Strong Cash Flows as Growth
Continues
Distribution Solutions Group, Inc. (NASDAQ:DSGR) ("DSG" or
the "Company"), a premier specialty distribution company, today
announced consolidated results for the third quarter ended
September 30, 2023. This press release is supplemented by an
earnings presentation at https://investor.distributionsolutionsgroup.com/news/events.
Third Quarter
2023 Summary (1)
- Total revenue increased $91.8 million, or 26.4%, to $438.9
million which included $106.3 million of revenue from 2022 and 2023
acquisitions. Consolidated organic revenue declined 4.2% for the
quarter, primarily driven by softness in the Industrial
Technologies (TestEquity) vertical.
- Operating income was $12.8 million, reflecting higher
intangible amortization from our recent acquisitions and $13.9
million of non-recurring severance, acquisition-related retention
costs, stock-based compensation and other non-recurring items as
compared to operating income of $22.0 million in the prior year
quarter. Adjusted operating income excluding these items was $26.7
million compared to $25.7 million a year ago quarter.
- Adjusted EBITDA grew 26% to $43.7 million compared to $34.7
million in the prior year quarter. Adjusted EBITDA margin was 10.0%
in both periods. As anticipated in the early months following the
Hisco acquisition, Hisco decreased Adjusted EBITDA margins by
approximately 70bps for the third quarter. Excluding the Hisco
acquisition, Adjusted EBITDA margin was 10.7%.
- Diluted loss per share was $0.03 for the quarter compared to
diluted income per share of $0.42 in the year-ago quarter on higher
depreciation and amortization expenses and a higher share count in
the third quarter of 2023. Non-GAAP adjusted diluted earnings per
share was $0.17 compared to $0.32 for the same period a year
ago.
- The Company generated $47 million of cash flows from operations
for the quarter and ended the quarter with $80.5 million of
unrestricted cash on hand and $198.3 million of availability under
its committed credit facility. Net debt leverage was 2.9x as of the
end of the quarter.
(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.
Bryan King, CEO and Chairman of the Board, said, “We delivered a
strong quarter with Adjusted EBITDA growing nearly 26% and a 10.7%
Adjusted EBITDA margin excluding the Hisco impact. Revenue grew
slightly more than 26% primarily from recent acquisition activity.
For the first nine months of fiscal 2023, we generated significant
cash flows from operating activities of $74 million, of which $47
million was realized in the third quarter, demonstrating the power
of scale, solid margins in each of our business verticals and our
focus on working capital efficiency.
"Our third quarter included a full quarter of Hisco results,
which we acquired in June. We are well underway integrating Hisco's
business into TestEquity and continue to recognize the benefits of
building a broader customer base and reach, a larger geographic
footprint and an enhanced product offering. While it's still in the
early days of integration with the rest of DSG, we are discovering
additional opportunities Hisco offers to achieve revenue and cost
synergies across the entire group.
"One of our key strengths is that we support a diverse customer
base in growing end markets. We are closely monitoring the demand
environment in light of the continued tightening monetary policy,
as well as fluctuations in customer ordering patterns. While some
markets inevitably fluctuate, we continue to strategically invest
in initiatives which generate long-term profitable growth and cash
flow across the DSG platform. We are proactively identifying margin
improvement and cost savings opportunities and are taking steps to
sustainably improve our business to mitigate sales and margin risks
for the remainder of 2023 and into 2024. 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.
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, 3 and
4.
