UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
| Date of Report (Date of earliest event reported): | ||||||||
| (Exact name of registrant as specified in its charter) | ||
| (State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) | ||||||||||||
| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
| (Registrant's telephone number, including area code) | ||||||||||||||||||||
| Not Applicable | ||
| (Former name or former address, if changed since last report) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||||||||
The (NASDAQ Global Select Market) | ||||||||||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 Results of Operations and Financial Condition.
On August 1, 2024, Distribution Solutions Group, Inc. issued a press release announcing its second quarter 2024 results. A copy of the press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
99.1 Press Release issued on August 1, 2024
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
DISTRIBUTION SOLUTIONS GROUP, INC. | |||||||||||
(Registrant) | |||||||||||
Date: | August 1, 2024 | By: /s/ Ronald J. Knutson | |||||||||
Name: Ronald J. Knutson | |||||||||||
Title: Executive Vice President, Chief Financial Officer and Treasurer | |||||||||||
EXHIBIT INDEX
| Exhibit Number | Description | |||||||
Distribution Solutions Group Announces
2024 Second Quarter Results
Quarterly Revenue Up 16.3%, Sequential Margin Growth and Strong Cash Flow
FORT WORTH, TEXAS, August 1, 2024 - Distribution Solutions Group, Inc. (NASDAQ:DSGR) ("DSG" or the "Company"), a premier specialty distribution company, today announced consolidated results for the second quarter ended June 30, 2024. This press release is supplemented by an earnings presentation at https://investor.distributionsolutionsgroup.com/news/events.
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 | |||||||||||||||||||||||||||||
| June 30, | March 31, | ||||||||||||||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | % Change | 2024 | % Change | ||||||||||||||||||||||||
| Revenue | $ | 439,536 | $ | 377,984 | 16.3 | % | $ | 416,086 | 5.6 | % | |||||||||||||||||||
| Operating income (loss) | $ | 14,158 | $ | 13,776 | 2.8 | % | $ | 2,783 | N/A | ||||||||||||||||||||
| Non-GAAP adjusted operating income | $ | 38,852 | $ | 34,922 | 11.3 | % | $ | 29,761 | 30.5 | % | |||||||||||||||||||
| Non-GAAP adjusted EBITDA | $ | 45,181 | $ | 40,100 | 12.7 | % | $ | 36,067 | 25.3 | % | |||||||||||||||||||
| Operating income (loss) as a percent of revenue | 3.2% | 3.6% | -38bps | 0.7% | 255bps | ||||||||||||||||||||||||
| Adjusted EBITDA as a percent of revenue | 10.3% | 10.6% | -30bps | 8.7% | 160bps | ||||||||||||||||||||||||
Bryan King, CEO and Chairman of the Board, said, "Our strategic initiatives are on track, and I am pleased with DSG's quarterly results, marked by 16.3% revenue growth compared to last year and double-digit EBITDA margins of 10.3%. In addition, revenue and EBITDA in the second quarter improved sequentially due to acquisitions and improving performance in our existing businesses. As expected, organic revenues were down in the quarter from a year ago, but improved sequentially by nearly 4% from the first quarter. Our teams executed well this quarter and sustainably moved us in the right direction on all critical initiatives resulting in margin expansion within all three of our verticals. The Lawson MRO vertical had strong performance while continuing to make investments in its sales organization, the Gexpro Services OEM vertical realized continued margin expansion as expected and the TestEquity industrial technology vertical saw margins improve on some end market recovery and the continued integration of Hisco. For the quarter we generated $45.2 million of adjusted EBITDA, sequentially a 25% improvement over the previous quarter.
"We are very excited about our recent announcement to acquire Source Atlantic, which is expected to close in the third quarter. This CAD $250 million business will meaningfully drive DSG's growth by expanding our scale, customer base, and geographic reach and by enhancing our enterprise-wide product offerings. Combining Source Atlantic’s eastern Canadian-focused operations with The Bolt Supply House’s concentration in western Canada positions us as leading MRO player across Canada. In addition to Source Atlantic, our Emergent Safety Supply and S&S Automotive acquisitions completed earlier this year further strengthens DSG’s North American value-added capabilities.
