Distribution Solutions Group Announces 2024 Second Quarter Results

About this update from Distribution Solutions Group, Inc.

Quarterly Revenue Up 16.3%, Sequential Margin Growth and Strong Cash Flow FORT WORTH, Texas --(BUSINESS WIRE)-- Distribution Solutions Group, Inc. (NASDAQ:DSGR) ("DSG" or the "Company") , a premier specialty distribution company, today announced consolidated results for the second quarter ended June 30, 2024 . This press release is supplemented by an earnings presentation at https://investor.distributionsolutionsgroup.com/news/events . The following represents a summary of certain operating results (unaudited). See the reconciliations of GAAP to non-GAAP measures in Tables 2, 3 and 4. Three Months Ended June 30 , March 31 , (Dollars in thousands) 2024 2023 % Change 2024 % Change Revenue $ 439,536 $ 377,984 16.3 % $ 416,086 5.6 % Operating income (loss) $ 14,158 $ 13,776 2.8 % $ 2,783 N/A Non-GAAP adjusted operating income $ 38,852 $ 34,922 11.3 % $ 29,761 30.5 % Non-GAAP adjusted EBITDA $ 45,181 $ 40,100 12.7 % $ 36,067 25.3 % Operating income (loss) as a percent of revenue 3.2 % 3.6 % -38bps 0.7 % 255bps Adjusted EBITDA as a percent of revenue 10.3 % 10.6 % -30bps 8.7 % 160bps Bryan King , CEO and Chairman of the Board, said, "Our strategic initiatives are on track, and I am pleased with DSG's quarterly results, marked by 16.3% revenue growth compared to last year and double-digit EBITDA margins of 10.3%. In addition, revenue and EBITDA in the second quarter improved sequentially due to acquisitions and improving performance in our existing businesses. As expected, organic revenues were down in the quarter from a year ago, but improved sequentially by nearly 4% from the first quarter. Our teams executed well this quarter and sustainably moved us in the right direction on all critical initiatives resulting in margin expansion within all three of our verticals. The Lawson MRO vertical had strong performance while continuing to make investments in its sales organization, the Gexpro Services OEM vertical realized continued margin expansion as expected and the TestEquity industrial technology vertical saw margins improve on some end market recovery and the continued integration of Hisco. For the quarter we generated $45.2 million of adjusted EBITDA, sequentially a 25% improvement over the previous quarter. "We are very excited about our recent announcement to acquire Source Atlantic , which is expected to close in the third quarter. This CAD $250 million business will meaningfully drive DSG's growth by expanding our scale, customer base, and geographic reach and by enhancing our enterprise-wide product offerings. Combining Source Atlantic’s eastern Canadian-focused operations with The Bolt Supply House’s concentration in western Canada positions us as leading MRO player across Canada . In addition to Source Atlantic , our Emergent Safety Supply and S&S Automotive acquisitions completed earlier this year further strengthens DSG’s North American value-added capabilities. "We remain focused on actively working our pipeline of acquisition targets, incremental margin enhancement initiatives, and cost savings. These efforts, along with some end market recovery, drove DSG’s strong second quarter results. Through our asset-light business model our focus on growing operating cash flows and accelerating returns on invested capital, positions us well to maximize long-term shareholder value," concluded Mr. King . 2024 Second Quarter Summary (1) Revenue increased $61.6 million , or 16.3%, to $439.5 million including $81.4 million of incremental revenue from 2023 and 2024 acquisitions. While organic sales declined 5.7% on comparable days, organic sales grew 3.8% over the first quarter of 2024. The sequential sales increase was driven by improving sales in many of DSG's end markets, including Test & Measurement, Renewables, Technology and project-related business. Operating income was $14.2 million , net of $12.2 million of non-cash acquired intangible amortization and $12.5 million of non-recurring severance and acquisition-related retention costs, stock-based compensation, acquisition-related costs and other non-recurring items. This compares to operating income of $13.8 million in the prior year quarter. Adjusted operating income, excluding these non-cash and non-recurring items, was $38.9 million in the current quarter compared to $34.9 million in the year-ago quarter and $29.8 million in the first quarter of 2024. Diluted income per share was $0.04 for the quarter compared to diluted income per share of $0.07 in the year-ago quarter based on higher depreciation and amortization expenses and non-recurring