a customer is waiting for our sales rep with a list of new problems to solve.

Not only that, but our sales rep is translating best application practices across industries. So how to use a specific tool or a specific technology is something that our sales rep brings to customers, not fluid-specific but rather, application-specific or not automobile-specific, but broad-based use of best practices.

So while replenishment is an important part of what they do, problem solving's that customers -- problem solving that customers bring to us on every visit. And as well our ability to share best application practices are also part of the value add, not just the mechanical process of replenishing parts.

And that's the reason that we consider ourselves at least as much a service company as a product company, even though we are approximately 60% private label and that private label is optimized for the special needs of the maintenance mechanic.

So the combination, the optimization of product that's optimized for the needs of the maintenance mechanic and the service-intensive aspect of what we do is really what differentiates us. And it's really the reason that we've been able to retain our gross profit margins every quarter for 8 years in a very narrow band..

Great. That's a lot of really good color. And I think that's a good transition. You've talked -- obviously, Partsmaster added headcount, but it looks like headcount was down quarter-over-quarter.

Was that just duplicative territories with Partsmaster? And how are you thinking about sales headcount then maybe sequentially into 1Q and the rest of '21?.

Yes. So at the moment, we're stabilizing headcount from the actions we took in COVID. That's really what you're seeing. We are very much committed to incrementally adding sales reps in underserved territories.

And as we pick up share, both share of wallet within existing customers, and we're always focused on adding new accounts, as mentioned in strategic accounts and with new strategic locations.

So we will always be focused on adding incremental, now incremental sales reps in underserved territories or where there's just too much business for a given sales rep to pursue it. But with such an incredibly huge and fragmented market. And again, early evidence, and I want to say early evidence is that our served available market is expanding.

And I say that because some significant percentage of customers who are buying consumable nuts and bolts, electrical connectors, hydraulic fittings, they insource it. They do it themselves.

But we are seeing a trend because of their maintenance mechanic productivity and during COVID, they needed to cut shop supervisors, stock boys, stuff like that, we believe the market is expanding to more outsourcing than it had been before.

And with our sales rep footprint, and with our operational excellence, we believe we can win disproportionately more share than our competitors can because of those 2 primary drivers. Now the overarching driver has been a shortage of maintenance mechanics everywhere in every industry, which is the primary driver of our growth.

Because customers -- the last thing they want is a machine shutdown for a $0.94 part or hydraulic fitting. So even coming out of COVID, when we're seeing the pent-up demand beginning to spring loose, we fully believe that the last thing a customer wants is to have a machine or a line shutdown for a $5 hydraulic fitting. That's where we come in.

So the long and short of it is we will continue to add reps one at a time through hiring, we will continue to add reps through acquisition of companies and we will continue to take share because we're optimized for the service-intensive vendor-managed inventory that we specialize in.

And again, customers have told us, even recently in the last weeks and months, that they're depending on us even more coming out of COVID than they were prior to COVID..

Great. Maybe just transitioning a little bit to margin. Good color on the SG&A, but I wanted to maybe dig in a little bit more on the gross margin side. If I remember right, you guys talked about sort of the fixed cost leverage from lower sales, increasing freight and that PPE mix is kind of the 3 headwinds to gross margin in the quarter.

So I was just wondering if you could maybe break out how much each of those contributed. I'm speaking, maybe ex Partsmaster, by the way.

Just if you could break out how much each of those contributed and what -- if those kind of carry into 1Q, how much of that kind of headwind carries into 1Q?.

Sure. So this is -- Carl, this is Ron. So on -- and we mentioned in our prepared remarks that the -- and I'll talk about kind of the base MRO business. I think that's what your question is, it's kind of excluding the Partsmaster combination.

We did see from a gross margin, and this is for the reclassification of service cost that the accounting rules now require. Our MRO margin, Lawson MRO margin for the quarter was 59.6%, and that compares to 58.8% versus Q3. So we did see a little bit of a -- of an increase for the quarter.

And as I look at the components of that for the quarter, we did pick up some margin points around some vendor rebates that came in, in the quarter. And then we actually got hurt a little bit by even some of the fixed costs over a lower sales base because we have 3 fewer selling days in Q4 versus Q3 of 2020.

Versus a year ago, this might be more of your question, in terms of Q4, a year ago, we were at 60.9% versus the 59.6% this quarter. And as I look at the components of that, about 1/2 of that decrease, about 50 bps is just the fact that we're spreading some fixed costs over lower sales.

About 25 to 30 bps are -- is related to the mix on PP&E and then the remainder is some other movement within inventory reserves and freight and those types of items that fall into the -- into that line. But what I would say is that we feel comfortable moving forward into 2021 in the same range. We've always talked about kind of between 59% and 60%.

We feel like 2021 will remain within that pretty narrow band. So we have the ability to certainly, as sales increase, that will help us on the leveraging of the fixed cost. And certainly, we'll keep a close eye on inflation in 2021. We're anticipating that, that might be a little bit higher than what we saw in 2020.

But overall, we've been able to manage that within a pretty narrow band..

And Carl, we use that kind of -- separating out price, cost of goods sold, revenue retention, all as proxies for the value proposition.

So the fact that we've been able to maintain this very narrow band every quarter for 8 years gives us great confidence, again, combined with revenue retention and a number of other metrics that our value proposition is sound, and customers are willing to pay us for the value proposition, for the value that we deliver, gives us even more confidence based on, again, demographics, labor demographics and other drivers that whether it's an expanding market or not, we can take and we are taking share in the marketplace.

