Achieves Record Revenue and Profit Growth,
Strong Organic Revenue
Distribution Solutions Group, Inc. (NASDAQ:DSGR) ("DSG" or
the "Company"), a 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, today
announced consolidated results for the first quarter ended March
31, 2023. This press release is supplemented by an earnings slide
deck appearing on the Company’s investor relations page at
https://investor.distributionsolutionsgroup.com/news/events.
Note Regarding
Reverse Merger Accounting
As a result of the April 1, 2022 strategic
combination of Lawson Products, Gexpro Services and TestEquity, the
Company's 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 months ended March 31,
2022 include the combined results of Gexpro Services and
TestEquity, while GAAP results for the three months ended March 31,
2023 include the results of Lawson Products, Gexpro Services and
TestEquity.
The following represents a summary of certain operating results
(unaudited). See reconciliation of GAAP to non-GAAP measures in
tables 2 and 3.
Three Months Ended
March 31,
(Dollars in thousands)
2023
2022
% Change
GAAP Revenue
$
348,270
$
154,085
126.0
%
Pre-Merger Revenue(1)
—
117,877
N/M
Adjusted Revenue
348,270
271,962
28.1
%
GAAP Operating Income
16,721
2,988
N/M
Pre-Merger Operating Income(1)
—
12,076
N/M
Adjusted Operating Income
16,721
15,064
11.0
%
GAAP Operating income as a percent of GAAP
Revenue
4.8
%
1.9
%
Adjusted EBITDA
$
39,353
$
22,672
73.6
%
Adjusted EBITDA as a percent of Adjusted
Revenue
11.3
%
8.3
%
(1)
Represents Lawson Products pre-merger
revenue and operating income
Bryan King, CEO and Chairman of the Board, said, “I am excited
to report the continued strong financial performance of DSG. During
the first quarter, revenue and EBITDA margin improvement continued,
with adjusted revenue growth of 28%, fueled by organic growth of
13.7%, and adjusted EBITDA expansion to $39.4 million, or 11.3% of
revenue. This margin profile represents a 300 basis point
improvement compared to one year ago as our execution has tracked
our vision for why we formed the DSG platform a year ago. We remain
confident in our prospects and continue to focus on generating
shareholder value by driving sales growth, improving profitability
and creating incremental cash flow through solid performance.
"We continue to watch the demand environment, and although
certain end markets have moderated somewhat, we anticipate
continued year-over-year revenue and profitability expansion as
2023 progresses with a focus on organic growth, strategic
acquisitions and improved operational efficiencies. We believe that
our asset light business model, combined with our focus on growing
operating cash flows, positions us well to enhance shareholder
value in 2023 and beyond.
"We were also thrilled to recently announce our agreement to
acquire Hisco, a leading distributor of specialty products serving
industrial technology applications, which is expected to close by
the end of the second quarter. We believe that combining with Hisco
will strategically accelerate our growth trajectory for all of our
operating companies, with expansion in both customers and product
offerings, coupled with better scale and incremental cost
synergies," concluded Mr. King.
First Quarter
Highlights (1)
- GAAP revenue was $348.3 million, an increase of $194.2 million
or 126.0%, which included $38.9 million of additional revenue from
companies acquired in 2022 other than Lawson Products.
- Non-GAAP adjusted revenue, which in the first quarter of 2022
includes the pre-merger revenue of Lawson Products for comparison,
increased 28.1% or approximately $76.3 million. This improvement
was driven by strong organic growth of 13.7% plus revenue from
companies acquired in 2022 (other than Lawson Products).
- Reported operating income increased by $13.7 million from the
prior year period to $16.7 million or 4.8% of GAAP revenue.
Non-GAAP adjusted EBITDA increased by 73.6% from the prior year
period to $39.4 million or 11.3% of revenue.
- Diluted income per share was $0.28 for the quarter compared to
a diluted loss per share of $0.25 in the year-ago quarter. Non-GAAP
diluted earnings per share was $0.52 in the first quarter 2023
compared to $0.00 for the same period a year ago.
- On March 30, 2023, the Company entered into a Stock Purchase
Agreement for the acquisition of HIS Company, Inc., a Texas
corporation (“Hisco”), for $269.1 million in cash payable at
closing, with a potential additional earn-out payment of up to
$12.6 million and $37.5 million, payable in cash or DSG common
stock, in potential employee retention payments. DSG anticipates
funding the transaction using a combination of an expanded
committed credit facility and approximately $100 million of equity
to be raised in a rights offering to existing stockholders. The
transaction is expected to close in the second quarter of 2023,
subject to regulatory and customary closing conditions.
