Le Lézard
Classified in: Business
Subjects: EARNINGS, Conference Call, Webcast

Distributions Solutions Group Announces Second Quarter 2022 Results


Distributions Solutions Group, Inc. (NASDAQ:DSGR) ("DSG" or the "Company"), a leading specialty distributor providing high touch, value-added distribution solutions to the maintenance, repair & operations (MRO), original equipment manufacturer (OEM) and the industrial technologies markets today announced results for the second quarter ended June 30, 2022, its initial reporting period since the April 1, 2022 merger of Lawson Products, Gexpro Services and TestEquity. Presentations are supplemented by a series of slides appearing on the company's investor relations home page at www.distributionsolutionsgroup.com.

Note Regarding Reverse Merger Accounting

As a result of the April 1, 2022 merger of Lawson Products, Gexpro Services and TestEquity, our 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 period following the April 1, 2022 merger closing date. GAAP results for the three and six months ended June 30, 2021 include the combined results of Gexpro Services and TestEquity. GAAP results for the three months ended June 30, 2022 include the results of Lawson Products, Gexpro Services and TestEquity and results for the six months ended June 30, 2022 include the results of Lawson Products for the three months after the April 1, 2021 merger closing date.

Second Quarter Highlights (1)

(1)

See reconciliation of GAAP to non-GAAP measures in tables 2 and 3.

"We are pleased with the strong results DSG is reporting for its initial quarter following the strategic combination of Lawson Products, Gexpro Services and TestEquity, and are excited about the future prospects of the combined DSG business. Each of the operating companies made significant progress giving us further confidence in our overall strategy and our teams, and raising our excitement about the future of the combined DSG business," said Bryan King, CEO and Chairman of the Board.

"For the quarter, net sales grew to $321.3 million including acquisition revenues, coupled with 11.8% growth in our organic business. This growth drove adjusted EBITDA to $31.7 million or 9.9% of sales. We continue to see solid product demand from our customers across many of our end markets. Only 120 days into the merger we are realizing early wins regarding customer opportunities as well as overall cost synergies. The leadership of each operating company and their respective teams are working collaboratively to ensure they continue to deliver on our high-touch, value added business models while we continue to focus on increasing DSG's long-term enterprise value for our shareholders.

"During the quarter we successfully completed two accretive acquisitions with aggregate annual revenues of approximately $119 million which are expected to generate annual adjusted EBITDA in excess of $10 million. Our acquisition pipeline is strong and we are committed to investing resources and capital to ensure that acquisitions are accretive to our growth and earnings profile," concluded Mr. King.

The following represents a summary of net sales, operating income and adjusted EBITDA for each reportable segment. See reconciliation of GAAP to non-GAAP measures in table 2.

(in thousands)

Three Months Ended June 30, 2022

 

GAAP Net Sales

 

GAAP Operating Income (Loss)(1)

 

Adjusted EBITDA

Lawson Products(1)

$

107,334

 

$

(2,562

)

 

$

9,405

Gexpro Services

 

99,792

 

 

5,390

 

 

 

11,915

TestEquity

 

97,874

 

 

471

 

 

 

8,647

Other(2)

 

16,336

 

 

814

 

 

 

1,686

Total

$

321,336

 

$

4,113

 

 

$

31,653

(1)

GAAP operating loss includes merger related costs, higher stock-based compensation which varies with our stock price and additional intangible amortization expense as a result of the merger.

(2)

Other consists of results of The Bolt Supply House and unallocated holding company costs.

Conference Call

Distribution Solutions Group, Inc. will conduct a conference call with investors to discuss second quarter 2022 results at 9:00 a.m. Eastern Time on August 9, 2022. 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 529621. A replay of the conference call will be available by telephone approximately two hours after completion of the call through August 23, 2022. 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 PIN access number for the replay is 45807#. 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 www.distributionsolutionsgroup.com.

About Distribution Solutions Group, Inc.

Distribution Solutions Group ("DSG") is a best-in-class specialty distribution company providing high touch, value-added distribution solutions to the maintenance, repair & operations (MRO), 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 120,000+ long-standing customers in several diverse end markets supported by more than 3,000 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 (formerly Lawson Products, Inc.) Annual Report on Form 10-K for the fiscal year ended December 31, 2021, DSG's Quarterly Reports on Form 10-Q and DSG's Current Reports on Form 8-K. In addition, the following factors, among others, could cause actual outcomes and results to differ materially from those discussed in the forward-looking statements: (i) whether or not the terms of the earnout provisions in either of the merger agreements will be satisfied such that DSG would be required to issue additional shares of common stock in connection with the mergers; (ii) unanticipated difficulties or expenditures relating to the mergers; (iii) the risk that stockholder litigation in connection with the mergers results in significant costs of defense, indemnification and liability; and (iv) 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 to any forward-looking statements whether as a result of new information, future events or otherwise.

