Record Second Quarter Revenue Up
17.6%
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 second quarter ended June
30, 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.
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
June 30,
(Dollars in thousands)
2023
2022
% Change
GAAP Revenue
$
377,984
$
321,336
17.6
%
GAAP Operating Income
$
13,776
$
4,113
234.9
%
GAAP Operating income as a percent of GAAP
Revenue
3.6
%
1.3
%
Adjusted EBITDA
$
40,100
$
31,653
26.7
%
Adjusted EBITDA as a percent of GAAP
Revenue
10.6
%
9.9
%
Bryan King, CEO and Chairman of the Board, said, “Our business
delivered outstanding results during the second quarter as total
revenue grew by 17.6%. GAAP operating income more than tripled and
adjusted EBITDA increased by $8.4 million or nearly 27%,
representing 10.6% of revenue. We continued to expand our margin
profile with strong execution and performance during the first half
of 2023 driven by broad-based contributions across our market
leading businesses. We continue to strategically focus on
generating shareholder value by driving sales growth, improving
profitability and generating incremental cash flow.
"Our second quarter included just over three weeks of Hisco
results, which we acquired in June, and we are well underway
integrating Hisco's business into DSG. Combining Hisco into our
TestEquity business expands our customer base, geographic reach and
product offerings while driving additional scale and cost synergies
to the entire DSG platform.
"We are closely monitoring the demand environment in light of
continued tightening of monetary policy to emphasize on growth
segments to drive revenues. While certain end markets moderated
somewhat during the second quarter, we continue to invest in those
initiatives we believe will fuel profitable growth across the DSG
companies. Our asset light business model, combined with our focus
on growing operating cash flows and accelerating returns on
invested capital, positions us well to enhance long-term
shareholder value," concluded Mr. King.
Second Quarter Highlights (1)
- GAAP revenue was $378.0 million, an increase of $56.6 million
or 17.6%, which included $43.4 million of additional revenue from
companies acquired in 2022 and 2023 other than Lawson
Products.
- GAAP operating income increased by $9.7 million from the prior
year period to $13.8 million representing 3.6% of GAAP revenue.
Adjusted EBITDA increased 26.7% from the prior year period to $40.1
million or 10.6% of revenue.
- Diluted income per share was $0.14 for the quarter compared to
a diluted loss per share of $0.23 in the year-ago quarter. Non-GAAP
adjusted diluted earnings per share was $0.52 in the second quarter
2023 compared to $0.36 for the same period a year ago.
- On June 8, 2023, DSG completed the acquisition of HIS Company,
Inc., a Texas corporation (“Hisco”), for total purchase
consideration of $270.4 million, net of acquired cash, with a
potential additional cash earn-out payment and potential employee
retention payments of $37.5 million, payable in cash or DSG common
stock. DSG funded the transaction through a combination of our
expanded credit facility and approximately $100 million of equity
raised in a common stock rights offering to existing stockholders.
Hisco sales following the completion of the acquisition in the
quarter were approximately $28.0 million and is included in the
TestEquity reportable segment.
- The Company ended the quarter with $189.6 million of
availability under its committed credit facility and $44.2 million
of unrestricted cash on hand.
(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)
Q2 2023
Q2 2022
Q2 2023
Q2 2022
Q2 2023
Q2 2022
Q2 2023
Q2 2022
Q2 2023
Q2 2022
GAAP Revenue
$
119,147
$
107,334
$
108,274
$
99,792
$
136,067
$
97,874
$
14,496
$
16,336
$
377,984
$
321,336
GAAP Operating Income
$
8,470
$
(2,562
)
$
8,778
$
5,390
$
(3,182
)
$
471
$
(290
)
$
814
$
13,776
$
4,113
Adjusted EBITDA
$
16,070
$
9,405
$
13,142
$
11,915
$
9,493
$
8,647
$
1,395
$
1,686
$
40,100
$
31,653
GAAP Operating income as a percent of GAAP
Revenue
7.1
%
(2.4
)%
8.1
%
5.4
%
(2.3
)%
0.5
%
(2.0
)%
5.0
%
3.6
%
1.3
%
Adjusted EBITDA as a percent of GAAP
Revenue
13.5
%
8.8
%
12.1
%
11.9
%
7.0
%
8.8
%
9.6
%
10.3
%
10.6
%
9.9
%
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
periods following the April 1, 2022 merger closing date. GAAP
results for the three and six months ended June 30, 2022 include
the combined results of Gexpro Services and TestEquity, and the
results of Lawson Products only subsequent to April 1, 2022. GAAP
results for the three and six months ended June 30, 2023 include
the results of Lawson Products, Gexpro Services and TestEquity.
