First Quarter Revenue Up 19.5% to $416
Million, with Sequential Margin Expansion
Announced Acquisition of S&S Automotive
in Collision Repair Industry
Distribution Solutions Group, Inc. (NASDAQ:DSGR) ("DSG" or
the "Company"), a premier specialty distribution company, today
announced consolidated results for the first quarter ended March
31, 2024. This press release is supplemented by an earnings
presentation at
https://investor.distributionsolutionsgroup.com/news/events.
Bryan King, CEO and Chairman of the Board said, "Our first
quarter results were in line with near-term expectations. The
Lawson MRO vertical had strong performance while continuing to make
investments in its sales organization, the Gexpro Services OEM
vertical returned to double-digit margins as expected this quarter,
and the TestEquity industrial technology vertical margins
stabilized despite continuing headwinds in the Test &
Measurement end market on continued high interest rates and
inventory balancing that impacted the market. Sales grew 19.5% to
$416 million over the year-ago quarter driven by our acquisition
strategy and also increased 2.7% sequentially over the fourth
quarter of 2023. As anticipated, organic sales remained soft in the
quarter, however, our two-year stacked organic revenues increased
by 4.7% given tough sales comparisons in the Technology and
Renewables (OEM market) and Test & Measurement (Industrial
Technology market) verticals. Sequentially, the business improved
in many end markets including Technology and continued strength in
our Aerospace & Defense and Industrial Power (OEM market)
verticals. For the quarter, consolidated adjusted EBITDA margin
improved to 8.7% compared to 8.4% in the fourth quarter of
2023.
"As demonstrated in the first quarter, our acquisition strategy
contributes to DSG's inorganic growth by expanding our scale,
customer base and geographic reach by enhancing our enterprise-wide
product offerings. During the first quarter Lawson completed the
acquisition of Emergent Safety Supply to help accelerate our
expansion into the safety category. We are also excited about
Lawson's acquisition of S&S Automotive, with annual revenues of
approximately $40 million, which was announced yesterday. S&S
significantly extends our product base and expands Lawson's market
reach with automotive dealers in addition to its already
established strong position with collision repair shops.
"We are actively working our pipeline of acquisition targets,
incremental margin enhancement initiatives, and cost savings -- and
expect sequential margin improvements as 2024 develops. Our
asset-light business model, combined with our focus on growing
operating cash flows and accelerating returns on invested capital,
positions us well to maximize long-term shareholder value,"
concluded Mr. King.
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
March 31,
December 31,
(Dollars in thousands)
2024
2023
% Change
2023
% Change
Revenue
$
416,086
$
348,270
19.5
%
$
405,239
2.7
%
Operating income (loss)
$
2,783
$
16,721
(83.4
)%
$
(289
)
N/A
Non-GAAP adjusted operating income
$
29,761
$
32,783
(9.2
)%
$
28,006
6.3
%
Non-GAAP adjusted EBITDA
$
36,067
$
39,353
(8.4
)%
$
33,880
6.5
%
Operating income (loss) as a percent of
revenue
0.7
%
4.8
%
(0.1
)%
74bps
Adjusted EBITDA as a percent of
revenue
8.7
%
11.3
%
8.4
%
30bps
2024 First Quarter Summary(1)
- Revenue increased $67.8 million, or 19.5%, to $416.1 million
including $99.2 million of incremental revenue from 2023 and 2024
acquisitions. Two-year stacked organic revenue grew by 4.7% despite
organic revenue softness in the current quarter being down 8.6% on
comparable days. The revenue headwinds were isolated to the
technology and renewables end markets and our industrial Test &
Measurement business, which are more sensitive to higher interest
rates connected to capital spending. Organic revenue grew by 2.1%
from the fourth quarter of 2023.
- Operating income was $2.8 million, which included $10.7 million
of non-cash acquired intangible amortization and $16.2 million of
non-recurring severance and acquisition-related retention costs,
stock-based compensation, acquisition-related costs and other
non-recurring items as compared to operating income of $16.7
million in the prior year quarter. Adjusted operating income,
excluding these non-cash and non-recurring items, was $29.8 million
compared to $32.8 million in the year-ago quarter and $28.0 million
in the fourth quarter of 2023.
