Distribution Solutions Group Announces 2024 Third Quarter Results

About this update from Distribution Solutions Group, Inc.

Sales and Profitability Growth with Value-Creating Strategic Initiatives 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 third quarter ended September 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 September 30 , June 30 , (Dollars in thousands) 2024 2023 % Change 2024 % Change Revenue $ 468,019 $ 438,909 6.6 % $ 439,536 6.5 % Operating income $ 18,947 $ 12,783 48.2 % $ 14,158 33.8 % Non-GAAP adjusted operating income $ 42,458 $ 38,001 11.7 % $ 38,852 9.3 % Non-GAAP adjusted EBITDA $ 49,110 $ 43,703 12.4 % $ 45,181 8.7 % Operating income (loss) as a percent of revenue 4.0 % 2.9 % 110bps 3.2 % 80bps Adjusted EBITDA as a percent of revenue 10.5 % 10.0 % 50bps 10.3 % 20bps Bryan King , CEO and Chairman of the Board, said, "We are pleased with DSG’s third quarter results, which delivered sales and profitability growth over the prior-year quarter. Total sales, including acquisitions, grew 6.6% to $468 million despite organic revenue compression of 2.1% compared to the year-ago quarter. Adjusted EBITDA for the quarter grew by 12.4% to $49.1 million , or 10.5% as a percentage of sales. Acquisitions in 2024 drove the quarterly sales increase, and we reported average daily sales for Lawson up 1.4%, for Gexpro Services up 12.5%, and for TestEquity down 7.4% for the period. Sequentially, compared to the second quarter, total sales grew by 6.5%, organic sales were up slightly at 0.2%, and the Adjusted EBITDA margin of 10.5% expanded by 20 basis points. "DSG’s Source Atlantic acquisition, under our Lawson Products operating company, closed this quarter, and combined with Lawson’s The Bolt Supply House , we added a reportable segment focused on the Canadian MRO market. This CAD $250 million revenue Canadian business will drive DSG's growth by expanding our scale, customer base, and geographic reach while enhancing our enterprise-wide product offerings. We also announced the acquisition of ConRes Test Equipment under the TestEquity operating company from Continental Resources as a carve-out. This leading test and measurement equipment provider with $12 million in annual revenues further strengthens our customer intimacy with their leasing and calibration service offerings. Finally, as part of Gexpro Services’ growth platform, we announced the strategic acquisition of Tech-Component Resources (TCR), a distributor of fasteners, mechanical components, and other industrial products in Southeast Asia to support existing large OEM customers’ expansion plans while providing us with a strategic foothold in this growing region. "We remain focused on deploying our capital for the highest returns in acquisitions and organic investments. Our asset-light business model drives strong cash flow conversion, and our focus on capital returns positions us well to maximize long-term value for our shareholders," concluded Mr. King . 2024 Third Quarter Summary (1) Revenue increased $29.1 million , or 6.6%, to $468.0 million including $38.1 million of incremental revenue from three acquisitions closed in 2024. While organic sales declined 2.1% over a year ago, organic sales grew 0.2% sequentially over the second quarter of 2024. Operating income was $18.9 million , net of $12.0 million of non-cash acquired intangible amortization and $11.5 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 $12.8 million in the prior year quarter, net of similar items as 2024. Adjusted operating income, excluding these non-cash and non-recurring items, was $42.5 million in the current quarter compared to $38.0 million in the year-ago quarter and $38.9 million in the second quarter of 2024. Diluted income per share was $0.46 for the quarter inclusive of a $0.40 tax benefit based on the anticipated effective tax rate for the full year compared to diluted loss per share of $0.03 in the year-ago quarter. Non-GAAP adjusted diluted earnings per share was $0.37 compared to $0.35 for the same period a year ago and $0.40 for the second quarter of 2024. Adjusted EBITDA was $49.1 million , reflecting a 10.5% margin, compared to $43.7 million , at a 10.0% margin in the prior year quarter. Sequentially, adjusted EBITDA grew by $3.9 million from the second quarter of 2024 and increased as a percentage of sales by 20bps. Expanded the credit facility by $255 million with an additional term loan of $200 