Conference Call
Distribution Solutions Group, Inc. will conduct a conference
call with investors to discuss second quarter 2023 results at 9:00
a.m. Eastern Time on August 3, 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 360415. A replay of the conference call will be available by
telephone approximately two hours after completion of the call
through August 17, 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
passcode for the replay is 48695. 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 170,000 customers in
several diverse end markets supported by approximately 3,800
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) the risks that DSG may encounter difficulties
integrating the business of DSG and Hisco, that DSG may not achieve
the anticipated 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)
June 30, 2023
December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
44,244
$
24,554
Restricted cash
20,607
186
Accounts receivable, less allowances
238,705
166,301
Inventories, net
326,236
264,374
Prepaid expenses and other current
assets
32,999
22,773
Total current assets
662,791
478,188
Property, plant and equipment, net
113,329
64,395
Rental equipment, net
27,106
27,139
Goodwill
398,663
348,048
Deferred tax asset
7
189
Intangible assets, net
277,537
227,994
Cash value of life insurance
17,628
17,166
Right of use operating lease assets
65,772
46,755
Other assets
7,246
5,736
Total assets
$
1,570,079
$
1,215,610
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
88,977
$
80,486
Current portion of long-term debt
32,386
16,352
Current portion of lease liabilities
12,836
9,964
Accrued expenses and other current
liabilities
92,999
62,677
Total current liabilities
227,198
169,479
Long-term debt, less current portion,
net
558,845
395,825
Lease liabilities
57,735
39,828
Deferred tax liability
25,905
23,834
Other liabilities
24,403
23,649
Total liabilities
894,086
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 - 23,667,064 and 19,730,362 shares,
respectively
Outstanding - 23,349,735 and 19,416,784
shares, respectively
23,350
19,417
Capital in excess of par value
688,983
591,796
Retained deficit
(16,809
)
(25,736
)
Treasury stock – 317,329 and 313,578
shares, respectively
(12,697
)
(12,526
)
Accumulated other comprehensive (loss)
income
(6,834
)
(9,956
)
Total stockholders’ equity
675,993
562,995
Total liabilities and stockholders’
equity
$
1,570,079
$
1,215,610
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,
2023
2022
2023
2022
Revenue
$
377,984
$
321,336
$
726,254
$
475,421
Cost of goods sold
241,961
206,781
457,360
319,982
Gross profit
136,023
114,555
268,894
155,439
Selling, general and administrative
expenses
122,247
110,442
238,397
148,338
Operating income (loss)
13,776
4,113
30,497
7,101
Interest expense
(9,492
)
(3,751
)
(17,162
)
(10,607
)
Loss on extinguishment of debt
—
(2,814
)
—
(3,395
)
Change in fair value of earnout
liabilities
36
(5,693
)
(21
)
(5,693
)
Other income (expense), net
(761
)
(182
)
(1,736
)
774
Income (loss) before income
taxes
3,559
(8,327
)
11,578
(11,820
)
Income tax expense (benefit)
535
(3,612
)
2,647
(4,568
)
Net income (loss)
$
3,024
$
(4,715
)
$
8,931
$
(7,252
)
Basic income (loss) per share of common
stock
$
0.14
$
(0.23
)
$
0.42
$
(0.47
)
Diluted income (loss) per share of
common stock
$
0.14
$
(0.23
)
$
0.41
$
(0.47
)
Basic weighted average shares
outstanding
21,810,618
20,343,028
21,467,599
15,347,943
Diluted weighted average shares
outstanding
21,997,507
20,343,028
21,652,609
15,347,943
Distribution Solutions Group,
Inc.
