Strong Start for Initial Reporting Period of
Recently Merged Companies
Distributions Solutions Group, Inc. (NASDAQ:DSGR) ("DSG" or
the "Company"), a leading specialty distributor providing high
touch, value-added distribution solutions to the maintenance,
repair & operations (MRO), original equipment manufacturer
(OEM) and the industrial technologies markets today announced
results for the second quarter ended June 30, 2022, its initial
reporting period since the April 1, 2022 merger of Lawson Products,
Gexpro Services and TestEquity. Presentations are supplemented by a
series of slides appearing on the company’s investor relations home
page at www.distributionsolutionsgroup.com.
Note Regarding Reverse Merger
Accounting
As a result of the April 1, 2022 merger of Lawson Products,
Gexpro Services and TestEquity, our financial results are reported
under reverse merger accounting treatment as required by generally
accepted accounting principles ("GAAP"). Accordingly, Lawson
Products results are included only for the period following the
April 1, 2022 merger closing date. GAAP results for the three and
six months ended June 30, 2021 include the combined results of
Gexpro Services and TestEquity. GAAP results for the three months
ended June 30, 2022 include the results of Lawson Products, Gexpro
Services and TestEquity and results for the six months ended June
30, 2022 include the results of Lawson Products for the three
months after the April 1, 2021 merger closing date.
Second Quarter Highlights (1)
- GAAP net sales were $321.3 million, an increase of $187.2
million or 139.5%. Non-GAAP adjusted net sales including the net
sales of pre-merger Lawson Products for the second quarter of 2021,
increased approximately $80.6 million or 33.5% driven by organic
growth of 11.8% and $52.3 million of additional sales from various
other companies acquired in 2021 and 2022 besides Lawson
Products.
- Reported operating income was $4.1 million or 1.3% of sales
including merger related costs, higher stock-based compensation
costs and incremental intangible amortization expense as a result
of the merger. Non-GAAP adjusted EBITDA increased by $11.7 million
from the prior year period to $31.7 million or 9.9% of sales.
- Diluted loss per share was $0.23 for the quarter compared to
earnings per diluted share of $0.04 in the year ago quarter.
Non-GAAP diluted earnings per share was $0.36 in the second quarter
2022 vs. $0.10 for the same period a year ago 2021.
- The Company ended the quarter with $17.9 million of cash on
hand and $85.9 million of availability under its credit
facility.
(1)
See reconciliation of GAAP to non-GAAP
measures in tables 2 and 3.
"We are pleased with the strong results DSG is reporting for its
initial quarter following the strategic combination of Lawson
Products, Gexpro Services and TestEquity, and are excited about the
future prospects of the combined DSG business. Each of the
operating companies made significant progress giving us further
confidence in our overall strategy and our teams, and raising our
excitement about the future of the combined DSG business," said
Bryan King, CEO and Chairman of the Board.
"For the quarter, net sales grew to $321.3 million including
acquisition revenues, coupled with 11.8% growth in our organic
business. This growth drove adjusted EBITDA to $31.7 million or
9.9% of sales. We continue to see solid product demand from our
customers across many of our end markets. Only 120 days into the
merger we are realizing early wins regarding customer opportunities
as well as overall cost synergies. The leadership of each operating
company and their respective teams are working collaboratively to
ensure they continue to deliver on our high-touch, value added
business models while we continue to focus on increasing DSG's
long-term enterprise value for our shareholders.
"During the quarter we successfully completed two accretive
acquisitions with aggregate annual revenues of approximately $119
million which are expected to generate annual adjusted EBITDA in
excess of $10 million. Our acquisition pipeline is strong and we
are committed to investing resources and capital to ensure that
acquisitions are accretive to our growth and earnings profile,"
concluded Mr. King.
The following represents a summary of net sales, operating
income and adjusted EBITDA for each reportable segment. See
reconciliation of GAAP to non-GAAP measures in table 2.