million and an increase in the revolver of $55 million from $200 million to $255 million . The Company ended the third quarter with total liquidity of $328.0 million , consisting of $75.8 million of cash (restricted and unrestricted) and $252.2 million of availability under its credit facility with net debt leverage of 3.7x. Cash generated from operations was $17.3 million for the quarter. Uses of cash in the third quarter included net capital expenditures of $4.1 million and share repurchases of $0.9 million . Completed the acquisition of Source Atlantic in August 2024 . Signed agreements to purchase ConRes Test Equipment, a leading test and measurement equipment provider and Tech-Component Resources Pte Ltd ("TCR"), a distributor of fasteners, mechanical components, and other industrial products in Southeast Asia serving OEM customers and related applications. TCR closed in October 2024 . ConRes Test Equipment is expected to close in the fourth quarter of 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 third quarter results at 9:00 a.m. Eastern Time on October 31, 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 962760. A replay of the conference call will be available by telephone approximately two hours after completion of the call through November 14, 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 51271. 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 190,000 customers in several diverse end markets supported by approximately 4,300 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, Section 21E of the Securities Exchange Act of 1934, as amended, and the “safe-harbor” provisions under the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. The terms "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. DSG undertakes no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events or otherwise. Each forward-looking statement speaks only as of the date on which such statement is made, and DSG undertakes no obligation to update any such statement to reflect events or circumstances arising after such date. Actual results may differ materially from those projected as a result of certain risks and uncertainties. Factors that could cause or contribute to such differences or that might otherwise impact DSG’s business, financial condition and results of operations include the risks that DSG may encounter difficulties integrating the business of DSG with the business of other companies that DSG has combined with or may otherwise combine with and that certain assumptions with respect to such business or transactions could prove to be inaccurate. Certain risks associated with DSG’s business are also discussed from time to time in the reports DSG files with the Securities and Exchange Commission , including the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K or other reports the Company may file from time to time with the Securities and Exchange Commission , which should be reviewed carefully. -TABLES FOLLOW- Distribution Solutions Group, Inc. Condensed Consolidated Balance Sheets (Dollars in thousands, except share data) (Unaudited) September 30 , 2024 December 31 , 2023 ASSETS Current assets: Cash and cash equivalents $ 61,344 $ 83,931 Restricted cash 14,423 15,694 Accounts receivable, less allowances 281,142 213,449 Inventories 347,018 315,984 Prepaid expenses and other current assets 63,427 28,272 Assets held for sale 3,358 — Total current assets 770,712 657,330 Property, plant and equipment, net 128,927 113,811 Rental equipment, net 22,601 24,575 Goodwill 467,320 399,925 Deferred tax asset, net — 95 Intangible assets, net 279,772 253,834 Cash value of life insurance 19,905 18,493 Right of use operating lease assets 89,806 76,340 Other assets 5,899 5,928 Total assets $ 1,784,942 $ 1,550,331 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 130,659 $ 98,674 Current portion of long-term debt 42,078 32,551 Current portion of lease liabilities 19,287 13,549 Accrued expenses and other current liabilities 82,083 97,241 Total current liabilities 274,107 242,015 Long-term debt, less current portion, net 704,135 535,881 Lease liabilities 75,898 67,065 Deferred tax liability, net 26,203 18,326 Other liabilities 23,837 25,443 Total liabilities 1,104,180 888,730 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 - 47,717,376 and 47,535,618 shares, respectively Outstanding - 46,837,880 and 46,758,359 shares, respectively 46,837 46,758 Capital in excess