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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Distribution Solutions Group Inc | NASDAQ:DSGR | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 35.57 | 32.26 | 56.54 | 0 | 09:16:16 |
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)
(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
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