(in thousands)
Three Months Ended June 30,
2022
GAAP Net Sales
GAAP Operating Income
(Loss)(1)
Adjusted EBITDA
Lawson Products(1)
$
107,334
$
(2,562
)
$
9,405
Gexpro Services
99,792
5,390
11,915
TestEquity
97,874
471
8,647
Other(2)
16,336
814
1,686
Total
$
321,336
$
4,113
$
31,653
(1)
GAAP operating loss includes merger
related costs, higher stock-based compensation which varies with
our stock price and additional intangible amortization expense as a
result of the merger.
(2)
Other consists of results of The Bolt
Supply House and unallocated holding company costs.
Conference Call
Distribution Solutions Group, Inc. will conduct a conference
call with investors to discuss second quarter 2022 results at 9:00
a.m. Eastern Time on August 9, 2022. 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 529621. A replay of the conference call will be available by
telephone approximately two hours after completion of the call
through August 23, 2022. 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
PIN access number for the replay is 45807#. 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
www.distributionsolutionsgroup.com.
About Distribution Solutions Group,
Inc.
Distribution Solutions Group ("DSG") is a best-in-class
specialty distribution company providing high touch, value-added
distribution solutions to the maintenance, repair & operations
(MRO), 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 120,000+ long-standing customers in
several diverse end markets supported by more than 3,000 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 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. 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 other words and
terms of similar meaning and expression 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 (formerly Lawson Products, Inc.) Annual Report
on Form 10-K for the fiscal year ended December 31, 2021, DSG’s
Quarterly Reports on Form 10-Q and DSG’s Current Reports on Form
8-K. 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) whether or not the
terms of the earnout provisions in either of the merger agreements
will be satisfied such that DSG would be required to issue
additional shares of common stock in connection with the mergers;
(ii) unanticipated difficulties or expenditures relating to the
mergers; (iii) the risk that stockholder litigation in connection
with the mergers results in significant costs of defense,
indemnification and liability; and (iv) any problems arising in
combining the businesses of Lawson Products, TestEquity and Gexpro
Services, which may result in the combined company not operating as
effectively and efficiently as expected to any forward-looking
statements whether as a result of new information, future events or
otherwise.
-TABLES FOLLOW-
Distribution Solutions Group,
Inc.
Condensed Consolidated Balance
Sheets
(Dollars in thousands, except
share data)
(Unaudited)
June 30, 2022
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents
$
17,872
$
14,671
Restricted cash
194
—
Accounts receivable, less allowance for
doubtful accounts
168,247
80,574
Inventories, net
250,696
132,717
Prepaid expenses and other current
assets
30,801
8,098
Total current assets
467,810
236,060
Property, plant and equipment, less
accumulated depreciation and amortization
64,958
9,079
Rental equipment, net
26,108
24,727
Goodwill
355,440
106,145
Deferred income taxes
267
266
Intangible assets, net
242,926
96,608
Cash value of life insurance
17,537
—
Right of use assets
47,055
19,662
Other assets
4,095
747
Total assets
$
1,226,196
$
493,294
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
93,191
$
47,958
Current portion of long-term debt
16,495
134,405
Current portion of lease obligation
10,487
4,641
Earnout derivative liability
23,000
—
Related party payables
—
4,813
Accrued expenses and other current
liabilities
58,310
23,126
Total current liabilities
201,483
214,943
Long-term debt, less current portion,
net
389,279
93,134
Security bonus plan
10,163
—
Deferred compensation
10,827
—
Lease obligation
38,652
16,132
Deferred tax liability
30,446
2,742
Other liabilities
3,518
574
Total liabilities
684,368
327,525
Stockholders’ equity:
Preferred stock, $1 par value:
Authorized - 500,000 shares, issued and
outstanding — None
—
—
Common stock, $1 par value:
Authorized - 35,000,000 shares
Issued - 19,694,145 and 10,542,333 shares,
respectively
Outstanding - 19,443,982 and 10,294,824
shares, respectively
19,468
10,318
Capital in excess of par value
573,649
197,057
Retained deficit
(40,394
)
(33,142
)
Treasury stock – 250,163 and 247,509
shares, respectively
(10,144
)
(10,033
)
Accumulated other comprehensive (loss)
income
(751
)
1,569
Total stockholders’ equity
541,828
165,769
Total liabilities and stockholders’
equity
$
1,226,196
$
493,294
Distribution Solutions Group,
Inc.