"We remain focused on actively working our pipeline of acquisition targets, incremental margin enhancement initiatives, and cost savings. These efforts, along with some end market recovery, drove DSG’s strong second quarter results. Through our asset-light business model 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.
1
2024 Second Quarter Summary(1)
•Revenue increased $61.6 million, or 16.3%, to $439.5 million including $81.4 million of incremental revenue from 2023 and 2024 acquisitions. While organic sales declined 5.7% on comparable days, organic sales grew 3.8% over the first quarter of 2024. The sequential sales increase was driven by improving sales in many of DSG's end markets, including Test & Measurement, Renewables, Technology and project-related business.
•Operating income was $14.2 million, net of $12.2 million of non-cash acquired intangible amortization and $12.5 million of non-recurring severance and acquisition-related retention costs, stock-based compensation, acquisition-related costs and other non-recurring items. This compares to operating income of $13.8 million in the prior year quarter. Adjusted operating income, excluding these non-cash and non-recurring items, was $38.9 million in the current quarter compared to $34.9 million in the year-ago quarter and $29.8 million in the first quarter of 2024.
•Diluted income per share was $0.04 for the quarter compared to diluted income per share of $0.07 in the year-ago quarter based on higher depreciation and amortization expenses and non-recurring severance and acquisition-related retention costs in the current quarter. Non-GAAP adjusted diluted earnings per share was $0.40 compared to $0.42 for the same period a year ago and $0.25 for the first quarter of 2024.
•Adjusted EBITDA was $45.2 million, a 10.3% margin compared to $40.1 million, a 10.6% margin in the prior year quarter. Sequentially, adjusted EBITDA grew $9.1 million or 25.3% from the first quarter of 2024; and increased as a percent of sales by 160bps.
•The Company ended the second quarter with total liquidity of $209.9 million, consisting of $56.9 million of cash (restricted and unrestricted) and $153.0 million of availability under its credit facility with net debt leverage of 3.2x. Cash generated from operations was $21.4 million for the quarter. Uses of cash in the second quarter included net capital expenditures of $4.0 million and share repurchases of $1.7 million.
•Lawson completed the acquisition of S&S Automotive in May 2024.
(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 second quarter results at 9:00 a.m. Eastern Time on August 1, 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 258432. A replay of the conference call will be available by telephone approximately two hours after completion of the call through August 15, 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 50812. 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
2
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-
3
Distribution Solutions Group, Inc.
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share data)
(Unaudited)
| June 30, 2024 | December 31, 2023 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 46,786 | $ | 83,931 | |||||||
| Restricted cash | 10,125 | 15,695 | |||||||||
| Accounts receivable, less allowances | 235,802 | 213,448 | |||||||||
| Inventories | 320,748 | 315,984 | |||||||||
| Prepaid expenses and other current assets | 43,306 | 28,272 | |||||||||
| Assets held for sale | 3,589 | — | |||||||||
| Total current assets | 660,356 | 657,330 | |||||||||
| Property, plant and equipment, net | 108,709 | 113,811 | |||||||||
| Rental equipment, net | 23,062 | 24,575 | |||||||||
| Goodwill | 428,308 | 399,925 | |||||||||
Deferred tax asset, net | 84 | 95 | |||||||||
| Intangible assets, net | 276,896 | 253,834 | |||||||||
| Cash value of life insurance | 19,312 | 18,493 | |||||||||
| Right of use operating lease assets | 84,878 | 76,340 | |||||||||
| Other assets | 5,947 | 5,928 | |||||||||