(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 and our all other category (unaudited).
See reconciliation of GAAP to non-GAAP measures in tables 2 and
3.
Lawson Products
Gexpro Services
TestEquity
All Other
Consolidated DSG
(Dollars in thousands)
Q1 2023
Q1 2022
Q1 2023
Q1 2022
Q1 2023
Q1 2022
Q1 2023
Q1 2022
Q1 2023
Q1 2022
GAAP Revenue
$
125,280
$
—
$
101,016
$
81,683
$
107,359
$
72,402
$
14,615
$
—
$
348,270
$
154,085
Pre-Merger Revenue(1)
—
104,902
—
—
—
—
—
12,975
—
117,877
Adjusted Revenue
$
125,280
$
104,902
$
101,016
$
81,683
$
107,359
$
72,402
$
14,615
$
12,975
$
348,270
$
271,962
GAAP Operating Income
$
8,245
$
—
$
7,374
$
3,592
$
26
$
(604
)
$
1,076
$
—
$
16,721
$
2,988
Pre-Merger Operating Income(1)
—
11,096
—
—
—
—
—
980
—
12,076
Adjusted Operating Income
8,245
11,096
7,374
3,592
26
(604
)
1,076
980
16,721
15,064
Adjusted EBITDA
$
18,450
$
8,042
$
11,674
$
8,011
$
7,659
$
5,491
$
1,570
$
1,128
$
39,353
$
22,672
Adjusted EBITDA as a percent of Adjusted
Revenue
14.7
%
7.7
%
11.6
%
9.8
%
7.1
%
7.6
%
10.7
%
8.7
%
11.3
%
8.3
%
(1)
Represents Lawson Products and The Bolt
Supply House pre-merger revenue and operating income
Conference Call
Distribution Solutions Group, Inc. will conduct a conference
call with investors to discuss first quarter 2023 results at 9:00
a.m. Eastern Time on May 4, 2023. 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 484346. A replay
of the conference call will be available by telephone approximately
two hours after completion of the call through May 18, 2023.
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 48132. 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 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 110,000 customers in
several diverse end markets supported by approximately 3,100
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 Annual Report on Form 10-K, 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) unanticipated difficulties or
expenditures relating to the mergers; (ii) the risk that
stockholder litigation in connection with the mergers results in
significant costs of defense, indemnification and liability; (iii)
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 and (iv) risks and uncertainties relating to the pending
acquisition of Hisco by DSG and the related financing thereof,
including the risks that the transaction may not be completed on
the timeline expected, that DSG may encounter difficulties
integrating the business of DSG and Hisco, that DSG may not achieve
the synergies contemplated with respect to the transaction and that
certain assumptions with respect to Hisco’s business or the
transaction could prove to be inaccurate.
-TABLES FOLLOW-
Distribution Solutions Group,
Inc.
Condensed Consolidated Balance
Sheets
(Dollars in thousands, except
share data)
(Unaudited)
March 31, 2023
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
31,144
$
24,554
Restricted cash
188
186
Accounts receivable, less allowances
172,688
166,301
Inventories, net
269,981
264,374
Prepaid expenses and other current
assets
25,726
22,773
Total current assets
499,727
478,188
Property, plant and equipment, net
64,433
64,395
Rental equipment, net
27,168
27,139
Goodwill
348,212
348,048
Deferred tax asset
179
189
Intangible assets, net
219,213
227,994
Cash value of life insurance
17,500
17,166
Right of use operating lease assets
46,403
46,755
Other assets
5,520
5,736
Total assets
$
1,228,355
$
1,215,610
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
90,871
$
80,486
Current portion of long-term debt
16,094
16,352
Current portion of lease liabilities
10,744
9,964
Accrued expenses and other current
liabilities
55,426
62,677
Total current liabilities
173,135
169,479
Long-term debt, less current portion,
net
395,215
395,825
Lease liabilities
39,061
39,828
Deferred tax liability
24,123
23,834
Other liabilities
24,412
23,649
Total liabilities
655,946
652,615
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 - 21,441,506 and 19,730,362 shares,
respectively
Outstanding - 21,125,289 and 19,416,784
shares, respectively
21,125
19,417
Capital in excess of par value
591,292
591,796
Retained deficit
(19,833
)
(25,736
)
Treasury stock – 316,217 and 313,578
shares, respectively
(12,643
)
(12,526
)
Accumulated other comprehensive (loss)
income
(7,532
)
(9,956
)
Total stockholders’ equity
572,409
562,995
Total liabilities and stockholders’
equity
$
1,228,355
$
1,215,610
Distribution Solutions Group,
Inc.