Lawson Products
Gexpro Services
TestEquity
All Other
Consolidated DSG
(Dollars in thousands)
Q3 2023
Q3 2022
Q3 2023
Q3 2022
Q3 2023
Q3 2022
Q3 2023
Q3 2022
Q3 2023
Q3 2022
GAAP Revenue
$
114,477
$
109,418
$
103,232
$
103,749
$
207,657
$
116,709
$
13,543
$
17,275
$
438,909
$
347,151
GAAP Operating income
$
10,643
$
5,352
$
7,332
$
7,992
$
(5,027
)
$
7,576
$
(165
)
$
1,107
$
12,783
$
22,027
Adjusted EBITDA
$
16,721
$
9,670
$
11,552
$
12,485
$
14,298
$
10,122
$
1,132
$
2,423
$
43,703
$
34,700
GAAP Operating income as a percent of GAAP
Revenue
9.3
%
4.9
%
7.1
%
7.7
%
(2.4
)%
6.5
%
(1.2
)%
6.4
%
2.9
%
6.3
%
Adjusted EBITDA as a percent of GAAP
Revenue
14.6
%
8.8
%
11.2
%
12.0
%
6.9
%
8.7
%
8.4
%
14.0
%
10.0
%
10.0
%
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 nine months ended September 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 nine months ended September 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 third quarter 2023 results at 9:00
a.m. Eastern Time on November 2, 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 881987. A replay of the conference call will be available by
telephone approximately two hours after completion of the call
through November 16, 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 49043. 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, 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 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 with
the business of other companies that DSG has acquired or has
otherwise combined 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)
September 30,
2023
December 31,
2022
ASSETS
Current assets:
Cash and cash equivalents
$
80,456
$
24,554
Restricted cash
20,703
186
Accounts receivable, less allowances
238,543
166,301
Inventories, net
313,337
264,374
Prepaid expenses and other current
assets
36,538
22,773
Total current assets
689,577
478,188
Property, plant and equipment, net
111,949
64,395
Rental equipment, net
26,320
27,139
Goodwill
397,762
348,048
Deferred tax asset
55
189
Intangible assets, net
265,319
227,994
Cash value of life insurance
18,001
17,166
Right of use operating lease assets
79,791
46,755
Other assets
7,194
5,736
Total assets
$
1,595,968
$
1,215,610
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
107,140
$
80,486
Current portion of long-term debt
32,335
16,352
Current portion of lease liabilities
13,241
9,964
Accrued expenses and other current
liabilities
97,191
62,677
Total current liabilities
249,907
169,479
Long-term debt, less current portion,
net
550,526
395,825
Lease liabilities
70,353
39,828
Deferred tax liability
24,452
23,834
Other liabilities
24,621
23,649
Total liabilities
919,859
652,615
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 -
47,479,256 and 39,460,724 shares, respectively Outstanding -
46,844,598 and 38,833,568 shares, respectively
46,845
38,834
Capital in excess of par value
670,287
572,379
Retained deficit
(18,377
)
(25,736
)
Treasury stock – 634,658 and 627,156
shares, respectively
(12,697
)
(12,526
)
Accumulated other comprehensive income
(loss)
(9,949
)
(9,956
)
Total stockholders’ equity
676,109
562,995
Total liabilities and stockholders’
equity
$
1,595,968
$
1,215,610
Distribution Solutions Group,
Inc.
Condensed Consolidated
Statements of Operations
(Dollars in thousands, except per
share data)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30,
September 30,
2023
2022
2023
2022
Revenue
$
438,909
$
347,151
$
1,165,163
$
822,572
Cost of goods sold
293,612
227,984
750,972
547,966
Gross profit
145,297
119,167
414,191
274,606
Selling, general and administrative
expenses
132,514
97,140
370,911
245,478
Operating income (loss)
12,783
22,027
43,280
29,128
Interest expense
(12,895
)
(6,097
)
(30,057
)
(16,704
)
Loss on extinguishment of debt
—
—
—
(3,395
)
Change in fair value of earnout
liabilities
667
9,641
646
3,948
Other income (expense), net
(1,133
)
(550
)
(2,869
)
224
Income (loss) before income
taxes
(578
)
25,021
11,000
13,201
Income tax expense (benefit)
990
8,480
3,637
3,912
Net income (loss)
$
(1,568
)
$
16,541
$
7,363
$
9,289
Basic income (loss) per share of common
stock
$
(0.03
)
$
0.43
$
0.17
$
0.27
Diluted income (loss) per share of
common stock
$
(0.03
)
$
0.42
$
0.17
$
0.27
Basic weighted average shares
outstanding
46,737,443
38,879,992
44,216,541
34,287,628
Diluted weighted average shares
outstanding
46,737,443
39,306,708
44,597,419
34,914,134
Distribution Solutions Group,
Inc.