-TABLES FOLLOW-

Distribution Solutions Group, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands, except share data)

(Unaudited)

 

June 30,
2022

 

December 31,
2021

ASSETS

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

17,872

 

 

$

14,671

 

Restricted cash

 

194

 

 

 

?

 

Accounts receivable, less allowance for doubtful accounts

 

168,247

 

 

 

80,574

 

Inventories, net

 

250,696

 

 

 

132,717

 

Prepaid expenses and other current assets

 

30,801

 

 

 

8,098

 

Total current assets

 

467,810

 

 

 

236,060

 

Property, plant and equipment, less accumulated depreciation and amortization

 

64,958

 

 

 

9,079

 

Rental equipment, net

 

26,108

 

 

 

24,727

 

Goodwill

 

355,440

 

 

 

106,145

 

Deferred income taxes

 

267

 

 

 

266

 

Intangible assets, net

 

242,926

 

 

 

96,608

 

Cash value of life insurance

 

17,537

 

 

 

?

 

Right of use assets

 

47,055

 

 

 

19,662

 

Other assets

 

4,095

 

 

 

747

 

Total assets

$

1,226,196

 

 

$

493,294

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

93,191

 

 

$

47,958

 

Current portion of long-term debt

 

16,495

 

 

 

134,405

 

Current portion of lease obligation

 

10,487

 

 

 

4,641

 

Earnout derivative liability

 

23,000

 

 

 

?

 

Related party payables

 

?

 

 

 

4,813

 

Accrued expenses and other current liabilities

 

58,310

 

 

 

23,126

 

Total current liabilities

 

201,483

 

 

 

214,943

 

Long-term debt, less current portion, net

 

389,279

 

 

 

93,134

 

Security bonus plan

 

10,163

 

 

 

?

 

Deferred compensation

 

10,827

 

 

 

?

 

Lease obligation

 

38,652

 

 

 

16,132

 

Deferred tax liability

 

30,446

 

 

 

2,742

 

Other liabilities

 

3,518

 

 

 

574

 

Total liabilities

 

684,368

 

 

 

327,525

 

Stockholders' equity:

 

 

 

Preferred stock, $1 par value:

 

 

 

Authorized - 500,000 shares, issued and outstanding ? None

 

?

 

 

 

?

 

Common stock, $1 par value:

 

 

 

Authorized - 35,000,000 shares

Issued - 19,694,145 and 10,542,333 shares, respectively

Outstanding - 19,443,982 and 10,294,824 shares, respectively

 

19,468

 

 

 

10,318

 

Capital in excess of par value

 

573,649

 

 

 

197,057

 

Retained deficit

 

(40,394

)

 

 

(33,142

)

Treasury stock ? 250,163 and 247,509 shares, respectively

 

(10,144

)

 

 

(10,033

)

Accumulated other comprehensive (loss) income

 

(751

)

 

 

1,569

 

Total stockholders' equity

 

541,828

 

 

 

165,769

 

Total liabilities and stockholders' equity

$

1,226,196

 

 

$

493,294

 

Distribution Solutions Group, Inc.

Condensed Consolidated Statements of Income

(Dollars in thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

 

Six Months Ended

 

June 30,

 

June 30,

 

2022

 

2021

 

2022

 

2021

 

 

 

 

 

 

 

 

Revenue

$

321,336

 

 

$

134,152

 

 

$

475,421

 

 

$

258,979

 

Cost of goods sold

 

206,781

 

 

 

100,411

 

 

 

319,982

 

 

 

194,991

 

Gross profit

 

114,555

 

 

 

33,741

 

 

 

155,439

 

 

 

63,988

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

110,442

 

 

 

28,273

 

 

 

148,338

 

 

 

56,267

 

 

 

 

 

 

 

 

 

Operating income

 

4,113

 

 

 

5,468

 

 

 

7,101

 

 

 

7,721

 

 

 

 

 

 

 

 

 

Interest expense

 

(3,751

)

 

 

(4,262

)

 

 

(10,607

)

 

 

(8,506

)

Loss on extinguishment of debt

 

(2,814

)

 

 

?

 

 

 

(3,395

)

 

 

?

 

Change in fair value of earnout derivative liability

 

(5,693

)

 

 

?

 

 

 

(5,693

)

 

 

?