Condensed Consolidated
Statements of Income
(Dollars in thousands, except per
share data)
(Unaudited)
Three Months Ended
Six Months Ended
June 30,
June 30,
2022
2021
2022
2021
Revenue
$
321,336
$
134,152
$
475,421
$
258,979
Cost of goods sold
206,781
100,411
319,982
194,991
Gross profit
114,555
33,741
155,439
63,988
Selling, general and administrative
expenses
110,442
28,273
148,338
56,267
Operating income
4,113
5,468
7,101
7,721
Interest expense
(3,751
)
(4,262
)
(10,607
)
(8,506
)
Loss on extinguishment of debt
(2,814
)
—
(3,395
)
—
Change in fair value of earnout derivative
liability
(5,693
)
—
(5,693
)
—
Other (expense) income, net
(182
)
(186
)
774
(254
)
(Loss) income before income taxes
(8,327
)
1,020
(11,820
)
(1,039
)
Income tax (benefit) expense
(3,612
)
559
(4,568
)
390
Net (loss) income
$
(4,715
)
$
461
$
(7,252
)
$
(1,429
)
Basic (loss) income per share of common
stock
$
(0.23
)
$
0.04
$
(0.47
)
$
(0.14
)
Diluted (loss) income per share of
common stock
$
(0.23
)
$
0.04
$
(0.47
)
$
(0.14
)
Comprehensive (loss) income
Net (loss) income
$
(4,715
)
$
461
$
(7,252
)
$
(1,429
)
Other comprehensive (loss) income, net of
tax:
Loss on foreign currency translation
(2,491
)
(171
)
(2,320
)
(3
)
Comprehensive (loss) income
$
(7,206
)
$
290
$
(9,572
)
$
(1,432
)
Distribution Solutions Group,
Inc.
Table 1 - Selected Segment
Financial Data
(Dollars in thousands)
(Unaudited)
Three Months Ended June
30,
2022
2021
Net Sales:
Lawson
$
107,334
$
—
Gexpro Services
99,792
66,296
TestEquity
97,874
67,856
Other
16,336
—
Total
$
321,336
$
134,152
Operating Income:
Lawson(1)
$
(2,562
)
$
—
Gexpro Services
5,390
5,465
TestEquity
471
3
Other
814
—
Total
$
4,113
$
5,468
(1)
GAAP operating loss includes merger
related costs, higher stock-based compensation which varies with
our stock price and additional intangible amortization expense as a
result of the merger.
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
reflection of underlying trends of the business because they
provide a comparison of historical information that excludes
certain non-operational 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, 2022 and 2021. 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 Sales to Non-GAAP Adjusted Net Sales and
GAAP Operating Income to
Non-GAAP Adjusted EBITDA
(Dollars in thousands)
(Unaudited)
Lawson Products
Gexpro Services
TestEquity
Other
Consolidated DSG
Q2 2022
Q2 2021
Q2 2022
Q2 2021
Q2 2022
Q2 2021
Q2 2022
Q2 2021
Q2 2022
Q2 2021
GAAP Net Sales
$
107,334
$
—
$
99,792
$
66,296
$
97,874
$
67,856
$
16,336
$
—
$
321,336
$
134,152
Pre-Merger Sales(1)
—
94,861
—
—
—
—
—
11,679
—
106,540
Adjusted Net Sales
$
107,334
$
94,861
$
99,792
$
66,296
$
97,874
$
67,856
$
16,336
$
11,679
$
321,336
$
240,692
GAAP Operating Income
$
(2,562
)
$
—
$
5,390
$
5,465
$
471
$
3
$
814
$
—
$
4,113
$
5,468
Pre-Merger Operating Income(1)
—
2,443
—
—
—
—
—
939
—
3,382
Adjusted Operating Income
(2,562
)
2,443
5,390
5,465
471
3
814
939
4,113
8,850
Depreciation and amortization
4,522
1,885
4,093
1,085
5,761
3,381
370
119
14,746
6,470
Adjustments:
