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 then be 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.

Good morning, and thank you for joining the call. This morning, I'll comment on the fourth quarter and the full year. I will also comment on the integration of Partsmaster and our plans for 2021. Ron Knutson, our CFO, will provide a more detailed review of our fourth quarter financial results, followed by your questions. Overall, given the current business environment, I'm very pleased with the fourth quarter results as well as our full year results. Not only were our earnings nearly the same as the fourth quarter of 2019 and significantly lower sales due to the pandemic, but the integration of Partsmaster is going very well. We have achieved sequential growth month-over-month since May, except for one month, which was attributed to a slowdown in some PPE items. This year has also gotten off to a good start with organic sales for the first seven weeks of the year above both December and the fourth quarter. Ron will provide more details on our financial results, but let me hit a couple of the highlights. First, our adjusted EBITDA was $9 million or 9.1% of sales for the quarter. Given that the fourth quarter is typically our weakest quarter, these are really good results and an improvement over the 8.3% achieved in the fourth quarter of last year. Second, our consolidated sales were up 10.8% over a year ago. This was driven by the Partsmaster acquisition in the third quarter of 2020. Excluding the acquisition, our organic sales were essentially flat sequentially from the third quarter as most product categories realized increases, which were offset by lower PPE sales. And third, our adjusted EBITDA, excluding the Partsmaster acquisition, was within $200,000 of pre-pandemic levels, demonstrating the continued improvement in our financial performance as the year unfolded. Considering the business environment, we are very pleased with these results, and they give us additional confidence going into 2021. Now I'd like to take a moment to discuss the recent Partsmaster acquisition. We've made great progress in every aspect of combining Lawson and Partsmaster. Approximately 200 sales reps have joined our company, and we are in the process of integrating the Lawson and Partsmaster products. During the third quarter call, I mentioned that Partsmaster had approximately 25,000 SKUs. We are rationalizing the product offering. However, we are likely to retain a significant percentage of our private label Partsmaster products. Several product categories, such as a new line of cryogenically treated cutting tools and fasteners and state-of-the-art parts-washing system will be significant additions to the Lawson existing product portfolio. During 2021, we intend to make all products available to all 1,100 combined sales reps. Customers supported by both teams will benefit from the broader product offering. During the fourth quarter, Partsmaster sales and earnings exceeded our initial projections, and we are increasingly confident of our growth plans for 2021. Thank you to the Partsmaster and the Lawson teams for your commitment, teamwork, and professionalism as we bring the two organizations together. While we have work ahead of us to continue the momentum that we've built at Partsmaster, we also remain committed to our acquisition strategy. We continue to have ongoing discussions with prospective acquisition candidates, and we're building a strong team across the company as it relates to due diligence and integration. Overall sales and line count through our Lawson distribution centers continues to improve from the low in April due to the pandemic. The combination of sequential growth along with lower structural costs gives us optimism for 2021. Our distribution center operations team has done a great job managing to achieve productivity improvements measured by lines picked per hour worked. Our Bolt Supply business continues to perform very well, achieving 10% EBITDA for the quarter and nearly returning to pre-pandemic sales levels. Strategic accounts achieved good progress during the fourth quarter with average daily sales up nearly 11% versus the third quarter, which was on top of a 21.7% increase versus the second quarter. These numbers include oil and gas, which represented significant headwinds throughout the year. On an equivalent day basis, our Kent Automotive business was essentially flat versus the third quarter. Growth in the manufacturing sector through our integrated supply partners continues to move in the positive direction throughout the year. Developing partnerships with integrated suppliers continues to be a focus of our strategic accounts team as well as adding new sites within existing strategic accounts. We added 285 new strategic account locations on the Lawson side of the business and 116 new Kent locations. We continue to add strategic account customers, including two integrated supply customers. During the quarter, Lawson and Kent Automotive secured 10 additional strategic account customers. Average daily sales in our overall government segment were down 6% versus the third quarter. However, December was up slightly versus December of 2019. You may remember that we divide our government business into two primary subsegments: 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 a good growth trajectory for our government segment. Our three-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 Partsmaster 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, email 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 costs 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, and 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 three fewer selling days than did Q3. Adjusted EBITDA as a 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 one-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.

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 the organic sales for the first 7 weeks of 2021, which are above December levels and, I believe, the fourth quarter. Should we consider that as slow, steady incremental improvement as we've been observing, or is there something more significant going on? I'm trying to understand the rate of improvement we're witnessing as we enter the new year.