severance and acquisition-related retention costs in the current quarter. Non-GAAP adjusted diluted earnings per share was $0.40 compared to $0.42 for the same period a year ago and $0.25 for the first quarter of 2024. Adjusted EBITDA was $45.2 million , a 10.3% margin compared to $40.1 million , a 10.6% margin in the prior year quarter. Sequentially, adjusted EBITDA grew $9.1 million or 25.3% from the first quarter of 2024; and increased as a percent of sales by 160bps. The Company ended the second quarter with total liquidity of $209.9 million , consisting of $56.9 million of cash (restricted and unrestricted) and $153.0 million of availability under its credit facility with net debt leverage of 3.2x. Cash generated from operations was $21.4 million for the quarter. Uses of cash in the second quarter included net capital expenditures of $4.0 million and share repurchases of $1.7 million . Lawson completed the acquisition of S&S Automotive in May 2024 . (1) See reconciliation of GAAP to non-GAAP measures in tables 2, 3 and 4. Share and per share data for all periods presented reflect two-for-one stock split. Conference Call Distribution Solutions Group, Inc. will conduct a conference call with investors to discuss 2024 second quarter results at 9:00 a.m. Eastern Time on August 1, 2024 . The conference call is available by direct dial at 1-888-506-0062 in the U.S. or 1-973-528-0011 from outside of the U.S. The participant access code is 258432. A replay of the conference call will be available by telephone approximately two hours after completion of the call through August 15, 2024 . Callers can access the replay by dialing 1-877-481-4010 in the U.S. or 1-919-882-2331 outside the U.S. The passcode for the replay is 50812. A streaming audio of the call and an archived replay will also be available on the investor relations page of Distribution Solutions Group's website. Presentations may be supplemented by a series of slides appearing on the company's investor relations home page at https://investor.distributionsolutionsgroup.com/news/events . About Distribution Solutions Group, Inc. Distribution Solutions Group ("DSG") is a premier multi-platform specialty distribution company providing high touch, value-added distribution solutions to the maintenance, repair & operations (MRO), the original equipment manufacturer (OEM) and the industrial technologies markets. DSG was formed through the strategic combination of Lawson Products , a leader in MRO distribution of C-parts, Gexpro Services, a leading global supply chain services provider to manufacturing customers, and TestEquity , a leader in electronic test & measurement solutions. Through its collective businesses, DSG is dedicated to helping customers lower their total cost of operation by increasing productivity and efficiency with the right products, expert technical support and fast, reliable delivery to be a one-stop solution provider. DSG serves approximately 180,000 customers in several diverse end markets supported by approximately 3,700 dedicated employees and strong vendor partnerships. DSG ships from strategically located distribution and service centers to customers in North America , Europe , Asia , South America and the Middle East . For more information on Distribution Solutions Group please visit www.distributionsolutionsgroup.com . This release contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties. Terms such as "aim," "anticipate," "believe," "contemplates," "continues," "could," "ensure," "estimate," "expect," "forecasts," "if," "intend," "likely," "may," "might," "objective," "outlook," "plan," "positioned," "potential," "predict," "probable," "project," "shall," "should," "strategy," "will," "would," and variations of them and other words and terms of similar meaning and expression (and the negatives of such words and terms) are intended to identify forward-looking statements. Forward-looking statements can also be identified by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks, uncertainties and assumptions, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. DSG can give no assurance that any goal or plan set forth in forward-looking statements can be achieved and DSG cautions readers not to place undue reliance on such statements, which speak only as of the date made. DSG undertakes no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events or otherwise. Actual results may differ materially from those projected as a result of certain risks and uncertainties. Certain risks associated with DSG's business are also discussed from time to time in the reports DSG files with the SEC , including DSG's Annual Report on Form 10-K, DSG's