So underneath all of this, gives us great confidence in our value proposition, our ability to generate cash, our leverage and all aspects of the business. Again, combined with an incredibly strong team, gives us real optimism for the future..

Great. Very helpful. I guess just -- maybe the last point I wanted to touch on here was you kind of mentioned M&A. You've built out a team that's conducting due diligence on the pipeline.

Can you just talk about like what -- is that team fully up and running? Or still sort of ramping? Or what stage are you at there?.

Well, you know what, this is an area that, again, I'm so proud of the team. These are folks within the company, all the functional areas, specializations, and they have just done an incredible job. Now they've got a lot of practice at it. We've done 7 acquisitions, we've acquired $112 million of revenue.

So the same team, this -- the Partsmaster is a little more complex, a little larger, but a very deliberate and systematic process of functional leaders and teams looking at all of their functions, including HR, finance, IT, products, pricing, sales, of course, and even in the beginning, middle and end of every acquisition, going through lessons learned, best practices, sort of plus delta, what to change for the next one, and these are large sort of groups of people with real candor in trying to improve the process for the next acquisition.

So we do have a pipeline. We are -- have been successful at small and large acquisitions. We're very open-minded about the range of possibilities out there, and we have active discussions going on.

Now a little hard to predict, like all acquisitions are when we pull one into the bottle, but we're feeling great about when to integrate, when not to integrate, how to integrate and to do it in a way -- my goal for us is when we make an acquisition for the company we've acquired, we want to use them as a reference for the next acquisition.

That everything we said was going to happen does happen, that we weren't casual in our discussions with people and sellers and acquired teammates. So a very deliberate and systematic process.

So just last week, we had a really great lessons-learned session with 25 people on -- in the middle of Partsmaster, of course, including Partsmaster people to dissect what's going well and what to improve for the next one. So this is becoming a real strength of our company..

That's helpful. And then maybe just to dig a little further there, and this will be the last thing for me.

Can you just talk about where you're focused at the -- on M&A at this stage? Are you expanding geographically, adding SKUs and product lines? Looking for synergies? Adding headcount? Like what's kind of the primary focus? Or any color around like what's some of the drivers for what might make you pull the lever on the deal?.

Right, right. Well, it's a lot like it has been. There are -- in such an incredibly huge. I mean, by some estimates, 20 billion-dollar fragmented market of people consuming in the maintenance and repair mode our 12 product categories. So we feel like -- and we've just added a number of new product categories or specialized products with Partsmaster.

But we feel from a product perspective, we've pretty well got the waterfront covered. It doesn't mean that there aren't opportunities for product expansion as we just realized with some really exciting and unique products that we are acquiring from Partsmaster.

And of course, the Partsmaster people are picking up all of the broader product categories that Lawson has to offer now to the Partsmaster customers. So there's all of that. We also feel that with 1,100 sales reps, we have the U.S. and Canada well covered. But having said that, it is a huge untapped and fragmented market.

So more likely than not, acquisitions will fall into 2 or maybe 3 categories. One is companies just like us filling in more and more spots acquiring sales reps, which have a very high retention rate because they bring a book of business, and they just keep going, albeit with a broader product line.

So acquiring companies that are a lot like us and go-to-market the same as us. Then there are very near adjacencies. Like Bolt Supply is slightly different, still 50% fasteners, so in many ways, very similar to us. But in the case of Bolt in Western Canada, a branch-based business. So there -- that is a separate kind of a platform for us.

And then there are other near adjacencies like Screw Products. For us, acquisition will fall into those 3 categories. There are overarching ideas as well. If we can acquire companies that broaden the solution to the customer base, customers have a broad set of needs for our kinds of products. Some of it goes into OEM, some of it is traditional MRO.

Some of it is service-intensive vendor-managed inventory MRO. So everything we do, we look at from the customers' perspective. How do we broaden the solution, make our customers' life easier. But today, we have foundational pieces in all areas. And so more likely, it's addition to the basic foundational pieces that we already have..

[Operator Instructions]. This concludes our question-and-answer session. I would like to turn the conference over to Mr. Michael DeCata for any closing remarks..

Thank you very much, and thank you for joining the call today. While 2020 has been a really challenging year, the Lawson team has demonstrated the ability to respond quickly and assertively to an unprecedented business environment starting in March.

We've adopted new technologies, and our sales team has demonstrated their commitment to over 85,000 customers who depend on us. We entered this pandemic on a good growth and earnings trajectory. We also entered with a very strong employee engagement and customer loyalty. We're exiting 2020 in a stronger position than we entered.

We're excited and optimistic about resuming the strong growth trajectory for many years to come. Along with organic growth, the Partsmaster acquisition and future acquisitions continue to accelerate growth and broaden our reach in an extremely fragmented market.

Our strong balance sheet gives us the resources we need to accelerate our plans, and culture gives us the ability to focus on what's important. Lastly, safety of our teammates, customers and suppliers is paramount. We have put in place protocols and are managing the business with that in mind.

Thank you to all of our teammates, including our Partsmaster team and our Bolt Supply team as our -- and our customers and suppliers. We're grateful for your dedication and loyalty to Lawson Products. Our underlying value proposition is strong. We have a great future ahead of us. We look forward to speaking with you on the next earnings call.

Have a wonderful day..

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect..