Strong Operating Results: Sales of $347
Million; Organic Sales Growth of 15%
Board Increases Share Repurchase Plan to
$12.5 Million
Distribution 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 industrial technologies markets today announced
consolidated results for the third quarter ended September 30,
2022. 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
nine months ended September 30, 2021 include the combined results
of Gexpro Services and TestEquity. GAAP results for the three
months ended September 30, 2022 include the results of Lawson
Products, Gexpro Services and TestEquity and GAAP results for the
nine months ended September 30, 2022 include the results of Lawson
Products for the six months after the April 1, 2022 merger closing
date as well as the results of Gexpro Services and TestEquity for
the full nine months.
The following represents a summary of certain operating results
(unaudited). See reconciliation of GAAP to non-GAAP measures in
table 2.
Three Months Ended
September 30,
(Dollars in thousands)
2022
2021
% Change
GAAP Net Sales
$
347,151
$
132,090
162.8
%
Pre-Merger Sales(1)
—
105,570
N/M
Adjusted Net Sales
347,151
237,660
46.1
%
GAAP Operating Income
22,027
5,491
301.1
%
Pre-Merger Operating Income(1)
—
4,620
N/M
Adjusted Operating Income
22,027
10,111
117.9
%
Adjusted EBITDA
$
34,700
$
21,221
63.5
%
Operating income as a percent of GAAP Net
Sales
6.3
%
4.2
%
Adjusted EBITDA as a percent of Adjusted
Net Sales
10.0
%
8.9
%
(1)
Represents Lawson Products pre-merger
sales and operating income
Bryan King, CEO and Chairman of the Board, said, “We are excited
to report strong third quarter results for DSG. These results
support our confidence in the strategic combination of Lawson
Products, Gexpro Services and TestEquity earlier this year. Each of
the operating companies had strong performance during the quarter
on significant sales growth over the year ago quarter with solid
sequential sales increases over the second quarter of 2022. The
leadership teams of all three companies are demonstrating
outstanding focus on sales growth, leveraging best practices and
driving incremental cost synergies. We are excited about the future
of these best-in-class specialty distributors and believe we can
drive significant value creation for all shareholders.
“Third quarter net sales grew to $347.2 million including sales
from acquisitions and organic growth of 15.4% through price and
volume increases. This, in turn, grew our adjusted EBITDA by $13.5
million from a year ago, to $34.7 million or 10.0% of adjusted net
sales. While Q3 is our seasonally strongest quarter, it was
negatively impacted by higher compensation and healthcare costs. We
continue to focus on improving operating margins across the three
operating companies.
"While the global market outlook remains cautious, we are
investing in growth and in high ROIC projects to improve our return
profile and strengthen our competitive positioning. Although demand
is strong today, we are managing our business to rapidly adapt to
changing market conditions. We continue to build our leadership
positions in the specialty distribution industry, and believe that
our disciplined execution of planned strategies will position us
well to capture market share in this environment. We plan to
prudently manage the business for growth, returns and cash flow as
we maximize long-term value for shareholders,” concluded Mr.
King.
Third Quarter
Highlights (1)
- GAAP net sales were $347.2 million, an increase of $215.1
million or 162.8%. Non-GAAP adjusted net sales increased
approximately $109.5 million or 46.1% driven by organic growth of
15.4% and $68.4 million of additional sales from companies acquired
in 2021 and 2022 other than Lawson Products.
- Reported operating income was $22.0 million or 6.3% of net
sales including merger related costs, an inventory net realizable
value adjustment and amortization expense as a result of the
reverse merger acquisition accounting. This represents an
improvement of $16.5 million over the prior year. Non-GAAP adjusted
EBITDA increased by $13.5 million from the prior year period to
$34.7 million or 10.0% of adjusted net sales.
- Earnings per diluted share was $0.84 for the quarter compared
to $0.12 in the year ago quarter. Non-GAAP diluted earnings per
share was $0.64 in the third quarter 2022 compared to $0.25 for the
same period a year ago 2021.
- The Company ended the quarter with $25.2 million of cash on
hand and $75.1 million of availability under its credit
facility.
- In November, the Board authorized an increase of the existing
share buy-back program from $7.5 million to $12.5 million. During
the quarter, the Company repurchased approximately 54,000 shares of
its common stock for an aggregate price of $1.9 million which
leaves $7.6 million available under its expanded authorized share
repurchase plan. (1) See reconciliation of GAAP to non-GAAP
measures in tables 2 and 3.
The following represents a summary of certain operating results
for each reportable segment (unaudited). See reconciliation of GAAP
to non-GAAP measures in table 2.
Lawson Products
Gexpro Services
TestEquity
Other
Consolidated DSG
(Dollars in thousands)
Q3 2022
Q3 2021
Q3 2022
Q3 2021
Q3 2022
Q3 2021
Q3 2022
Q3 2021
Q3 2022
Q3 2021
GAAP Net Sales
$
109,418
$
—
$
103,749
$
64,264
$
116,709
$
67,826
$
17,275
$
—
$
347,151
$
132,090
Pre-Merger Sales(1)
—
93,686
—
—
—
—
—
11,884
—
105,570
Adjusted Net Sales
$
109,418
$
93,686
$
103,749
$
64,264
$
116,709
$
67,826
$
17,275
$
11,884
$
347,151
$
237,660
GAAP Operating Income
$
5,352
$
—
$
7,992
$
4,437
$
7,576
$
1,054
$
1,107
$
—
$
22,027
$
5,491
Pre-Merger Operating Income(1)
—
3,488
—
—
—
—
—
1,132
—
4,620
Adjusted Operating Income
5,352
3,488
7,992
4,437
7,576
1,054
1,107
1,132
22,027
10,111
Adjusted EBITDA
$
9,670
$
7,560
$
12,485
$
6,308
$
10,122
$
5,524
$
2,423
$
1,829
$
34,700
$
21,221
Operating income as a percent of GAAP Net
Sales
4.9
%
—
%
7.7
%
6.9
%
6.5
%
1.6
%
6.4
%
—
%
6.3
%
4.2
%
Adjusted EBITDA as a percent of Adjusted
Net Sales
8.8
%
8.1
%
12.0
%
9.8
%
8.7
%
8.1
%
14.0
%
15.4
%
10.0
%
8.9
%
(1)
Represents Lawson Products and The Bolt
Supply House pre-merger sales and operating income
Conference Call
Distribution Solutions Group, Inc. will conduct a conference
call with investors to discuss third quarter 2022 results at 9:00
a.m. Eastern Time on November 3, 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 648011. A replay of the conference call will be available by
telephone approximately two hours after completion of the call
through November 17, 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 46486#. 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), 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 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)
September 30,
2022
December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents
$
25,171
$
14,671
Restricted cash
181
—
Accounts receivable, less allowance for
doubtful accounts
173,083
80,574
Inventories, net
260,840
132,717
Prepaid expenses and other current
assets
26,769
8,098
Total current assets
486,044
236,060
Property, plant and equipment, net
64,765
9,079
Rental equipment, net
25,489
24,727
Goodwill
351,147
106,145
Deferred tax asset
201
266
Intangible assets, net
236,869
96,608
Cash value of life insurance
17,198
—
Right of use assets
44,682
19,662
Other assets
6,320
747
Total assets
$
1,232,715
$
493,294
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
96,886
$
47,958
Current portion of long-term debt
16,121
134,405
Current portion of lease obligation
9,994
4,641
Earnout derivative liability
12,700
—
Related party payables
—
4,813
Accrued expenses and other current
liabilities
58,663
23,126
Total current liabilities
194,364
214,943
Long-term debt, less current portion,
net
397,461
93,134
Security bonus plan
9,958
—
Deferred compensation
10,248
—
Lease obligation
38,169
16,132
Deferred tax liability
32,258
2,742
Other liabilities
3,510
574
Total liabilities
685,968
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 - 19,712,137 and 10,542,333 shares,
respectively
Outstanding - 19,400,005 and 10,294,824
shares, respectively
19,424
10,318
Capital in excess of par value
574,176
197,057
Retained deficit
(23,853
)
(33,142
)
Treasury stock – 312,132 and 247,509
shares, respectively
(12,475
)
(10,033
)
Accumulated other comprehensive (loss)
income
(10,525
)
1,569
Total stockholders’ equity
546,747
165,769
Total liabilities and stockholders’
equity
$
1,232,715
$
493,294
Distribution Solutions Group,
Inc.
Condensed Consolidated
Statements of Income
(Dollars in thousands, except per
share data)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2022
2021
2022
2021
Revenue
$
347,151
$
132,090
$
822,572
$
391,069
Cost of goods sold
227,984
97,252
547,966
292,243
Gross profit
119,167
34,838
274,606
98,826
Selling, general and administrative
expenses
97,140
29,347
245,478
85,614
Operating income (loss)
22,027
5,491
29,128
13,212
Interest expense
(6,097
)
(3,976
)
(16,704
)
(12,482
)
Loss on extinguishment of debt
—
—
(3,395
)
—
Change in fair value of earnout
liabilities
9,641
—
3,948
—
Other income (expense), net
(550
)
(74
)
224
(328
)
Income (loss) before income taxes
25,021
1,441
13,201
402
Income tax expense (benefit)
8,480
216
3,912
606
Net income (loss)
$
16,541
$
1,225
$
9,289
$
(204
)
Basic income (loss) per share of common
stock
$
0.85
$
0.12
$
0.54
$
(0.02
)
Diluted income (loss) per share of
common stock
$
0.84
$
0.12
$
0.53
$
(0.02
)
Comprehensive income (loss)
Net income (loss)
$
16,541
$
1,225
$
9,289
$
(204
)
Other comprehensive income (loss), net of
tax:
Foreign currency translation
adjustment
(9,774
)
175
(12,094
)
172
Comprehensive income (loss)
$
6,767
$
1,400
$
(2,805
)
$
(32
)
Distribution Solutions Group,
Inc.
Condensed Consolidated
Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended September
30,
2022
2021
Operating activities
Net income (loss)
$
9,289
$
(204
)
Adjustments to reconcile to net cash used
in operating activities:
Depreciation and amortization
31,314
13,649
Amortization of debt issue costs
1,419
899
Extinguishment of debt
3,395
—
Stock-based compensation
445
—
Change in fair value of earnout
liability
(3,948
)
—
Gain on sale of rental equipment
(2,463
)
(1,918
)
Charge for step-up of acquired
inventory
2,703
—
Net realizable value and reserve
adjustment for obsolete and excess inventory
5,551
(585
)
Bad debt expense
564
1,136
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable
(30,795
)
5,740
Inventories, net
(43,857
)
2,770
Prepaid expenses and other current
assets
(2,224
)
(953
)
Accounts payable
1,687
(6,857
)
Accrued expenses and other current
liabilities
1,316
982
Other changes in operating assets and
liabilities
6,324
2,478
Net cash provided by (used in) operating
activities
(19,280
)
17,137
Investing activities
Purchases of property, plant and
equipment
(4,954
)
(2,907
)
Business acquisitions, net of cash
acquired
(113,681
)
(19,721
)
Purchases of rental equipment
(7,913
)
(8,246
)
Proceeds from sale of rental equipment
5,998
3,899
Net cash provided by (used in) investing
activities
(120,550
)
(26,975
)
Financing activities
Proceeds from revolving lines of
credit
302,044
20,500
Payments on revolving lines of credit
(237,370
)
(11,200
)
Proceeds from term loans
445,630
—
Payments on term loans
(343,662
)
(7,321
)
Deferred financing costs
(11,956
)
—
Capital contribution
—
9,233
Repurchase of common stock
(1,940
)
—
Shares repurchased held in treasury
(469
)
—
Payment of financing lease principal
(457
)
—
Net cash provided by (used in) financing
activities
151,820
11,212
Effect of exchange rate changes on cash
and cash equivalents
(1,309
)
188
Increase (decrease) in cash, cash
equivalents and restricted cash
10,681
1,562
Cash, cash equivalents and restricted cash
at beginning of period
14,671
10,399
Cash, cash equivalents and restricted
cash at end of period
$
25,352
$
11,961
Cash and cash equivalents
$
25,171
$
11,961
Restricted cash
181
—
Total cash, cash equivalents and
restricted cash
$
25,352
$
11,961
Distribution Solutions Group,
Inc.