Quarterly Reports on Form 10-Q and DSG's Current Reports on Form 8-K, which should be reviewed carefully. In addition, the following factors, among others, could cause actual outcomes and results to differ materially from those discussed in the forward-looking statements: (i) unanticipated difficulties, expenditures or any problems arising in connection with or after the combination of the businesses of Lawson Products , TestEquity and Gexpro Services (the "merger"), which may result in DSG not operating as effectively and efficiently as expected; (ii) the risk that stockholder litigation in connection with the merger or any other acquisition or business combination completed by DSG or any of its subsidiaries results in significant costs of defense, indemnification and liability; and (iii) the risks that DSG may encounter difficulties integrating the business of DSG with the business of other companies that DSG has acquired or may acquire or has otherwise combined with or may otherwise combine with, that DSG may not achieve the anticipated synergies contemplated with respect to any such business or transactions and that certain assumptions with respect to such business or transactions could prove to be inaccurate. Distribution Solutions Group, Inc. Condensed Consolidated Balance Sheets (Dollars in thousands, except share data) (Unaudited) June 30 , 2024 December 31 , 2023 ASSETS Current assets: Cash and cash equivalents $ 46,786 $ 83,931 Restricted cash 10,125 15,695 Accounts receivable, less allowances 235,802 213,448 Inventories 320,748 315,984 Prepaid expenses and other current assets 43,306 28,272 Assets held for sale 3,589 — Total current assets 660,356 657,330 Property, plant and equipment, net 108,709 113,811 Rental equipment, net 23,062 24,575 Goodwill 428,308 399,925 Deferred tax asset, net 84 95 Intangible assets, net 276,896 253,834 Cash value of life insurance 19,312 18,493 Right of use operating lease assets 84,878 76,340 Other assets 5,947 5,928 Total assets $ 1,607,552 $ 1,550,331 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 108,184 $ 98,674 Current portion of long-term debt 31,367 32,551 Current portion of lease liabilities 16,877 13,549 Accrued expenses and other current liabilities 108,116 97,241 Total current liabilities 264,544 242,015 Long-term debt, less current portion, net 573,654 535,881 Lease liabilities 73,480 67,065 Deferred tax liability, net 16,774 18,326 Other liabilities 25,796 25,443 Total liabilities 954,248 888,730 Stockholders' equity: Preferred stock, $1 par value: Authorized - 500,000 shares, issued and outstanding — None — — Common stock, $1 par value: Authorized - 70,000,000 shares Issued - 47,636,856 and 47,535,618 shares, respectively Outstanding - 46,787,160 and 46,758,359 shares, respectively 46,786 46,758 Capital in excess of par value 674,074 671,154 Retained deficit (38,035 ) (34,707 ) Treasury stock – 849,696 and 777,259 shares, respectively (18,655 ) (16,434 ) Accumulated other comprehensive income (loss) (10,866 ) (5,170 ) Total stockholders' equity 653,304 661,601 Total liabilities and stockholders' equity $ 1,607,552 $ 1,550,331 Distribution Solutions Group, Inc. Condensed Consolidated Statements of Operations (Dollars in thousands, except per share data) (Unaudited) Three Months Ended Six Months Ended June 30 , June 30 , 2024 2023 2024 2023 Revenue $ 439,536 $ 377,984 $ 855,622 $ 726,254 Cost of goods sold 288,009 241,961 560,686 457,360 Gross profit 151,527 136,023 294,936 268,894 Selling, general and administrative expenses 137,369 122,247 277,995 238,397 Operating income (loss) 14,158 13,776 16,941 30,497 Interest expense (12,793 ) (9,492 ) (24,620 ) (17,162 ) Change in fair value of earnout liabilities (8 ) 36 (3 ) (21 ) Other income (expense), net 359 (761 ) 97 (1,736 ) Income (loss) before income taxes 1,716 3,559 (7,585 ) 11,578 Income tax expense (benefit) (180 ) 535 (4,257 ) 2,647 Net income (loss) $ 1,896 $ 3,024 $ (3,328 ) $ 8,931 Basic income (loss) per share of common stock $ 0.04 $ 0.07 $ (0.07 ) $ 0.21 Diluted income (loss) per share of common stock $ 0.04 $ 0.07 $ (0.07 ) $ 0.21 Basic weighted average shares outstanding 46,818,932 43,621,236 46,798,055 42,935,198 Diluted weighted average shares outstanding 47,623,712 43,995,014 46,798,055 43,305,218 Distribution Solutions Group, Inc. Condensed Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited) Six Months Ended June 30 , 2024 2023 Operating activities Net income (loss) $ (3,328 ) $ 8,931 Adjustments to reconcile to net cash used in operating activities: Depreciation and amortization 35,587 30,306 Amortization of debt issuance costs 1,320 1,002 Stock-based compensation 1,891 4,392 Deferred