- Diluted loss per share was $0.11 for the quarter compared to
diluted income per share of $0.14 in the year-ago quarter based on
higher depreciation and amortization expenses and non-recurring
severance and acquisition-related retention costs. Non-GAAP
adjusted diluted earnings per share was $0.25 compared to $0.42 for
the same period a year ago and $0.22 from the fourth quarter of
2023.
- Adjusted EBITDA was $36.1 million or 8.7% compared to $39.4
million in the prior year quarter. Sequentially, adjusted EBITDA
grew $2.2 million or 6.5% from the fourth quarter of 2023; and
increased as a percent of sales by 30bps from 8.4%.
- The Company ended the first quarter with total liquidity of
$283.9 million, consisting of $85.6 million of cash (restricted and
unrestricted) and $198.3 million of availability under its credit
facility with net debt leverage of 3.0x. Uses of cash in the first
quarter included net capital expenditures of $2.9 million.
- Completed the acquisition of Emergent Safety Supply in January
2024 to expand and accelerate our safety product category.
Subsequent to quarter end, announced the accretive acquisition of
S&S Automotive with annual revenues of approximately $40
million to expand our product offering and automotive market
reach.
(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 first quarter results at 9:00
a.m. Eastern Time on May 2, 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 143899. A replay
of the conference call will be available by telephone approximately
two hours after completion of the call through May 16, 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
50335. 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 180,000 customers in
several diverse end markets supported by approximately 3,700
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, and Section 21E of the Securities Exchange Act of 1934, as
amended, that involve risks and uncertainties. Terms such as "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, 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, which
should be reviewed carefully. 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, expenditures or any problems
arising in connection with or after the combination of the
businesses of Lawson Products, TestEquity and Gexpro Services (the
"merger"), which may result in DSG not operating as effectively and
efficiently as expected; (ii) the risk that stockholder litigation
in connection with the merger or any other acquisition or business
combination completed by DSG or any of its subsidiaries results in
significant costs of defense, indemnification and liability; and
(iii) the risks that DSG may encounter difficulties integrating the
business of DSG with the business of other companies that DSG has
acquired or may acquire or has otherwise combined with or may
otherwise combine with, that DSG may not achieve the anticipated
synergies contemplated with respect to any such business or
transactions and that certain assumptions with respect to such
business or transactions could prove to be inaccurate.
-TABLES FOLLOW-
Distribution Solutions Group,
Inc.
Condensed Consolidated Balance
Sheets
(Dollars in thousands, except
share data)
(Unaudited)
March 31, 2024
December 31,
2023
ASSETS
Current assets:
Cash and cash equivalents
$
73,097
$
83,931
Restricted cash
12,505
15,695
Accounts receivable, less allowances
221,253
213,448
Inventories
313,820
315,984
Prepaid expenses and other current
assets
34,382
28,272
Total current assets
655,057
657,330
Property, plant and equipment, net
111,371
113,811
Rental equipment, net
23,709
24,575
Goodwill
402,009
399,925
Deferred tax asset, net
78
95
Intangible assets, net
246,761
253,834
Cash value of life insurance
19,150
18,493
Right of use operating lease assets
79,024
76,340
Other assets
5,964
5,928
Total assets
$
1,543,123
$
1,550,331
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable
$
101,719
$
98,674
Current portion of long-term debt
30,250
32,551
Current portion of lease liabilities
14,638
13,549
Accrued expenses and other current
liabilities
93,883
97,241
Total current liabilities
240,490
242,015
Long-term debt, less current portion,
net
535,736
535,881
Lease liabilities
69,323
67,065
Deferred tax liability, net
17,150
18,326
Other liabilities
25,766
25,443
Total liabilities
888,465
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 - 47,597,864 and 47,535,618 shares,
respectively
Outstanding - 46,806,573 and 46,758,359
shares, respectively
46,806
46,758
Capital in excess of par value
672,974
671,154
Retained deficit
(39,931
)
(34,707
)
Treasury stock – 791,291 and 777,259
shares, respectively
(16,883
)
(16,434
)
Accumulated other comprehensive income
(loss)
(8,308
)
(5,170
)
Total stockholders' equity
654,658
661,601
Total liabilities and stockholders'
equity
$
1,543,123
$
1,550,331
Distribution Solutions Group,
Inc.