Sure, Kevin. This is Ron Knutson. I'll address that, and Mike might want to add his thoughts as well. January was quite a strong month for us, showing a high single-digit increase compared to the end of December. February saw a slight decline, mainly due to storms and weather issues across the U.S., especially in the Southwest. However, when we look at the combined performance over the first six to seven weeks, we are experiencing a mid-single-digit increase from where we ended December. We've noticed a bit of a rebound this week as we catch up, although we did have to close one of our distribution centers for three to four days due to weather in the Southwest. Overall, it's been a solid 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 noticed some significant orders in the second and third quarters during a time when demand was high. In October, we faced some supply chain issues, as our suppliers were overwhelmed. However, we have since resolved these disruptions and feel we are back on a positive path. Before the pandemic, PPE accounted for about 4% of our total revenue. We now anticipate that PPE will comprise a slightly larger portion of our business going forward. Excluding the spikes in the second and third quarters, we have now stabilized with a 35% to 40% increase compared to our PPE revenue prior to the pandemic. More customers are starting to recognize us as a PPE supplier, although it is still not our main focus. Our core products, particularly fasteners, are what set us apart. Nonetheless, we have noticed a positive long-term trend in PPE. The specific disruption we encountered in October has been resolved.

I wonder how much of a headwind it was sequentially so we can get a sense of the underlying trends, excluding PPE. If you don't have that information, that's okay. I'm just trying to see if we can identify it.

Yes. So Kevin, in response to Mike's point, our average daily sales have increased by about 35% year-over-year compared to Q4 last year. When we examine our average daily sales in Q3 of this year, our PPE averaged around $87,000 per day, while in Q4 it was approximately $60,000 per day. This decrease affected us as we transitioned from Q3 to Q4, but as Mike mentioned, we experienced elevated demand during both Q2 and Q3. It seems that activities have stabilized in Q4 now, offering us some opportunities in the first quarter. However, as you noted, we will face some challenges in the second and third quarters of 2021.

How should we consider incremental adjusted EBITDA margins on a consolidated basis as we approach 2021? With the inclusion of Partsmaster, this assumes ongoing sales growth and enhancement in organic sales growth. Previously, you mentioned a target of 25% to 30% for the organic Lawson MRO business. I am curious about how we should view this from a consolidated perspective.

Yes. So Kevin, this is Ron. I'll take that one. First of all, we're very pleased with our overall results for 2020, achieving an adjusted EBITDA of $34.1 million, which is 9% of sales. Historically, we've aimed for a 10% mark, which we did reach in some quarters during 2019. Given the challenging environment, we feel really good about attaining 9.7% and getting back to pre-pandemic profitability levels. Looking into 2021, we remain confident in our target of 25% to 30% in terms of operating leverage and flow-through. We have previously discussed this figure and are still committed to reaching it. Historically, aside from 2020, we've slightly outperformed that guidance. As we move into 2021, we're confident in our ability to achieve that level of operating flow-through on a consolidated basis.

Yes, Kevin, I'd like to add some perspective to the numbers that Ron mentioned. Every company aims to be agile, and this year, during the pandemic, we were able to respond quickly and decisively. At the same time, we completed our largest acquisition to date. Managing both the challenges of the pandemic, which none of us had prior experience with, and executing a significant acquisition that has exceeded our expectations, has increased our confidence in our ability to navigate the future, regardless of the circumstances. We've been tested recently, and this has only strengthened our assurance in our capacity to succeed in any environment.

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 the fourth quarter provides a solid run rate for us. In particular, regarding general and administrative expenses, most activities related to furloughs are behind us. Selling expenses will certainly fluctuate as sales increase. However, if we analyze the historical selling expenses as a percentage of sales, we see a continuous decline as a percentage of sales. This indicates we are gaining leverage from some fixed costs in that category. On the general and administrative side, we are about $1.5 million lower than a year ago in the MRO segment compared to the fourth quarter of last year. I think that's a good benchmark. We previously discussed general and administrative expenses being around $20 million per quarter specifically for the MRO segment. A year ago, we were at about $18 million, and for this quarter, we reported approximately $16.5 million. We are continuously reducing that number and feel confident with the run rate we observed in the fourth quarter.

Kevin, we have been discussing Lean Six Sigma since 2013. Our G&A headcount has decreased year over year, with 2020 being an exception due to COVID. However, Lean Six Sigma has become intrinsic to our operations, and our team has excelled under challenging circumstances. This approach has allowed them to focus on essential tasks while eliminating unnecessary work. The principles of Lean Six Sigma, including process mapping, have equipped everyone in the company to rise to the occasion during tough times. We are optimistic about achieving structural cost savings, and we evaluate this as a percentage of sales, rather than just absolute figures. For us, the percentage of sales is the key indicator of our G&A efficiency.