of par value 676,203 671,154 Retained deficit (16,114 ) (34,707 ) Treasury stock – 879,496 and 777,259 shares, respectively (19,552 ) (16,434 ) Accumulated other comprehensive income (loss) (6,612 ) (5,170 ) Total stockholders' equity 680,762 661,601 Total liabilities and stockholders' equity $ 1,784,942 $ 1,550,331 Distribution Solutions Group, Inc. Condensed Consolidated Statements of Operations (Dollars in thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended September 30 , September 30 , 2024 2023 2024 2023 Revenue $ 468,019 $ 438,909 $ 1,323,641 $ 1,165,163 Cost of goods sold 309,171 293,612 869,857 750,972 Gross profit 158,848 145,297 453,784 414,191 Selling, general and administrative expenses 139,901 132,514 417,896 370,911 Operating income (loss) 18,947 12,783 35,888 43,280 Interest expense (15,160 ) (12,895 ) (39,780 ) (30,057 ) Change in fair value of earnout liabilities (858 ) 667 (861 ) 646 Other income (expense), net (15 ) (1,133 ) 82 (2,869 ) Income (loss) before income taxes 2,914 (578 ) (4,671 ) 11,000 Income tax expense (benefit) (19,007 ) 990 (23,264 ) 3,637 Net income (loss) $ 21,921 $ (1,568 ) $ 18,593 $ 7,363 Basic income (loss) per share of common stock $ 0.47 $ (0.03 ) $ 0.40 $ 0.17 Diluted income (loss) per share of common stock $ 0.46 $ (0.03 ) $ 0.39 $ 0.17 Basic weighted average shares outstanding 46,799,672 46,737,443 46,798,598 44,216,541 Diluted weighted average shares outstanding 47,560,478 46,737,443 47,603,808 44,597,419 Distribution Solutions Group, Inc. Condensed Consolidated Statements of Cash Flows (Dollars in thousands) (Unaudited) Nine Months Ended September 30 , 2024 2023 Operating activities Net income (loss) $ 18,593 $ 7,363 Adjustments to reconcile to net cash used in operating activities: Depreciation and amortization 54,211 47,316 Amortization of debt issuance costs 2,093 1,662 Stock-based compensation 4,323 5,441 Compensation expense related to employee share purchases — 427 Deferred income taxes (2,814 ) — Change in fair value of earnout liabilities 861 (646 ) (Gain) loss on sale of rental equipment (1,586 ) (1,929 ) (Gain) loss on sale of property, plant and equipment 190 (86 ) Charge for step-up of acquired inventory 1,760 2,866 Net realizable value adjustment and write-offs for obsolete and excess inventory 4,311 8,073 Bad debt expense 537 1,045 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable (30,423 ) (8,329 ) Inventories (981 ) 1,566 Prepaid expenses and other current assets (33,335 ) (7,288 ) Accounts payable 14,091 10,552 Accrued expenses and other current liabilities (20,183 ) 5,587 Other changes in operating assets and liabilities (912 ) 433 Net cash provided by (used in) operating activities 10,736 74,053 Investing activities Purchases of property, plant and equipment (9,091 ) (11,180 ) Business acquisitions, net of cash acquired (194,393 ) (252,007 ) Purchases of rental equipment (5,703 ) (7,735 ) Proceeds from sale of rental equipment 3,795 4,202 Net cash provided by (used in) investing activities (205,392 ) (266,720 ) Financing activities Proceeds from revolving lines of credit 166,777 174,587 Payments on revolving lines of credit (166,496 ) (295,816 ) Proceeds from term loans 200,000 305,000 Payments on term loans (22,688 ) (11,250 ) Deferred financing costs (2,064 ) (3,419 ) Proceeds from rights offering, net of offering costs of $1,531 — 98,469 Repurchase of common stock (2,580 ) — Shares repurchased held in treasury (538 ) (171 ) Proceeds from employees for share purchases — 3,253 Payment of financing lease principal (462 ) (358 ) Payment of earnout — (1,000 ) Net cash provided by (used in) financing activities 171,949 269,295 Effect of exchange rate changes on cash and cash equivalents (1,151 ) (209 ) Increase (decrease) in cash, cash equivalents and restricted cash (23,858 ) 76,419 Cash, cash equivalents and restricted cash at beginning of period 99,625 24,740 Cash, cash equivalents and restricted cash at end of period $ 75,767 $ 101,159 Cash and cash equivalents $ 61,344 $ 80,456 Restricted cash 14,423 20,703 Total cash, cash equivalents and restricted cash $ 75,767 $ 101,159 Distribution Solutions Group, Inc. Segment Reporting Change in Reportable Segments: As a result of the Source Atlantic Limited ("Source Atlantic ") acquisition, we realigned our reportable segments by adding a new segment with a focus on the Canadian MRO market. The new Canada Branch Division segment includes the