Condensed Consolidated
Statements of Operations
(Dollars in thousands, except per
share data)
(Unaudited)
Three Months Ended
March 31,
2024
2023
Revenue
$
416,086
$
348,270
Cost of goods sold
272,677
215,399
Gross profit
143,409
132,871
Selling, general and administrative
expenses
140,626
116,150
Operating income (loss)
2,783
16,721
Interest expense
(11,827
)
(7,670
)
Change in fair value of earnout
liabilities
5
(57
)
Other income (expense), net
(262
)
(975
)
Income (loss) before income
taxes
(9,301
)
8,019
Income tax expense (benefit)
(4,077
)
2,112
Net income (loss)
$
(5,224
)
$
5,907
Basic income (loss) per share of common
stock
$
(0.11
)
$
0.14
Diluted income (loss) per share of
common stock
$
(0.11
)
$
0.14
Basic weighted average shares
outstanding
46,777,178
42,241,540
Diluted weighted average shares
outstanding
46,777,178
42,608,408
Distribution Solutions Group,
Inc.
Condensed Consolidated
Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended March
31,
2024
2023
Operating activities
Net income (loss)
$
(5,224
)
$
5,907
Adjustments to reconcile to net cash used
in operating activities:
Depreciation and amortization
17,052
15,722
Amortization of debt issuance costs
660
469
Stock-based compensation
2,198
2,204
Deferred income taxes
1,159
612
Change in fair value of earnout
liabilities
(5
)
57
Gain on sale of rental equipment
(432
)
(889
)
Loss on sale of property, plant and
equipment
(5
)
151
Net realizable value adjustment and
write-offs for obsolete and excess inventory
1,605
2,158
Bad debt expense
(333
)
253
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable
(6,560
)
(6,015
)
Inventories
1,048
(7,243
)
Prepaid expenses and other current
assets
(6,813
)
(2,941
)
Accounts payable
3,454
11,183
Accrued expenses and other current
liabilities
(1,488
)
(8,698
)
Other changes in operating assets and
liabilities
299
928
Net cash provided by (used in) operating
activities
6,615
13,858
Investing activities
Purchases of property, plant and
equipment
(2,454
)
(4,490
)
Business acquisitions, net of cash
acquired
(13,145
)
—
Purchases of rental equipment
(1,221
)
(2,420
)
Proceeds from sale of rental equipment
812
1,816
Net cash provided by (used in) investing
activities
(16,008
)
(5,094
)
Financing activities
Proceeds from revolving lines of
credit
8,858
93,953
Payments on revolving lines of credit
(11,611
)
(87,607
)
Payments on term loans
(625
)
(7,500
)
Shares repurchased held in treasury
(449
)
(117
)
Payment of financing lease principal
(124
)
(123
)
Payment of earnout
—
(1,000
)
Net cash provided by (used in) financing
activities
(3,951
)
(2,394
)
Effect of exchange rate changes on cash
and cash equivalents
(680
)
222
Increase (decrease) in cash, cash
equivalents and restricted cash
(14,024
)
6,592
Cash, cash equivalents and restricted cash
at beginning of period
99,626
24,740
Cash, cash equivalents and restricted
cash at end of period
$
85,602
$
31,332
Cash and cash equivalents
$
73,097
$
31,144
Restricted cash
12,505
188
Total cash, cash equivalents and
restricted cash
$
85,602
$
31,332
Distribution Solutions Group,
Inc.