| Total assets | $ | 1,607,552 | $ | 1,550,331 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 108,184 | $ | 98,674 | |||||||
| Current portion of long-term debt | 31,367 | 32,551 | |||||||||
| Current portion of lease liabilities | 16,877 | 13,549 | |||||||||
| Accrued expenses and other current liabilities | 108,116 | 97,241 | |||||||||
| Total current liabilities | 264,544 | 242,015 | |||||||||
| Long-term debt, less current portion, net | 573,654 | 535,881 | |||||||||
| Lease liabilities | 73,480 | 67,065 | |||||||||
Deferred tax liability, net | 16,774 | 18,326 | |||||||||
| Other liabilities | 25,796 | 25,443 | |||||||||
Total liabilities | 954,248 | 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 - 47,636,856 and 47,535,618 shares, respectively Outstanding - 46,787,160 and 46,758,359 shares, respectively | 46,786 | 46,758 | |||||||||
| Capital in excess of par value | 674,074 | 671,154 | |||||||||
| Retained deficit | (38,035) | (34,707) | |||||||||
Treasury stock – 849,696 and 777,259 shares, respectively | (18,655) | (16,434) | |||||||||
| Accumulated other comprehensive income (loss) | (10,866) | (5,170) | |||||||||
| Total stockholders' equity | 653,304 | 661,601 | |||||||||
| Total liabilities and stockholders' equity | $ | 1,607,552 | $ | 1,550,331 | |||||||
4
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, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenue | $ | 439,536 | $ | 377,984 | $ | 855,622 | $ | 726,254 | |||||||||||||||
| Cost of goods sold | 288,009 | 241,961 | 560,686 | 457,360 | |||||||||||||||||||
| Gross profit | 151,527 | 136,023 | 294,936 | 268,894 | |||||||||||||||||||
| Selling, general and administrative expenses | 137,369 | 122,247 | 277,995 | 238,397 | |||||||||||||||||||
| Operating income (loss) | 14,158 | 13,776 | 16,941 | 30,497 | |||||||||||||||||||
| Interest expense | (12,793) | (9,492) | (24,620) | (17,162) | |||||||||||||||||||
| Change in fair value of earnout liabilities | (8) | 36 | (3) | (21) | |||||||||||||||||||
| Other income (expense), net | 359 | (761) | 97 | (1,736) | |||||||||||||||||||
| Income (loss) before income taxes | 1,716 | 3,559 | (7,585) | 11,578 | |||||||||||||||||||
| Income tax expense (benefit) | (180) | 535 | (4,257) | 2,647 | |||||||||||||||||||
| Net income (loss) | $ | 1,896 | $ | 3,024 | $ | (3,328) | $ | 8,931 | |||||||||||||||
| Basic income (loss) per share of common stock | $ | 0.04 | $ | 0.07 | $ | (0.07) | $ | 0.21 | |||||||||||||||
| Diluted income (loss) per share of common stock | $ | 0.04 | $ | 0.07 | $ | (0.07) | $ | 0.21 | |||||||||||||||
| Basic weighted average shares outstanding | 46,818,932 | 43,621,236 | 46,798,055 | 42,935,198 | |||||||||||||||||||
| Diluted weighted average shares outstanding | 47,623,712 | 43,995,014 | 46,798,055 | 43,305,218 | |||||||||||||||||||
5
Distribution Solutions Group, Inc.
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating activities | |||||||||||
| Net income (loss) | $ | (3,328) | $ | 8,931 | |||||||
| Adjustments to reconcile to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | 35,587 | 30,306 | |||||||||
| Amortization of debt issuance costs | 1,320 | 1,002 | |||||||||
| Stock-based compensation | 1,891 | 4,392 | |||||||||
| Deferred income taxes | (1,541) | 86 | |||||||||
| Change in fair value of earnout liabilities | 3 | 21 | |||||||||
| (Gain) loss on sale of rental equipment | (900) | (1,377) | |||||||||
| (Gain) loss on sale of property, plant and equipment | (5) | 215 | |||||||||
| Charge for step-up of acquired inventory | 634 | 716 | |||||||||
| Net realizable value adjustment and write-offs for obsolete and excess inventory | 3,110 | 3,538 | |||||||||
| Bad debt expense | 106 | 933 | |||||||||
| Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
| Accounts receivable | (18,331) | (4,799) | |||||||||
| Inventories | (1,636) | (2,576) | |||||||||
| Prepaid expenses and other current assets | (15,345) | (6,405) | |||||||||
| Accounts payable | 9,771 | (8,936) | |||||||||