Condensed Consolidated
Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended September
30,
2023
2022
Operating activities
Net income (loss)
$
7,363
$
9,289
Adjustments to reconcile to net cash used
in operating activities:
Depreciation and amortization
47,316
31,314
Amortization of debt issue costs
1,662
1,419
Extinguishment of debt
—
3,395
Stock-based compensation
5,441
445
Compensation expense related to employee
share purchases
427
—
Change in fair value of earnout
liabilities
(646
)
(3,948
)
Gain on sale of rental equipment
(1,929
)
(2,463
)
Gain on sale of property, plant and
equipment
(86
)
—
Charge for step-up of acquired
inventory
2,866
2,703
Net realizable value and reserve
adjustment for obsolete and excess inventory
—
5,551
Bad debt expense
1,045
564
Changes in operating assets and
liabilities, net of acquisitions:
Accounts receivable
(8,329
)
(30,795
)
Inventories
9,639
(43,857
)
Prepaid expenses and other current
assets
(7,288
)
(2,224
)
Accounts payable
10,552
1,687
Accrued expenses and other current
liabilities
5,587
1,316
Other changes in operating assets and
liabilities
433
6,324
Net cash provided by (used in) operating
activities
74,053
(19,280
)
Investing activities
Purchases of property, plant and
equipment
(11,180
)
(4,954
)
Business acquisitions, net of cash
acquired
(252,007
)
(113,681
)
Purchases of rental equipment
(7,735
)
(7,913
)
Proceeds from sale of rental equipment
4,202
5,998
Net cash provided by (used in) investing
activities
(266,720
)
(120,550
)
Financing activities
Proceeds from revolving lines of
credit
174,587
302,044
Payments on revolving lines of credit
(295,816
)
(237,370
)
Proceeds from term loans
305,000
445,630
Payments on term loans
(11,250
)
(343,662
)
Deferred financing costs
(3,419
)
(11,956
)
Proceeds from rights offering, net of
offering costs of $1,531
98,469
—
Repurchase of common stock
—
(1,940
)
Shares repurchased held in treasury
(171
)
(469
)
Proceeds from employees for share
purchases
3,253
—
Payment of financing lease principal
(358
)
(457
)
Payment of earnout
(1,000
)
—
Net cash provided by (used in) financing
activities
269,295
151,820
Effect of exchange rate changes on cash
and cash equivalents
(209
)
(1,309
)
Increase (decrease) in cash, cash
equivalents and restricted cash
76,419
10,681
Cash, cash equivalents and restricted cash
at beginning of period
24,740
14,671
Cash, cash equivalents and restricted
cash at end of period
$
101,159
$
25,352
Cash and cash equivalents
$
80,456
$
25,171
Restricted cash
20,703
181
Total cash, cash equivalents and
restricted cash
$
101,159
$
25,352
Distribution Solutions Group,
Inc.
Table 1 - Selected Segment
Financial Data
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30,
2023
2022
Revenue:
Lawson Products
$
114,477
$
109,418
Gexpro Services
103,232
103,749
TestEquity
207,657
116,709
Other
13,543
17,275
Total
$
438,909
$
347,151
Operating Income:
Lawson Products
$
10,643
$
5,352
Gexpro Services
7,332
7,992
TestEquity
(5,027
)
7,576
Other
(165
)
1,107
Total
$
12,783
$
22,027
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 September 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
Q3 2023 and Q3 2022
(Dollars in thousands)
(Unaudited)
Lawson Products
Gexpro Services
TestEquity
All Other
Consolidated DSG
Quarter Ended
Q3 2023
Q3 2022
Q3 2023
Q3 2022
Q3 2023
Q3 2022
Q3 2023
Q3 2022
Q3 2023
Q3 2022
GAAP Revenue
$
114,477
$
109,418
$
103,232
$
103,749
$
207,657
$
116,709
$
13,543
$
17,275
$
438,909
$
347,151
GAAP Operating income
$
10,643
$
5,352
$
7,332
$
7,992
$
(5,027
)
$
7,576
$
(165
)
$
1,107
$
12,783
$
22,027
Depreciation and amortization
4,069
2,009
4,069
4,065
8,322
1,896
550
1,009
17,010
8,979
Adjustments:
Merger and acquisition related
costs(1)
995
1,556
135
374
(1,535
)
472
311
—
(94
)
2,402
Stock-based compensation(2)
1,049
(3,568
)
—
—
—
—
—
—
1,049
(3,568
)
Severance and acquisition related
retention expenses(3)
73