Merger transaction costs(2)
1,818
1,353
2,160
367
1,812
—
—
—
5,790
1,720
Stock-based compensation(3)
4,013
1,574
—
—
—
—
—
—
4,013
1,574
Severance costs(4)
449
(131
)
45
12
458
5
1
5
953
(109
)
Acquisition related costs(5)
—
655
189
515
145
291
—
—
334
1,461
Inventory step-up(6)
1,165
—
—
—
—
—
457
—
1,622
—
Other non-recurring(7)
—
—
38
20
—
—
44
—
82
20
Adjusted EBITDA
$
9,405
$
7,779
$
11,915
$
7,464
$
8,647
$
3,680
$
1,686
$
1,063
$
31,653
$
19,986
Operating income as a percent of net
sales
(2.4
) %
—
%
5.4
%
8.2
%
0.5
%
—
%
5.0
%
—
%
1.3
%
4.1
%
Adjusted EBITDA as a percent of net
sales
8.8
%
—
%
11.9
%
11.3
%
8.8
%
5.4
%
10.3
%
—
%
9.9
%
14.9
%
Adjusted EBITDA as a percent of adjusted
net sales
8.8
%
8.2
%
11.9
%
11.3
%
8.8
%
5.4
%
10.3
%
9.1
%
9.9
%
8.3
%
(1)
Represents Lawson Products pre-merger
sales and operating income
(2)
Merger transaction costs related to the
negotiation, review and execution of the merger agreements relating
to the business combination of Lawson Products, TestEquity and
Gexpro Services
(3)
Expense primarily for stock-based
compensation, of which a portion varies with the Company’s stock
price
(4)
Includes severance expense for actions
taken in 2022 and 2021
(5)
Expense for acquisition related costs,
unrelated to the business combination of Lawson Products,
TestEquity and Gexpro Services
(6)
Inventory fair value step-up adjustment
resulting from the reverse merger acquisition accounting
(7)
Other non-recurring costs consists of
acquisition integration costs and other non-recurring items
Distribution Solutions Group,
Inc.
Table 3 - Reconciliation of
GAAP Net Income (Loss) and Diluted EPS to
Non-GAAP Net Income and
Adjusted Diluted EPS
(Dollars in thousands)
(Unaudited)
Three Months Ended
June 30, 2022
June 30, 2021
Amount
Diluted EPS(2)
Amount
Diluted EPS(2)
Net (loss) income as reported per GAAP
$
(4,715
)
$
(0.23
)
$
461
$
0.04
Pretax adjustments:
Change in fair value of earnout derivative
liability
5,693
0.28
—
—
Loss on extinguishment of debt
2,814
0.14
—
—
Merger transaction costs
5,790
0.28
367
0.03
Stock-based compensation
4,013
0.20
—
—
Severance costs
953
0.05
17
—
Acquisition related costs
334
0.02
806
0.08
Inventory step-up
1,622
0.08
—
—
Other non-recurring
82
—
20
—
Total pretax adjustments
21,301
1.05
1,210
0.11
Tax effect on adjustments(1)
(9,245
)
(0.46
)
(663
)
(0.05
)
Total adjustments, net of tax
12,056
0.59
547
0.06
Non-GAAP adjusted net income
$
7,341
$
0.36
$
1,008
$
0.10
(1)
Tax effected at quarterly tax rate of
43.4% and 54.8% for the three months ended June 30, 2022 and 2021,
respectively.
(2)
Pretax adjustments to diluted EPS
calculated on 20.343 million and 10.558 million diluted shares for
the second quarter of 2022 and 2021, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220808005854/en/
Investor Relations: Distributions Solutions Group, Inc.
Ronald J. Knutson Executive Vice President and Chief Financial
Officer 773-304-5665 Investor Relations Contacts: Three Part
Advisors, LLC Steven Hooser or Sandy Martin 214-872-2710
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