income taxes (1,541 ) 86 Change in fair value of earnout liabilities 3 21 (Gain) loss on sale of rental equipment (900 ) (1,377 ) (Gain) loss on sale of property, plant and equipment (5 ) 215 Charge for step-up of acquired inventory 634 716 Net realizable value adjustment and write-offs for obsolete and excess inventory 3,110 3,538 Bad debt expense 106 933 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (18,331 ) (4,799 ) Inventories (1,636 ) (2,576 ) Prepaid expenses and other current assets (15,345 ) (6,405 ) Accounts payable 9,771 (8,936 ) Accrued expenses and other current liabilities 15,636 (624 ) Other changes in operating assets and liabilities 1,037 2,041 Net cash provided by (used in) operating activities 28,009 27,464 Investing activities Purchases of property, plant and equipment (5,829 ) (7,796 ) Business acquisitions, net of cash acquired (95,437 ) (252,007 ) Purchases of rental equipment (3,214 ) (5,990 ) Proceeds from sale of rental equipment 2,110 2,969 Net cash provided by (used in) investing activities (102,370 ) (262,824 ) Financing activities Proceeds from revolving lines of credit 84,139 161,684 Payments on revolving lines of credit (40,285 ) (274,134 ) Proceeds from term loans — 305,000 Payments on term loans (8,188 ) (11,250 ) Deferred financing costs — (3,419 ) Proceeds from rights offering, net of offering costs of $1,531 — 98,469 Repurchase of common stock (1,683 ) — Shares repurchased held in treasury (538 ) (171 ) Payment of financing lease principal (237 ) (249 ) Payment of earnout — (1,000 ) Net cash provided by (used in) financing activities 33,208 274,930 Effect of exchange rate changes on cash and cash equivalents (1,562 ) 541 Increase (decrease) in cash, cash equivalents and restricted cash (42,715 ) 40,111 Cash, cash equivalents and restricted cash at beginning of period 99,626 24,740 Cash, cash equivalents and restricted cash at end of period $ 56,911 $ 64,851 Cash and cash equivalents $ 46,786 $ 44,244 Restricted cash 10,125 20,607 Total cash, cash equivalents and restricted cash $ 56,911 $ 64,851 Distribution Solutions Group, Inc. Table 1 - Selected Segment Financial Data (Dollars in thousands) (Unaudited) Three Months Ended June 30 , 2024 2023 Revenue: Lawson Products $ 121,118 $ 119,147 Gexpro Services 107,134 108,274 TestEquity 197,481 136,067 Other 14,471 14,496 Intersegment revenue elimination (668 ) — Total $ 439,536 $ 377,984 Operating income (loss): Lawson Products $ 6,129 $ 8,470 Gexpro Services 8,091 8,778 TestEquity 703 (3,182 ) Other (765 ) (290 ) Total $ 14,158 $ 13,776 DISTRIBUTION SOLUTIONS GROUP, INC. SEC REGULATION G GAAP RECONCILIATIONS The Company reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). However, the Company's management believes that certain non-GAAP financial measures may provide users of this financial information with additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflections of underlying trends of the business because they provide a comparison of historical information that excludes certain non-operational or non-cash items that impact the overall comparability. See Tables below for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three months ended June 30, 2024 and 2023 and the three months ended March 31, 2024 . Non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. Distribution Solutions Group, Inc. Table 2 - Reconciliation of GAAP Net Income (Loss) and GAAP Operating Income (Loss) to Non-GAAP Adjusted EBITDA (Dollars in thousands) (Unaudited) Three Months Ended June 30, 2024 June 30, 2023 March 31, 2024 Net income (loss) $ 1,896 $ 3,024 $ (5,224 ) Income tax expense (benefit) (180 ) 535 (4,077 ) Other income (expense), net (359 ) 761 262 Change in fair value of earnout liabilities 8 (36 ) (5 ) Interest expense 12,793 9,492 11,827 Operating income (loss) 14,158 13,776 2,783 Depreciation and amortization 18,535 14,584 17,052 Stock-based compensation(1) (307 ) 2,188 2,198 Severance and acquisition related retention expenses(2) 8,313 2,437 10,716 Acquisition related costs(3) 3,598 5,058 1,954 Inventory step-up(4) 634 716 — Other non-recurring(5) 250 1,341 1,364 Non-GAAP adjusted EBITDA $ 45,181 $ 40,100 $ 36,067 Operating income (loss) as a percent of revenue 3.2 % 3.6 % 0.7 % Adjusted EBITDA as a percent of revenue 10.3 % 10.6 % 8.7 % (1) Expense (benefit) primarily for stock-based compensation, of which a portion varies with the Company's stock price (2) Includes severance expense for actions taken in 2024 and 2023 not related to a formal restructuring plan and acquisition related retention expenses for the Hisco and S&S Automotive acquisitions (3) Transaction and integration costs related to acquisitions (4) Inventory