Right. Yes, that makes sense. Can I just ask quickly about the goodwill impairment charge? Should we think of that as being related to lower sales in that part of the business due to the pandemic? And can we still feel optimistic about the long-term outlook for that segment of the business?

Yes, Kevin, that's exactly right. We are fully committed to the business and feel positive about it. Like many other sectors, it was impacted by the pandemic when customers reduced their hours of operation, machine utilization, and production, particularly in the case of Screw Products. We've noticed fluctuations based on our customers' production volumes, whether it involves machine time or units produced. That's the situation we faced at Screw Products. We've invested significant resources there, and our team is highly capable and dedicated, with a solid history with Lawson. So, in short, we feel good about the business, and the goodwill impairment is a direct result of the pandemic's effects.

Yes, Kevin, I would just add, 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.

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 Lawson has in place to stay competitive there.

Thank you, Carl, for your question. We are fully committed to optimizing our service-intensive vendor-managed inventory. This term can vary in execution, but for us, it means our sales representatives, managing our 85,000 customers, including those gained from Partsmaster, typically visit clients every ten days. While we are also committed to deploying vending machines for specific products, these machines work best for essential items and those that need tracking, like PPE and safety equipment. This allows us to monitor usage closely and comply with regulations, like OSHA reporting. Our approach is to utilize vending technology where it fits, while also ensuring that we don’t place items like low-cost washers in such machines, as they are not suited for expensive capital equipment. We assess the suitability of vending based on product type and location. Besides vending, we analyze replenishment cycles to determine how frequently our reps should visit customers, which can change based on seasonal trends or project-specific needs. This analytical focus, coupled with our Lean Six Sigma methodology, is part of our core operations. Our sales reps are frequently seen as part of the replenishment strategy, but their role extends to problem-solving during customer visits, where they often encounter various challenges that need addressing. They also share best practices across different industries, providing clients with insights specific to applications rather than just product-related issues. Thus, while replenishment is significant, our ability to solve problems and share application expertise forms a key part of our value proposition. We consider ourselves as much a service provider as a product company, achieving a balance where approximately 60% of our offerings are private label, tailored to meet the needs of maintenance mechanics. This combination of product optimization and service differentiation has helped us maintain consistent gross profit margins over the past eight years.

That's a lot of really good information, and I think it leads us to a good point. You mentioned that Partsmaster increased its workforce, but it seems like overall headcount decreased compared to the previous quarter. Was this simply due to overlapping territories with Partsmaster? Also, what are your thoughts on sales headcount moving forward into the first quarter and the rest of 2021?

At the moment, we are stabilizing our headcount following the actions we took during COVID. This is mainly what you're observing. We are committed to gradually increasing our sales representatives in underserved areas. As we gain share, both in terms of wallet share with existing customers and by adding new accounts, particularly in strategic locations, we will prioritize hiring additional sales reps in areas that have more business than one rep can handle. Given the vast and fragmented nature of the market, we are seeing early signs that our available market is growing. Many customers who typically purchase consumable items like nuts and bolts or electrical connectors tend to handle these purchases themselves. However, we are noticing a shift towards outsourcing due to productivity challenges faced by their maintenance mechanics, especially during COVID when many had to cut back on support roles. We believe this indicates a trend toward more outsourcing than before. With our sales teams and our operational excellence, we are confident we can capture a larger share of the market than our competitors, driven by these two factors. The overarching cause of our growth has been a widespread shortage of maintenance mechanics across all industries, which leads customers to avoid costly machine shutdowns for minor parts. Even as we emerge from COVID and see pent-up demand rising, customers remain focused on preventing shutdowns for low-cost parts. Thus, we will keep adding sales reps gradually, whether through new hires or acquisitions, and we will continue to increase our market share, as we are well-positioned for the service-intensive vendor-managed inventory that we focus on. Customers have communicated that they are relying on us even more now than they did before the pandemic.

Great. I want to shift the focus a bit to margin. You provided good insights on SG&A, but I'd like to explore the gross margin aspect a bit further. If I recall correctly, you mentioned the fixed cost leverage due to lower sales, increasing freight costs, and the PPE mix as the three main challenges to gross margin this quarter. Could you clarify how much each of these factors contributed? I'm referring to this without considering Partsmaster, by the way. Additionally, if these headwinds persist into the first quarter, what impact will they have?