| Accrued expenses and other current liabilities | 15,636 | (624) | |||||||||
| Other changes in operating assets and liabilities | 1,037 | 2,041 | |||||||||
| Net cash provided by (used in) operating activities | 28,009 | 27,464 | |||||||||
| Investing activities | |||||||||||
| Purchases of property, plant and equipment | (5,829) | (7,796) | |||||||||
| Business acquisitions, net of cash acquired | (95,437) | (252,007) | |||||||||
| Purchases of rental equipment | (3,214) | (5,990) | |||||||||
| Proceeds from sale of rental equipment | 2,110 | 2,969 | |||||||||
| Net cash provided by (used in) investing activities | (102,370) | (262,824) | |||||||||
| Financing activities | |||||||||||
| Proceeds from revolving lines of credit | 84,139 | 161,684 | |||||||||
| Payments on revolving lines of credit | (40,285) | (274,134) | |||||||||
| Proceeds from term loans | — | 305,000 | |||||||||
| Payments on term loans | (8,188) | (11,250) | |||||||||
| Deferred financing costs | — | (3,419) | |||||||||
| Proceeds from rights offering, net of offering costs of $1,531 | — | 98,469 | |||||||||
| Repurchase of common stock | (1,683) | — | |||||||||
| Shares repurchased held in treasury | (538) | (171) | |||||||||
| Payment of financing lease principal | (237) | (249) | |||||||||
| Payment of earnout | — | (1,000) | |||||||||
| Net cash provided by (used in) financing activities | 33,208 | 274,930 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (1,562) | 541 | |||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | (42,715) | 40,111 | |||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 99,626 | 24,740 | |||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 56,911 | $ | 64,851 | |||||||
| Cash and cash equivalents | $ | 46,786 | $ | 44,244 | |||||||
| Restricted cash | 10,125 | 20,607 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 56,911 | $ | 64,851 | |||||||
6
| Distribution Solutions Group, Inc. | |||||||||||
| Table 1 - Selected Segment Financial Data | |||||||||||
| (Dollars in thousands) | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended | |||||||||||
| June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Revenue: | |||||||||||
| Lawson Products | $ | 121,118 | $ | 119,147 | |||||||
| Gexpro Services | 107,134 | 108,274 | |||||||||
| TestEquity | 197,481 | 136,067 | |||||||||
| Other | 14,471 | 14,496 | |||||||||
| Intersegment revenue elimination | (668) | — | |||||||||
| Total | $ | 439,536 | $ | 377,984 | |||||||
Operating income (loss): | |||||||||||
| Lawson Products | $ | 6,129 | $ | 8,470 | |||||||
| Gexpro Services | 8,091 | 8,778 | |||||||||
| TestEquity | 703 | (3,182) | |||||||||
| Other | (765) | (290) | |||||||||
| Total | $ | 14,158 | $ | 13,776 | |||||||
7
| 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 June 30, 2024 and 2023 and the three months ended March 31, 2024. 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 | |||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Three Months Ended | |||||||||||||||||
| June 30, 2024 | June 30, 2023 | March 31, 2024 | |||||||||||||||
| Net income (loss) | $ | 1,896 | $ | 3,024 | $ | (5,224) | |||||||||||
| Income tax expense (benefit) | (180) | 535 | (4,077) | ||||||||||||||
| Other income (expense), net | (359) | 761 | 262 | ||||||||||||||
| Change in fair value of earnout liabilities | 8 | (36) | (5) | ||||||||||||||
| Interest expense | 12,793 | 9,492 | 11,827 | ||||||||||||||
| Operating income (loss) | 14,158 | 13,776 | 2,783 | ||||||||||||||
| Depreciation and amortization | 18,535 | 14,584 | 17,052 | ||||||||||||||
Stock-based compensation(1) | (307) | 2,188 | 2,198 | ||||||||||||||
Severance and acquisition related retention expenses(2) | 8,313 | 2,437 | 10,716 | ||||||||||||||
Acquisition related costs(3) | 3,598 | 5,058 | 1,954 | ||||||||||||||
Inventory step-up(4) | 634 | 716 | — | ||||||||||||||
Other non-recurring(5) | 250 | 1,341 | 1,364 | ||||||||||||||
| Non-GAAP adjusted EBITDA | $ | 45,181 | $ | 40,100 | $ | 36,067 | |||||||||||