Table 1 - Selected Segment
Financial Data
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
2024
2023
Revenue:
Lawson Products
$
118,186
$
125,280
Gexpro Services
98,651
101,016
TestEquity
187,149
107,359
Other
12,495
14,615
Intersegment revenue elimination
(395
)
—
Total
$
416,086
$
348,270
Operating income (loss):
Lawson Products
$
4,107
$
8,245
Gexpro Services
5,462
7,374
TestEquity
(6,094
)
26
Other
(692
)
1,076
Total
$
2,783
$
16,721
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 March 31, 2024 and 2023 and the three months
ended December 31, 2023. 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
Q1 2024, Q1 2023 and Q4
2023
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31, 2024
March 31, 2023
December 31, 2023
Net income (loss)
$
(5,224
)
$
5,907
$
(16,330
)
Income tax expense (benefit)
(4,077
)
2,112
3,323
Other income (expense), net
262
975
113
Change in fair value of earnout
liabilities
(5
)
57
(112
)
Interest expense
11,827
7,670
12,717
Operating income (loss)
2,783
16,721
(289
)
Depreciation and amortization
17,052
15,722
16,272
Stock-based compensation(1)
2,198
2,204
2,499
Severance and acquisition related
retention expenses(2)
10,716
351
11,400
Acquisition related costs(3)
1,954
4,099
2,498
Inventory step-up(4)
—
—
716
Other non-recurring(5)
1,364
256
784
Non-GAAP adjusted EBITDA
$
36,067
$
39,353
$
33,880
(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
acquisition
(3)
Transaction and integration costs related
to acquisitions
(4)
Inventory fair value step-up adjustment
for acquisition accounting
(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
March 31, 2024
March 31, 2023(3)(4)
December 31, 2023
Amount
Diluted EPS(2)
Amount
Diluted EPS(2)
Amount
Diluted EPS(2)
Net income (loss)
$
(5,224
)
$
(0.11
)
$
5,907
$
0.14
$
(16,330
)
$
(0.35
)
Pretax adjustments:
Stock-based compensation
2,198
0.05
2,204
0.05
2,499
0.05
Acquisition related costs
1,954
0.04
4,099
0.10
2,498
0.05
Amortization of intangible assets
10,746
0.23
9,152
0.21
10,398
0.22
Severance and acquisition related
retention expenses
10,716
0.23
351
0.01
11,400
0.24
Change in fair value of earnout
liabilities
(5
)
—
57
—
(112
)
—
Inventory step-up
—
—
—
—
716
0.02
Other non-recurring
1,364
0.03
256
0.01
784
0.02
Total pretax adjustments
26,973
0.58
16,119
0.38
28,183
0.60
Tax effect on adjustments(1)
(7,334
)
(0.16
)
(4,239
)
(0.10
)
(7,412
)
(0.16
)
Deferred tax asset valuation
allowance(5)
(2,696
)
(0.06
)
—
—
6,144
0.13
Non-GAAP adjusted net income
$
11,719
$
0.25
$
17,787
$
0.42
$
10,585
$
0.22
(1)
The estimated tax effect on the
adjustments is determined by applying the jurisdictional rate of
the originating territory of the non-GAAP adjustments.
(2)
Pretax adjustments to diluted EPS
calculated on 46.777 million, 42.608 million and 46.805 million
diluted shares for the first quarter of 2024 and 2023, and the
fourth quarter of 2023, 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)
Represents expense related to the deferred
tax asset valuation allowance from interest expense limitations
under Section 163(j).
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
March 31,
December 31,
2024
2023
2023
Operating income (loss)
$
2,783
$
16,721
$
(289
)
Gross profit adjustments:
Inventory step-up(1)
—
—
716
Total gross profit adjustments
—
—
716
Selling, general and administrative
expenses adjustments:
Acquisition related costs(2)
1,954
4,099
2,498
Amortization of intangible assets(3)
10,746
9,152
10,398
Stock-based compensation(4)
2,198
2,204
2,499
Severance and acquisition related
retention expenses(5)
10,716
351
11,400
Other non-recurring(6)
1,364
256
784
Total selling, general and administrative
adjustments
26,978
16,062
27,579
Total adjustments
26,978
16,062
28,295
Non-GAAP adjusted operating income
$
29,761
$
32,783
$
28,006
(1)
Inventory fair value step-up adjustment
for acquisition accounting
(2)
Transaction and integration costs related
to acquisitions
(3)
In the first quarter of 2024, 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
acquisition
(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/20240501438400/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
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