Condensed Consolidated
Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Ended June
30,
2023
2022
Operating activities
Net income (loss)
$
8,931
$
(7,252
)
Adjustments to reconcile to net cash used
in operating activities:
Depreciation and amortization
30,306
22,335
Amortization of debt issue costs
1,002
421
Extinguishment of debt
—
3,395
Stock-based compensation
4,392
4,013
Deferred income taxes
86
(420
)
Change in fair value of earnout
liabilities
21
5,693
Gain on sale of rental equipment
(1,377
)
(1,821
)
Loss on sale of property, plant and
equipment
215
—
Charge for step-up of acquired
inventory
716
—
Net realizable value and reserve
adjustment for obsolete and excess inventory
—
1,377
Bad debt expense
933
244
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable
(4,799
)
(27,639
)
Inventories
962
(28,983
)
Prepaid expenses and other current
assets
(6,405
)
(13,777
)
Accounts payable
(8,936
)
(5,254
)
Accrued expenses and other current
liabilities
(624
)
9,957
Other changes in operating assets and
liabilities
2,041
(1,832
)
Net cash provided by (used in) operating
activities
27,464
(39,543
)
Investing activities
Purchases of property, plant and
equipment
(7,796
)
(3,410
)
Business acquisitions, net of cash
acquired
(252,007
)
(113,781
)
Purchases of rental equipment
(5,990
)
(4,878
)
Proceeds from sale of rental equipment
2,969
6,783
Net cash provided by (used in) investing
activities
(262,824
)
(115,286
)
Financing activities
Proceeds from revolving lines of
credit
161,684
166,200
Payments on revolving lines of credit
(274,134
)
(67,687
)
Proceeds from term loans
305,000
377,552
Payments on term loans
(11,250
)
(307,490
)
Deferred financing costs
(3,419
)
(11,415
)
Proceeds from rights offering, net of
offering costs of $1,531
98,469
—
Shares repurchased held in treasury
(171
)
(78
)
Payment of financing lease principal
(249
)
(39
)
Payment of earnout
(1,000
)
—
Net cash provided by (used in) financing
activities
274,930
157,043
Effect of exchange rate changes on cash
and cash equivalents
541
1,181
Increase (decrease) in cash, cash
equivalents and restricted cash
40,111
3,395
Cash, cash equivalents and restricted cash
at beginning of period
24,740
14,671
Cash, cash equivalents and restricted
cash at end of period
$
64,851
$
18,066
Cash and cash equivalents
$
44,244
$
17,872
Restricted cash
20,607
194
Total cash, cash equivalents and
restricted cash
$
64,851
$
18,066
Distribution Solutions Group,
Inc.