Table 1 - Selected Segment
Financial Data
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30,
2022
2021
Net Sales:
Lawson
$
109,418
$
—
Gexpro Services
103,749
64,264
TestEquity
116,709
67,826
Other
17,275
—
Total
$
347,151
$
132,090
Operating Income:
Lawson
$
5,352
$
—
Gexpro Services
7,992
4,437
TestEquity
7,576
1,054
Other
1,107
—
Total
$
22,027
$
5,491
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 includes for
the three months ended September 30, 2021 certain results of
pre-merger Lawson Products and 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 September 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
Q3 2022
Q3 2021
Q3 2022
Q3 2021
Q3 2022
Q3 2021
Q3 2022
Q3 2021
Q3 2022
Q3 2021
GAAP Net Sales
$
109,418
$
—
$
103,749
$
64,264
$
116,709
$
67,826
$
17,275
$
—
$
347,151
$
132,090
Pre-Merger Sales(1)
—
93,686
—
—
—
—
—
11,884
—
105,570
Adjusted Net Sales
$
109,418
$
93,686
$
103,749
$
64,264
$
116,709
$
67,826
$
17,275
$
11,884
$
347,151
$
237,660
GAAP Operating Income
$
5,352
$
—
$
7,992
$
4,437
$
7,576
$
1,054
$
1,107
$
—
$
22,027
$
5,491
Pre-Merger Operating Income(1)
—
3,488
—
—
—
—
—
1,132
—
4,620
Adjusted Operating Income
5,352
3,488
7,992
4,437
7,576
1,054
1,107
1,132
22,027
10,111
Depreciation and amortization
2,009
1,354
4,065
1,271
1,896
3,458
1,009
697
8,979
6,780
Adjustments:
Merger/integration costs(2)
1,556
3,223
664
385
144
245
—
—
2,364
3,853
Stock-based compensation(3)
(3,568
)
(1,171
)
—
—
—
—
—
—
(3,568
)
(1,171
)
Severance costs(4)
763
241
—
7
178
8
3
—
944
256
Acquisition related costs(5)
—
425
(290
)
3
328
759
—
—
38
1,187
Inventory net realizable value
adjustment(6)
1,737
—
—
—
—
—
—
—
1,737
—
Inventory step-up(7)
778
—
—
118
—
—
304
—
1,082
118
Other non-recurring(8)
1,043
—
54
87
—
—
—
—
1,097
87
Adjusted EBITDA
$
9,670
$
7,560
$
12,485
$
6,308
$
10,122
$
5,524
$
2,423
$
1,829
$
34,700
$
21,221
Operating income as a percent of GAAP Net
Sales
4.9
%
—
%
7.7
%
6.9
%
6.5
%
1.6
%
6.4
%
—
%
6.3
%
4.2
%
Adjusted EBITDA as a percent of GAAP Net
Sales
8.8
%
—
%
12.0
%
9.8
%
8.7
%
8.1
%
14.0
%
—
%
10.0
%
16.1
%
Adjusted EBITDA as a percent of Adjusted
Net Sales
8.8
%
8.1
%
12.0
%
9.8
%
8.7
%
8.1
%
14.0
%
15.4
%
10.0
%
8.9
%
(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 and subsequent integration costs
(3)
Expense (benefit) 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 net realizable value adjustment
recorded to reduce inventory related to discontinued products where
the anticipated net realizable value was lower than the cost
reflected in the Company's records
(7)
Inventory fair value step-up adjustments
resulting from the reverse merger acquisition accounting for Lawson
Products and acquisition accounting for additional acquisitions
completed by Gexpro Services
(8)
Other non-recurring costs consists of
sales force optimization 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
September 30, 2022
September 30, 2021
Amount
Diluted EPS(2)
Amount
Diluted EPS(2)
Net income as reported per GAAP
$
16,541
$
0.84
$
1,225
$
0.12
Pretax adjustments:
Change in fair value of earnout
liability
(9,641
)
(0.49
)
—
—
Loss on extinguishment of debt
—
—
—
—
Merger/integration costs
2,364
0.12
630
0.06
Stock-based compensation
(3,568
)
(0.18
)
—
—
Severance costs
944
0.05
15
—
Acquisition related costs
38
—
762
0.07
Inventory net realizable value
adjustment
1,737
0.09
—
—
Inventory step-up
1,082
0.06
118
0.01
Other non-recurring
1,097
0.06
87
0.01
Total pretax adjustments
(5,947
)
(0.30
)
1,612
0.15
Tax effect on adjustments(1)
2,016
0.10
(242
)
(0.02
)
Total adjustments, net of tax
(3,931
)
(0.20
)
1,370
0.13
Non-GAAP adjusted net income
$
12,610
$
0.64
$
2,595
$
0.25
(1)
Tax effected at quarterly tax rate of
33.9% and 15.0% for the three months ended September 30, 2022 and
2021, respectively.
(2)
Pretax adjustments to diluted EPS
calculated on 19.653 million and 10.568 million diluted shares for
the third quarter of 2022 and 2021, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221102006165/en/
Investor Relations: Distribution 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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