 

Other (expense) income, net

 

(182

)

 

 

(186

)

 

 

774

 

 

 

(254

)

 

 

 

 

 

 

 

 

(Loss) income before income taxes

 

(8,327

)

 

 

1,020

 

 

 

(11,820

)

 

 

(1,039

)

Income tax (benefit) expense

 

(3,612

)

 

 

559

 

 

 

(4,568

)

 

 

390

 

 

 

 

 

 

 

 

 

Net (loss) income

$

(4,715

)

 

$

461

 

 

$

(7,252

)

 

$

(1,429

)

 

 

 

 

 

 

 

 

Basic (loss) income per share of common stock

$

(0.23

)

 

$

0.04

 

 

$

(0.47

)

 

$

(0.14

)

 

 

 

 

 

 

 

 

Diluted (loss) income per share of common stock

$

(0.23

)

 

$

0.04

 

 

$

(0.47

)

 

$

(0.14

)

 

 

 

 

 

 

 

 

Comprehensive (loss) income

 

 

 

 

 

 

 

Net (loss) income

$

(4,715

)

 

$

461

 

 

$

(7,252

)

 

$

(1,429

)

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

Loss on foreign currency translation

 

(2,491

)

 

 

(171

)

 

 

(2,320

)

 

 

(3

)

Comprehensive (loss) income

$

(7,206

)

 

$

290

 

 

$

(9,572

)

 

$

(1,432

)

Distribution Solutions Group, Inc.

 

Table 1 - Selected Segment Financial Data

 

(Dollars in thousands)

 

(Unaudited)

 

 

 

 

 

 

 

Three Months Ended June 30,

 

2022

 

2021

Net Sales:

 

 

 

 

Lawson

$

107,334

 

 

$

?

 

Gexpro Services

 

99,792

 

 

 

66,296

 

TestEquity

 

97,874

 

 

 

67,856

 

Other

 

16,336

 

 

 

?

 

Total

$

321,336

 

 

$

134,152

 

 

 

 

 

 

Operating Income:

 

 

 

 

Lawson(1)

$

(2,562

)

 

$

?

 

Gexpro Services

 

5,390

 

 

 

5,465

 

TestEquity

 

471

 

 

 

3

 

Other

 

814

 

 

 

?

 

Total

$

4,113

 

 

$

5,468

 

(1)

GAAP operating loss includes merger related costs, higher stock-based compensation which varies with our stock price and additional intangible amortization expense as a result of the merger.

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 reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain non-operational items that impact the overall comparability. See Tables below for supplemental financial data and corresponding reconciliations to GAAP financial measures for the three months ended June 30, 2022 and 2021. 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 Sales to Non-GAAP Adjusted Net Sales and

GAAP Operating Income to Non-GAAP Adjusted EBITDA

(Dollars in thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Lawson Products

 

Gexpro Services

 

TestEquity

 

Other

 

Consolidated DSG

 

Q2 2022

Q2 2021

 

Q2 2022

Q2 2021

 

Q2 2022

Q2 2021

 

Q2 2022

Q2 2021

 

Q2 2022

Q2 2021

GAAP Net Sales

$

107,334

 

$

?

 

 

$

99,792

 

$

66,296

 

 

$

97,874

 

$

67,856

 

 

$

16,336

 

$

?

 

 

$

321,336

 

$

134,152

 

Pre-Merger Sales(1)

 

?

 

 

94,861

 

 

 

?

 

 

?

 

 

 

?

 

 

?

 

 

 

?

 

 

11,679

 

 

 

?

 

 

106,540

 

Adjusted Net Sales

$

107,334

 

$

94,861

 

 

$

99,792

 

$

66,296

 

 

$

97,874

 

$

67,856

 

 

$

16,336

 

$

11,679

 

 

$

321,336

 

$

240,692

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP Operating Income

$

(2,562

)

$

?

 

 

$

5,390

 

$

5,465

 

 

$

471

 

$

3

 

 

$

814

 

$

?

 

 

$

4,113

 

$

5,468

 

Pre-Merger Operating Income(1)

 

?

 

 

2,443

 

 

 

?

 

 

?

 

 

 

?

 

 

?

 

 

 

?

 

 

939

 

 

 

?

 

 

3,382

 

Adjusted Operating Income

 

(2,562

)

 

2,443

 

 

 

5,390

 

 

5,465

 

 

 

471

 

 

3

 

 

 

814

 

 

939

 

 

 

4,113

 

 

8,850

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

4,522

 

 

1,885

 

 

 

4,093

 

 

1,085

 

 

 

5,761

 

 

3,381

 

 

 

370

 

 

119

 

 

 

14,746

 

 

6,470

 

Adjustments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Merger transaction costs(2)

 

1,818

 

 

1,353

 

 

 

2,160

 

 

367

 

 

 

1,812

 

 

?

 

 

 

?

 

 

?

 

 

 

5,790

 

 

1,720

 

Stock-based compensation(3)

 

4,013

 

 

1,574

 

 

 

?

 

 

?

 

 

 

?

 

 

?

 

 

 

?

 

 

?