Condensed Consolidated
Statements of Operations and Comprehensive Income (Loss)
(Dollars in thousands, except per
share data)
(Unaudited)
Three Months Ended
March 31,
2023
2022
Revenue
$
348,270
$
154,085
Cost of goods sold
215,399
113,201
Gross profit
132,871
40,884
Selling, general and administrative
expenses
116,150
37,896
Operating income (loss)
16,721
2,988
Interest expense
(7,670
)
(6,856
)
Loss on extinguishment of debt
—
(581
)
Change in fair value of earnout
liabilities
(57
)
—
Other income (expense), net
(975
)
956
Income (loss) before income
taxes
8,019
(3,493
)
Income tax expense (benefit)
2,112
(956
)
Net income (loss)
$
5,907
$
(2,537
)
Basic income (loss) per share of common
stock
$
0.28
$
(0.25
)
Diluted income (loss) per share of
common stock
$
0.28
$
(0.25
)
Distribution Solutions Group,
Inc.
Condensed Consolidated
Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended March
31,
2023
2022
Operating activities
Net income (loss)
$
5,907
$
(2,537
)
Adjustments to reconcile to net cash used
in operating activities:
Depreciation and amortization
15,722
7,589
Amortization of debt issue costs
469
655
Extinguishment of debt
—
581
Stock-based compensation
2,204
—
Deferred income taxes
612
—
Change in fair value of earnout
liability
57
—
Gain on sale of rental equipment
(889
)
(736
)
Loss on sale of property, plant and
equipment
151
—
Bargain purchase option
—
—
Charge for step-up of acquired
inventory
—
—
Net realizable value and reserve
adjustment for obsolete and excess inventory
2,158
636
Bad debt expense
253
50
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable
(6,015
)
(12,534
)
Inventories
(7,243
)
(12,126
)
Prepaid expenses and other current
assets
(2,941
)
(110
)
Accounts payable
11,183
7,097
Accrued expenses and other current
liabilities
(8,698
)
(2,252
)
Other changes in operating assets and
liabilities
928
155
Net cash provided by (used in) operating
activities
13,858
(13,532
)
Investing activities
Purchases of property, plant and
equipment
(4,490
)
(410
)
Business acquisitions, net of cash
acquired
—
(56,429
)
Purchases of rental equipment
(2,420
)
(2,657
)
Proceeds from sale of rental equipment
1,816
1,923
Net cash provided by (used in) investing
activities
(5,094
)
(57,573
)
Financing activities
Proceeds from revolving lines of
credit
93,953
34,277
Payments on revolving lines of credit
(87,607
)
(46,064
)
Proceeds from term loans
—
145,630
Payments on term loans
(7,500
)
(57,036
)
Deferred financing costs
—
(7,939
)
Shares repurchased held in treasury
(117
)
—
Payment of financing lease principal
(123
)
(73
)
Payment of earnout
(1,000
)
—
Net cash provided by (used in) financing
activities
(2,394
)
68,795
Effect of exchange rate changes on cash
and cash equivalents
222
(7
)
Increase (decrease) in cash, cash
equivalents and restricted cash
6,592
(2,317
)
Cash, cash equivalents and restricted cash
at beginning of period
24,740
14,671
Cash, cash equivalents and restricted
cash at end of period
$
31,332
$
12,354
Cash and cash equivalents
$
31,144
$
12,354
Restricted cash
188
—
Total cash, cash equivalents and
restricted cash
$
31,332
$
12,354
Distribution Solutions Group,
Inc.