fair value step-up adjustment for acquisition accounting related to acquisitions completed by Lawson Products and TestEquity (5) Other non-recurring costs consist of certain non-recurring strategic projects and other non-recurring items Distribution Solutions Group, Inc. Table 3 - Reconciliation of GAAP Net Income (Loss) and GAAP Diluted EPS to Non-GAAP Adjusted Net Income and Non-GAAP Adjusted Diluted EPS (Dollars in thousands, except per share data) (Unaudited) Three Months Ended June 30, 2024 June 30, 2023 (3)(4) March 31, 2024 Amount Diluted EPS(2) Amount Diluted EPS(2) Amount Diluted EPS(2) Net income (loss) $ 1,896 $ 0.04 $ 3,024 $ 0.07 $ (5,224 ) $ (0.11 ) Pretax adjustments: Stock-based compensation (307 ) (0.01 ) 2,188 0.05 2,198 0.05 Acquisition related costs 3,598 0.08 5,058 0.11 1,954 0.04 Amortization of intangible assets 12,206 0.26 9,406 0.21 10,746 0.23 Severance and acquisition related retention expenses 8,313 0.17 2,437 0.06 10,716 0.23 Change in fair value of earnout liabilities 8 — (36 ) — (5 ) — Inventory step-up 634 0.01 716 0.02 — — Other non-recurring 250 0.01 1,341 0.03 1,364 0.03 Total pretax adjustments 24,702 0.52 21,110 0.48 26,973 0.58 Tax effect on adjustments(1)(3) (7,238 ) (0.15 ) (5,552 ) (0.13 ) (7,334 ) (0.16 ) Deferred tax asset valuation allowance(5) (410 ) (0.01 ) — — (2,696 ) (0.06 ) Non-GAAP adjusted net income $ 18,950 $ 0.40 $ 18,582 $ 0.42 $ 11,719 $ 0.25 (1) The estimated tax effect on the adjustments is determined by applying the jurisdictional rate of the originating territory of the non-GAAP adjustments (2) Pretax adjustments to diluted EPS calculated on 47.624 million, 43.995 million and 46.777 million diluted shares for the second quarter of 2024 and 2023, and the first quarter of 2024, respectively (3) In the fourth quarter of 2023, the Company changed the treatment of amortization of intangible assets and the deferred tax asset valuation allowance to be included in the calculation of Non-GAAP adjusted net income and Non-GAAP adjusted diluted EPS. The calculation of the tax effect on adjustments was revised to consider the jurisdictional rate of the originating territory of the non-GAAP adjustments. Prior periods have been adjusted to conform to current period presentation. (4) Share and per share data for all periods presented reflect two-for-one stock split (5) Represents expense related to the deferred tax asset valuation allowance from interest expense limitations under Section 163(j) Distribution Solutions Group, Inc. Table 4 - Reconciliation of GAAP Operating Income (Loss) to Non-GAAP Adjusted Operating Income (Dollars in thousands) (Unaudited) Three Months Ended June 30 , March 31 , 2024 2023 2024 Operating income (loss) $ 14,158 $ 13,776 $ 2,783 Gross profit adjustments: Inventory step-up(1) 634 716 — Total gross profit adjustments 634 716 — Selling, general and administrative expenses adjustments: Acquisition related costs(2) 3,598 5,058 1,954 Amortization of intangible assets(3) 12,206 9,406 10,746 Stock-based compensation(4) (307 ) 2,188 2,198 Severance and acquisition related retention expenses(5) 8,313 2,437 10,716 Other non-recurring(6) 250 1,341 1,364 Total selling, general and administrative adjustments 24,060 20,430 26,978 Total adjustments 24,694 21,146 26,978 Non-GAAP adjusted operating income $ 38,852 $ 34,922 $ 29,761 (1) Inventory fair value step-up adjustment for acquisition accounting related to acquisitions completed by Lawson Products and TestEquity (2) Transaction and integration costs related to acquisitions (3) In the fourth quarter of 2023, the Company changed the treatment of amortization of intangible assets to be included in the calculation of Non-GAAP adjusted operating income. Prior periods have been adjusted to conform to current period presentation. (4) Expense (benefit) primarily for stock-based compensation, of which a portion varies with the Company's stock price (5) Includes severance expense for actions taken in 2024 and 2023 not related to a formal restructuring plan and acquisition related retention expenses for the Hisco and S&S Automotive acquisitions (6) Other non-recurring costs consist of certain non-recurring strategic projects and other non-recurring items View source version on businesswire.com : https://www.businesswire.com/news/home/20240731009470/en/ Company: Distribution Solutions Group, Inc. Ronald J. Knutson Executive Vice President, Chief Financial Officer and Treasurer 1-888-611-9888 Investor Relations: Three Part Advisors, LLC Steven Hooser / Sandy Martin 214-872-2710 / 214-616-2207 Source: Distribution Solutions Group, Inc.

View stock analysis, news, and events for Distribution Solutions Group, Inc.