Sure, this is Ron. In our prepared remarks, I discussed the base MRO business, excluding the Partsmaster combination. For the quarter, our Lawson MRO margin was 59.6%, up from 58.8% compared to Q3. We saw a slight increase in margin, driven by vendor rebates. However, we faced some challenges from fixed costs due to lower sales, especially with three fewer selling days in Q4 compared to Q3 of 2020. Year-over-year, our margin decreased from 60.9% to 59.6%. About half of this decline, approximately 50 basis points, was due to spreading fixed costs over lower sales, while 25 to 30 basis points came from the PPE mix, and the rest stemmed from changes in inventory reserves and freight costs. Looking ahead to 2021, we are confident that we will maintain margins within the range of 59% to 60%. As sales rise, it will help leverage fixed costs, and we'll monitor inflation, which we expect to be higher than in 2020. Overall, we've managed to keep margins within a narrow band.

We use price, cost of goods sold, and revenue retention as indicators of our value proposition. The fact that we've been able to maintain a consistent range every quarter for eight years gives us great confidence. When combined with revenue retention and other metrics, it shows that our value proposition is solid, and customers see value in what we deliver. This further boosts our confidence in our ability to gain market share, regardless of market expansion. All of this reinforces our belief in our value proposition, cash generation, leverage, and overall business performance. Alongside our strong team, we feel optimistic about the future.

Great. Very helpful. I guess the last point I wanted to touch on was your mention of M&A. You've built a team that's conducting due diligence on the pipeline. Can you talk about whether that team is fully operational, still ramping up, or what stage you are at?

I am really proud of the team in this area. They consist of individuals from various functional areas within the company, and they have done an outstanding job. We have completed seven acquisitions, resulting in $112 million of revenue. The same team is currently working on the Partsmaster acquisition, which is a bit more complex and larger, but they are following a careful and systematic approach involving leaders and teams from all functions, including HR, finance, IT, products, pricing, and sales. Throughout each stage of our acquisitions, we analyze lessons learned and best practices to improve for the next one. Our group discussions are candid and focused on refining the process. We have a pipeline of potential acquisitions and have been effective in both small and large deals, keeping an open mind about various possibilities. While predicting the timing of acquisitions can be challenging, we are confident about our integration strategies. Our goal is to ensure that the companies we acquire can serve as references for future acquisitions, affirming that we deliver on our commitments without being casual in our discussions. Last week, we conducted a productive lessons-learned session with 25 people, including members of Partsmaster, to evaluate what is working well and what we can enhance for the future. This approach is becoming a significant strength for our company.

That's helpful. Can you talk about your current focus on M&A? Are you looking to expand geographically, add new SKUs and product lines, seek synergies, or increase headcount? What are the primary objectives, or what factors might influence your decision to pursue a deal?

It's largely consistent with what we've seen before. We're operating in a vast, fragmented market of around $20 billion, centered on maintenance and repair across our 12 product categories. We've introduced several new product categories and specialized offerings through Partsmaster, which means we have a comprehensive range of products. Although we've identified exciting opportunities for further product expansion with unique acquisitions from Partsmaster, we also recognize that they are integrating Lawson's broader product offerings for their customers. With 1,100 sales representatives covering the U.S. and Canada, we feel well positioned, yet the market remains significantly untapped. Our potential acquisitions will likely fall into two or three categories: first, companies similar to ours that can help us fill gaps and add sales representatives, who tend to have high retention rates due to their existing customer relationships; second, near-adjacencies like Bolt Supply, which, while different in structure, still share a similar focus on fasteners; and third, other near adjacencies like Screw Products. We aim to acquire companies that enhance our solutions for customers, as their needs vary widely from original equipment manufacturing to traditional maintenance repair operations and vendor-managed inventory. Our approach is customer-centric, focusing on how we can broaden our solutions to simplify their experiences. Overall, we currently have a solid foundation in all relevant areas, and our goal is to build upon those existing strengths.

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 for joining the call today. Despite 2020 being a challenging year, the Lawson team has shown resilience and adaptability in response to an unprecedented business environment since March. We have embraced new technologies, and our sales team has shown their dedication to our over 85,000 customers. We entered this pandemic with strong growth and earnings momentum, along with robust employee engagement and customer loyalty. We are concluding 2020 in a better position than we started. We are excited and optimistic about continuing our growth trajectory in the years ahead. In addition to organic growth, the Partsmaster acquisition and future deals are set to amplify our growth and expand our market reach. Our solid balance sheet provides the resources necessary to expedite our plans, while our culture allows us to concentrate on what truly matters. The safety of our teammates, customers, and suppliers is our top priority. We have implemented protocols and are managing the business with this focus. We appreciate all of our teammates, including the Partsmaster and Bolt Supply teams, as well as our customers and suppliers. Your dedication and loyalty to Lawson Products are invaluable. Our overall value proposition remains strong, and we have an optimistic future ahead. We look forward to our next earnings call. Have a wonderful day.

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