results of Source Atlantic and Bolt Supply House ("Bolt"). The results of Bolt had previously been included in our All Other non-reportable segment prior to Q3 2024. The results of the Lawson, TestEquity and Gexpro Services reportable segments did not change. The segment realignment had no impact on our financial condition or results of operations. Prior period segment results have been recast to reflect our new reportable segments. Distribution Solutions Group, Inc. Table 1 - Selected Segment Financial Data (Dollars in thousands) (Unaudited) Three Months Ended September 30 , 2024 2023 Revenue: Lawson Products $ 117,957 $ 114,477 Canada Branch Division 39,092 13,543 Gexpro Services 116,141 103,232 TestEquity 195,244 207,657 Intersegment revenue elimination (415 ) — Total $ 468,019 $ 438,909 Operating income (loss): Lawson Products $ 726 $ 10,643 Canada Branch Division 2,523 1,468 Gexpro Services 11,543 7,332 TestEquity 4,329 (5,027 ) All Other (174 ) (1,633 ) Total $ 18,947 $ 12,783 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 September 30, 2024 and 2023 and the three months ended June 30, 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 September 30, 2024 September 30, 2023 June 30, 2024 Net income (loss) $ 21,921 $ (1,568 ) $ 1,896 Income tax expense (benefit) (19,007 ) 990 (180 ) Other income (expense), net 15 1,133 (359 ) Change in fair value of earnout liabilities 858 (667 ) 8 Interest expense 15,160 12,895 12,793 Operating income (loss) 18,947 12,783 14,158 Depreciation and amortization 18,624 17,010 18,535 Stock-based compensation(1) 2,432 1,049 (307 ) Severance and acquisition related retention expenses(2) 3,568 10,478 8,313 Acquisition related costs(3) 2,901 (94 ) 3,598 Inventory step-up(4) 1,126 2,150 634 Other non-recurring(5) 1,512 327 250 Non-GAAP adjusted EBITDA $ 49,110 $ 43,703 $ 45,181 Operating income (loss) as a percent of revenue 4.0 % 2.9 % 3.2 % Adjusted EBITDA as a percent of revenue 10.5 % 10.0 % 10.3 % (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 September 30, 2024 September 30, 2023 (3)(4) June 30, 2024 Amount Diluted EPS(2) Amount Diluted EPS(2) Amount Diluted EPS(2) Net income (loss) $ 21,921 $ 0.46 $ (1,568 ) $ (0.03 ) $ 1,896 $ 0.04 Pretax adjustments: Stock-based compensation 2,432 0.05 1,049 0.02 (307 ) (0.01 ) Acquisition related costs 2,901 0.06 (94 ) — 3,598 0.08 Amortization of intangible assets 11,972 0.25 11,308 0.24 12,206 0.26 Severance and acquisition related retention expenses 3,568 0.08 10,478 0.22 8,313 0.17 Change in fair value of earnout liabilities 858 0.02 (667 ) (0.01 ) 8 — Inventory step-up 1,126 0.02 2,150 0.05 634 0.01 Other non-recurring 1,512 0.03 327 0.01 250 0.01 Total pretax adjustments 24,369 0.51 24,551 0.53 24,702 0.52 Tax effect on adjustments(1)(3) (11,210 ) (0.23 ) (6,457 ) (0.14 ) (7,238 ) (0.15 ) Deferred tax asset valuation allowance(5) (17,425 ) (0.37 ) — — (410 ) (0.01 ) Non-GAAP adjusted net income $ 17,655 $ 0.37 $ 16,526 $ 0.35 $ 18,950 $ 0.40 (1) The adjustment to the income tax expense (benefit) determined by including the non-GAAP adjustments by jurisdiction (2) Pretax adjustments to diluted EPS calculated on 47.560 million, 46.737 million and 47.624 million diluted shares for the third quarter of 2024 and 2023, and the second 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) The estimated impact to the deferred tax asset valuation allowance from interest expense limitations under Section 163(j) determined by including the non-GAAP adjustments by jurisdiction 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 September 30 , June 30 , 2024 2023 2024 Operating income (loss) $ 18,947 $ 12,783 $ 14,158 Gross profit adjustments: Inventory step-up(1) 1,126 2,150 634 Total gross profit adjustments 1,126 2,150 634 Selling, general and administrative expenses adjustments: Acquisition related costs(2) 2,901 (94 ) 3,598 Amortization of intangible assets(3) 11,972 11,308 12,206 Stock-based compensation(4) 2,432 1,049 (307 ) Severance and acquisition related retention expenses(5) 3,568 10,478 8,313 Other non-recurring(6) 1,512 327 250 Total selling, general and administrative adjustments 22,385 23,068 24,060 Total adjustments 23,511 25,218 24,694 Non-GAAP adjusted operating income $ 42,458 $ 38,001 $ 38,852 (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/20241030942492/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.

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