| Operating income (loss) as a percent of revenue | 3.2% | 3.6% | 0.7% | ||||||||||||||
| Adjusted EBITDA as a percent of revenue | 10.3% | 10.6% | 8.7% | ||||||||||||||
(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 and S&S Automotive acquisitions
(3)Transaction and integration costs related to acquisitions
(4)Inventory fair value step-up adjustment for acquisition accounting related to acquisitions completed by Lawson Products and TestEquity
(5)Other non-recurring costs consist of certain non-recurring strategic projects and other non-recurring items
8
| 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, 2024 | June 30, 2023(3)(4) | March 31, 2024 | |||||||||||||||||||||||||||||||||
| Amount | Diluted EPS(2) | Amount | Diluted EPS(2) | Amount | Diluted EPS(2) | ||||||||||||||||||||||||||||||
| Net income (loss) | $ | 1,896 | $ | 0.04 | $ | 3,024 | $ | 0.07 | $ | (5,224) | $ | (0.11) | |||||||||||||||||||||||
| Pretax adjustments: | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | (307) | (0.01) | 2,188 | 0.05 | 2,198 | 0.05 | |||||||||||||||||||||||||||||
| Acquisition related costs | 3,598 | 0.08 | 5,058 | 0.11 | 1,954 | 0.04 | |||||||||||||||||||||||||||||
| Amortization of intangible assets | 12,206 | 0.26 | 9,406 | 0.21 | 10,746 | 0.23 | |||||||||||||||||||||||||||||
| Severance and acquisition related retention expenses | 8,313 | 0.17 | 2,437 | 0.06 | 10,716 | 0.23 | |||||||||||||||||||||||||||||
| Change in fair value of earnout liabilities | 8 | — | (36) | — | (5) | — | |||||||||||||||||||||||||||||
| Inventory step-up | 634 | 0.01 | 716 | 0.02 | — | — | |||||||||||||||||||||||||||||
| Other non-recurring | 250 | 0.01 | 1,341 | 0.03 | 1,364 | 0.03 | |||||||||||||||||||||||||||||
| Total pretax adjustments | 24,702 | 0.52 | 21,110 | 0.48 | 26,973 | 0.58 | |||||||||||||||||||||||||||||
Tax effect on adjustments(1)(3) | (7,238) | (0.15) | (5,552) | (0.13) | (7,334) | (0.16) | |||||||||||||||||||||||||||||
Deferred tax asset valuation allowance(5) | (410) | (0.01) | — | — | (2,696) | (0.06) | |||||||||||||||||||||||||||||
| Non-GAAP adjusted net income | $ | 18,950 | $ | 0.40 | $ | 18,582 | $ | 0.42 | $ | 11,719 | $ | 0.25 | |||||||||||||||||||||||
(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 47.624 million, 43.995 million and 46.777 million diluted shares for the second quarter of 2024 and 2023,and the first quarter of 2024, 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)
9
| 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 | |||||||||||||||||
| June 30, | March 31, | ||||||||||||||||
| 2024 | 2023 | 2024 | |||||||||||||||
Operating income (loss) | $ | 14,158 | $ | 13,776 | $ | 2,783 | |||||||||||
| Gross profit adjustments: | |||||||||||||||||
Inventory step-up(1) | 634 | 716 | — | ||||||||||||||
Total gross profit adjustments | 634 | 716 | — | ||||||||||||||
| Selling, general and administrative expenses adjustments: | |||||||||||||||||
Acquisition related costs(2) | 3,598 | 5,058 | 1,954 | ||||||||||||||
Amortization of intangible assets(3) | 12,206 | 9,406 | 10,746 | ||||||||||||||
Stock-based compensation(4) | (307) | 2,188 | 2,198 | ||||||||||||||
Severance and acquisition related retention expenses(5) | 8,313 | 2,437 | 10,716 | ||||||||||||||
Other non-recurring(6) | 250 | 1,341 | 1,364 | ||||||||||||||
Total selling, general and administrative adjustments | 24,060 | 20,430 | 26,978 | ||||||||||||||
| Total adjustments | 24,694 | 21,146 | 26,978 | ||||||||||||||
Non-GAAP adjusted operating income | $ | 38,852 | $ | 34,922 | $ | 29,761 | |||||||||||
(1)Inventory fair value step-up adjustment for acquisition accounting related to acquisitions completed by Lawson Products and TestEquity
(2)Transaction and integration costs related to acquisitions
(3)In the fourth quarter of 2023, 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 and S&S Automotive acquisitions
(6)Other non-recurring costs consist of certain non-recurring strategic projects and other non-recurring items
10
Contact
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
11