 

 

 

4,013

 

 

1,574

 

Severance costs(4)

 

449

 

 

(131

)

 

 

45

 

 

12

 

 

 

458

 

 

5

 

 

 

1

 

 

5

 

 

 

953

 

 

(109

)

Acquisition related costs(5)

 

?

 

 

655

 

 

 

189

 

 

515

 

 

 

145

 

 

291

 

 

 

?

 

 

?

 

 

 

334

 

 

1,461

 

Inventory step-up(6)

 

1,165

 

 

?

 

 

 

?

 

 

?

 

 

 

?

 

 

?

 

 

 

457

 

 

?

 

 

 

1,622

 

 

?

 

Other non-recurring(7)

 

?

 

 

?

 

 

 

38

 

 

20

 

 

 

?

 

 

?

 

 

 

44

 

 

?

 

 

 

82

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA

$

9,405

 

$

7,779

 

 

$

11,915

 

$

7,464

 

 

$

8,647

 

$

3,680

 

 

$

1,686

 

$

1,063

 

 

$

31,653

 

$

19,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income as a percent of net sales

 

(2.4

) %

 

?

%

 

 

5.4

%

 

8.2

%

 

 

0.5

%

 

?

%

 

 

5.0

%

 

?

%

 

 

1.3

%

 

4.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA as a percent of net sales

 

8.8

%

 

?

%

 

 

11.9

%

 

11.3

%

 

 

8.8

%

 

5.4

%

 

 

10.3

%

 

?

%

 

 

9.9

%

 

14.9

%

Adjusted EBITDA as a percent of adjusted net sales

 

8.8

%

 

8.2

%

 

 

11.9

%

 

11.3

%

 

 

8.8

%

 

5.4

%

 

 

10.3

%

 

9.1

%

 

 

9.9

%

 

8.3

%

(1)

Represents Lawson Products pre-merger sales and operating income

(2)

Merger transaction costs related to the negotiation, review and execution of the merger agreements relating to the business combination of Lawson Products, TestEquity and Gexpro Services

(3)

Expense primarily for stock-based compensation, of which a portion varies with the Company's stock price

(4)

Includes severance expense for actions taken in 2022 and 2021

(5)

Expense for acquisition related costs, unrelated to the business combination of Lawson Products, TestEquity and Gexpro Services

(6)

Inventory fair value step-up adjustment resulting from the reverse merger acquisition accounting

(7)

Other non-recurring costs consists of acquisition integration costs and other non-recurring items

Distribution Solutions Group, Inc.

Table 3 - Reconciliation of GAAP Net Income (Loss) and Diluted EPS to

Non-GAAP Net Income and Adjusted Diluted EPS

(Dollars in thousands)

(Unaudited)

 

 

 

Three Months Ended

 

June 30, 2022

 

June 30, 2021

 

Amount

 

Diluted EPS(2)

 

Amount

 

Diluted EPS(2)

Net (loss) income as reported per GAAP

$

(4,715

)

 

$

(0.23

)

 

$

461

 

 

$

0.04

 

 

 

 

 

 

 

 

 

Pretax adjustments:

 

 

 

 

 

 

 

Change in fair value of earnout derivative liability

 

5,693

 

 

 

0.28

 

 

 

?

 

 

 

?

 

Loss on extinguishment of debt

 

2,814

 

 

 

0.14

 

 

 

?

 

 

 

?

 

Merger transaction costs

 

5,790

 

 

 

0.28

 

 

 

367

 

 

 

0.03

 

Stock-based compensation

 

4,013

 

 

 

0.20

 

 

 

?

 

 

 

?

 

Severance costs

 

953

 

 

 

0.05

 

 

 

17

 

 

 

?

 

Acquisition related costs

 

334

 

 

 

0.02

 

 

 

806

 

 

 

0.08

 

Inventory step-up

 

1,622

 

 

 

0.08

 

 

 

?

 

 

 

?

 

Other non-recurring

 

82

 

 

 

?

 

 

 

20

 

 

 

?

 

Total pretax adjustments

 

21,301

 

 

 

1.05

 

 

 

1,210

 

 

 

0.11

 

Tax effect on adjustments(1)

 

(9,245

)

 

 

(0.46

)

 

 

(663

)

 

 

(0.05

)

Total adjustments, net of tax

 

12,056

 

 

 

0.59

 

 

 

547

 

 

 

0.06

 

Non-GAAP adjusted net income

$

7,341

 

 

$

0.36

 

 

$

1,008

 

 

$

0.10

 

(1)

Tax effected at quarterly tax rate of 43.4% and 54.8% for the three months ended June 30, 2022 and 2021, respectively.

(2)

Pretax adjustments to diluted EPS calculated on 20.343 million and 10.558 million diluted shares for the second quarter of 2022 and 2021, respectively.

 


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