Table 1 - Selected Segment
Financial Data
(Dollars in thousands)
(Unaudited)
Three Months Ended
June 30,
2023
2022
Revenue:
Lawson Products
$
119,147
$
107,334
Gexpro Services
108,274
99,792
TestEquity
136,067
97,874
Other
14,496
16,336
Total
$
377,984
$
321,336
Operating Income:
Lawson Products
$
8,470
$
(2,562
)
Gexpro Services
8,778
5,390
TestEquity
(3,182
)
471
Other
(290
)
814
Total
$
13,776
$
4,113
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
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 June 30, 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 Operating Income to Non-GAAP Adjusted EBITDA
Q2 2023 and Q2 2022
(Dollars in thousands)
(Unaudited)
Lawson Products
Gexpro Services
TestEquity
All Other
Consolidated DSG
Quarter Ended
Q2 2023
Q2 2022
Q2 2023
Q2 2022
Q2 2023
Q2 2022
Q2 2023
Q2 2022
Q2 2023
Q2 2022
GAAP Revenue
$
119,147
$
107,334
$
108,274
$
99,792
$
136,067
$
97,874
$
14,496
$
16,336
$
377,984
$
321,336
GAAP Operating Income
$
8,470
$
(2,562
)
$
8,778
$
5,390
$
(3,182
)
$
471
$
(290
)
$
814
$
13,776
$
4,113
Depreciation and amortization
4,498
4,522
4,026
4,093
5,560
5,761
500
370
14,584
14,746
Adjustments:
Merger/integration costs(1)
—
1,818
150
2,160
—
1,812
—
—
150
5,790
Stock-based compensation(2)
2,188
4,013
—
—
—
—
—
—
2,188
4,013
Severance and acquisition related
retention expenses(3)
119
449
23
45
2,295
458
—
1
2,437
953
Acquisition related costs(4)
651
—
153
189
4,104
145
—
—
4,908
334
Inventory step-up(5)
—
1,165
—
—
716
—
—
457
716
1,622
Other non-recurring(6)
144
—
12
38
—
—
1,185
44
1,341
82
Adjusted EBITDA
$
16,070
$
9,405
$
13,142
$
11,915
$
9,493
$
8,647
$
1,395
$
1,686
$
40,100
$
31,653
GAAP Operating income as a percent of GAAP
Revenue
7.1
%
(2.4
)%
8.1
%
5.4
%
(2.3
)%
0.5
%
(2.0
)%
5.0
%
3.6
%
1.3
%
Adjusted EBITDA as a percent of GAAP
Revenue
13.5
%
8.8
%
12.1
%
11.9
%
7.0
%
8.8
%
9.6
%
10.3
%
10.6
%
9.9
%
(1)
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
(2)
Expense primarily for stock-based
compensation, of which a portion varies with the Company’s stock
price
(3)
Includes severance expense for actions
taken in 2023 and 2022, not related to a formal restructuring plan
and acquisition related retention expenses for the Hisco
acquisition
(4)
Expense for acquisition related costs,
unrelated to the business combination of Lawson Products,
TestEquity and Gexpro Services
(5)
Inventory fair value step-up adjustment
for Lawson resulting from the reverse merger acquisition
accounting
(6)
Other non-recurring costs consist of
non-capitalized deferred financing costs incurred in conjunction
with the 2023 credit agreement amendment, 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, 2023
June 30, 2022
Amount
Diluted EPS(2)
Amount
Diluted EPS(2)
Net income (loss) as reported per GAAP
$
3,024
$
0.14
$
(4,715
)
$
(0.23
)
Pretax adjustments:
Acquisition related costs
4,908
0.22
334
0.02
Stock-based compensation
2,188
0.10
4,013
0.20
Merger/integration costs
150
0.01
5,790
0.28
Severance and acquisition related
retention expenses
2,437
0.11
953
0.05
Change in fair value of earnout
liabilities
(36
)
—
5,693
0.28
Loss on extinguishment of debt
—
—
2,814
0.14
Inventory step-up
716
0.03
1,622
0.08
Other non-recurring
1,341
0.06
82
—
Total pretax adjustments
11,704
0.53
21,301
1.05
Tax effect on adjustments(1)
(3,394
)
(0.15
)
(9,245
)
(0.46
)
Total adjustments, net of tax
8,310
0.38
12,056
0.59
Non-GAAP adjusted net income
$
11,334
$
0.52
$
7,341
$
0.36
(1)
Tax effected at quarterly tax rate of
29.0% and 43.4% for the three months ended June 30, 2023 and 2022,
respectively, excluding discrete items.
(2)
Pretax adjustments to diluted EPS
calculated on 21.998 million and 20.343 million diluted shares for
the second quarter of 2023 and 2022, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230802254216/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 / Sandy Martin 214-872-2710 / 214-616-2207
Distribution Solutions (NASDAQ:DSGR)
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From Jun 2024 to Jul 2024
Distribution Solutions (NASDAQ:DSGR)
Historical Stock Chart
From Jul 2023 to Jul 2024