763
16
—
10,388
178
1
3
10,478
944
Inventory net realizable value
adjustment(4)
—
1,737
—
—
—
—
—
—
—
1,737
Inventory step-up(5)
—
778
—
—
2,150
—
—
304
2,150
1,082
Other non-recurring(6)
(108
)
1,043
—
54
—
—
435
—
327
1,097
Adjusted EBITDA
$
16,721
$
9,670
$
11,552
$
12,485
$
14,298
$
10,122
$
1,132
$
2,423
$
43,703
$
34,700
GAAP Operating income as a percent of GAAP
Revenue
9.3
%
4.9
%
7.1
%
7.7
%
(2.4
)%
6.5
%
(1.2
)%
6.4
%
2.9
%
6.3
%
Adjusted EBITDA as a percent of GAAP
Revenue
14.6
%
8.8
%
11.2
%
12.0
%
6.9
%
8.7
%
8.4
%
14.0
%
10.0
%
10.0
%
(1)
Transaction and integration costs related
to the Mergers and other acquisitions
(2)
Expense (benefit) 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)
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 our records
(5)
Inventory fair value step-up adjustment
for Lawson resulting from the reverse merger acquisition accounting
and acquisition accounting for additional acquisitions completed by
Gexpro Services or TestEquity
(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
September 30, 2023
September 30, 2022
Amount
Diluted EPS(2)
Amount
Diluted EPS(2)
Net income (loss) as reported per GAAP
$
(1,568
)
$
(0.03
)
$
16,541
$
0.42
Pretax adjustments:
Stock-based compensation
1,049
0.02
(3,568
)
(0.09
)
Merger and acquisition related costs
(94
)
—
2,402
0.06
Severance and acquisition related
retention expenses
10,478
0.22
944
0.02
Change in fair value of earnout
liabilities
(667
)
(0.01
)
(9,641
)
(0.25
)
Inventory net realizable value
adjustment
—
—
1,737
0.04
Inventory step-up
2,150
0.05
1,082
0.03
Other non-recurring
327
0.01
1,097
0.03
Total pretax adjustments
13,243
0.28
(5,947
)
(0.15
)
Tax effect on adjustments(1)
(3,867
)
(0.08
)
2,016
0.05
Total adjustments, net of tax
9,376
0.20
(3,931
)
(0.10
)
Non-GAAP adjusted net income
$
7,808
$
0.17
$
12,610
$
0.32
(1)
Tax effected at the estimated full year
tax rate of 29.2% considering the pretax adjustments and the
quarterly tax rate of 33.9% for the three months ended September
30, 2023 and 2022, respectively.
(2)
Pretax adjustments to diluted EPS
calculated on 46.737 million and 39.307 million diluted shares for
the third quarter of 2023 and 2022, respectively.
Distribution Solutions Group,
Inc.
Table 4 - Reconciliation of
GAAP Operating Income to Non-GAAP Adjusted Operating Income
Q3 2023 and Q3 2022
(Dollars in thousands)
(Unaudited)
Three Months Ended
September 30,
2023
2022
GAAP Operating income
$
12,783
$
22,027
Gross profit adjustments:
Inventory step-up(1)
2,150
1,082
Inventory net realizable value
adjustment(2)
—
1,737
Total Gross profit adjustments
2,150
2,819
Selling, general and administrative
expenses adjustments:
Merger and acquisition related
costs(3)
(94
)
2,402
Stock-based compensation(4)
1,049
(3,568
)
Severance and acquisition related
retention expenses(5)
10,478
944
Other non-recurring(6)
327
1,097
Total Selling, general and administrative
adjustments
11,760
875
Total adjustments
13,910
3,694
Non-GAAP Adjusted operating income
$
26,693
$
25,721
(1)
Inventory fair value step-up adjustment
for Lawson resulting from the reverse merger acquisition accounting
and acquisition accounting for additional acquisitions completed by
Gexpro Services or TestEquity
(2)
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 our records
(3)
Transaction and integration costs related
to the Mergers and other acquisitions
(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 2023 and 2022 not related to a formal restructuring plan
and acquisition related retention expenses for the Hisco
acquisition
(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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231101986699/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
Grafico Azioni Distribution Solutions (NASDAQ:DSGR)
Storico
Da Ago 2024 a Set 2024
Grafico Azioni Distribution Solutions (NASDAQ:DSGR)
Storico
Da Set 2023 a Set 2024