Table 1 - Selected Segment
Financial Data
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2023
2022
Revenue:
Lawson Products
$
125,280
$
—
Gexpro Services
101,016
81,683
TestEquity
107,359
72,402
Other
14,615
—
Total
$
348,270
$
154,085
Operating Income:
Lawson Products
$
8,245
$
—
Gexpro Services
7,374
3,592
TestEquity
26
(604
)
Other
1,076
—
Total
$
16,721
$
2,988
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 includes
certain results of pre-merger Lawson Products for the three months
ended March 31, 2022 and excludes for all periods 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 March 31, 2023 and 2022. 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 Revenue to Non-GAAP Adjusted Revenue and
GAAP Operating Income to
Non-GAAP Adjusted EBITDA
Q1 2023 and Q1 2022
(Dollars in thousands)
(Unaudited)
Lawson Products
Gexpro Services
TestEquity
All Other
Consolidated DSG
Quarter Ended
Q1 2023
Q1 2022
Q1 2023
Q1 2022
Q1 2023
Q1 2022
Q1 2023
Q1 2022
Q1 2023
Q1 2022
GAAP Revenue
$
125,280
$
—
$
101,016
$
81,683
$
107,359
$
72,402
$
14,615
$
—
$
348,270
$
154,085
Pre-Merger Revenue(1)
—
104,902
—
—
—
—
—
12,975
—
117,877
Adjusted Revenue
$
125,280
$
104,902
$
101,016
$
81,683
$
107,359
$
72,402
$
14,615
$
12,975
$
348,270
$
271,962
GAAP Operating Income
$
8,245
$
—
$
7,374
$
3,592
$
26
$
(604
)
$
1,076
$
—
$
16,721
$
2,988
Pre-Merger Operating Income(1)
—
11,096
—
—
—
—
—
980
—
12,076
Adjusted Operating Income
8,245
11,096
7,374
3,592
26
(604
)
1,076
980
16,721
15,064
Depreciation and amortization
6,558
1,946
3,865
2,821
4,805
4,768
494
143
15,722
9,678
Adjustments:
Merger/integration costs(2)
1,009
2,974
214
842
—
600
—
—
1,223
4,416
Stock-based compensation(3)
2,204
(8,595
)
—
—
—
—
—
—
2,204
(8,595
)
Severance costs(4)
238
621
—
—
113
456
—
5
351
1,082
Acquisition related costs(5)
—
—
161
569
2,715
271
—
—
2,876
840
Inventory step-up(6)
—
—
—
163
—
—
—
—
—
163
Other non-recurring(7)
196
—
60
24
—
—
—
—
256
24
Adjusted EBITDA
$
18,450
$
8,042
$
11,674
$
8,011
$
7,659
$
5,491
$
1,570
$
1,128
$
39,353
$
22,672
GAAP Operating income as a percent of GAAP
Revenue
6.6
%
—
%
7.3
%
4.4
%
—
%
(0.8
)%
7.4
%
—
%
4.8
%
1.9
%
Adjusted EBITDA as a percent of GAAP
Revenue
14.7
%
—
%
11.6
%
9.8
%
7.1
%
7.6
%
10.7
%
—
%
11.3
%
14.7
%
Adjusted EBITDA as a percent of Adjusted
Revenue
14.7
%
7.7
%
11.6
%
9.8
%
7.1
%
7.6
%
10.7
%
8.7
%
11.3
%
8.3
%
(1)
Represents Lawson Products pre-merger
revenue 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 2023 and 2022, not related to a formal restructuring
plan
(5)
Expense for acquisition related costs,
unrelated to the business combination of Lawson Products,
TestEquity and Gexpro Services
(6)
Inventory fair value step-up adjustments
resulting from the acquisition accounting for additional
acquisitions completed by Gexpro Services
(7)
Other non-recurring costs consist of sales
force optimization 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
March 31, 2023
March 31, 2022
Amount
Diluted EPS(2)
Amount
Diluted EPS(2)
Net income (loss) as reported per GAAP
$
5,907
$
0.28
$
(2,537
)
$
(0.25
)
Pretax adjustments:
Acquisition related costs
2,876
0.13
840
0.08
Stock-based compensation
2,204
0.10
—
—
Merger/integration costs
1,223
0.06
1,442
0.14
Severance costs
351
0.02
456
0.04
Change in fair value of earnout
liability
57
—
—
—
Loss on extinguishment of debt
—
—
581
0.06
Inventory step-up
—
—
163
0.02
Other non-recurring
256
0.01
24
—
Total pretax adjustments
6,967
0.33
3,506
0.34
Tax effect on adjustments(1)
(1,832
)
(0.09
)
(961
)
(0.09
)
Total adjustments, net of tax
5,135
0.24
2,545
0.25
Non-GAAP adjusted net income
$
11,042
$
0.52
$
8
$
—
(1)
Tax effected at full year tax rate of
26.3% and 27.4% for the three months ended March 31, 2023 and 2022,
respectively.
(2)
Pretax adjustments to diluted EPS
calculated on 21.304 million and 10.301 million diluted shares for
the first quarter of 2023 and 2022, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230503006042/en/
Investor Relations: Distribution Solutions Group, Inc.
Ronald J. Knutson Executive Vice President, Chief Financial Officer
and Treasurer 773-304-5665
Investor Relations Contacts: Three Part Advisors, LLC
Steven Hooser or Sandy Martin 214-872-2710
Distribution Solutions (NASDAQ:DSGR)
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