DSG(DSGR) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements For Q1 2025, Distribution Solutions Group, Inc. reported total revenue of $478.0 million, a 14.9% increase, achieving a net income of $3.3 million from a prior-year loss, with total assets reaching $1.76 billion due to acquisitions and segment realignment Condensed Consolidated Balance Sheets As of March 31, 2025, total assets increased to $1.76 billion, total liabilities rose to $1.13 billion due to long-term debt, and total stockholders' equity slightly decreased to $636.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $1,762,912 | $1,727,255 | | Total current assets | $744,802 | $712,174 | | Goodwill | $464,098 | $462,789 | | Total Liabilities | $1,126,199 | $1,086,712 | | Long-term debt, less current portion, net | $712,370 | $693,903 | | Total Stockholders' Equity | $636,713 | $640,543 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) In Q1 2025, the company achieved a significant turnaround, reporting a net income of $3.3 million ($0.07 per diluted share) compared to a $5.2 million net loss in Q1 2024, driven by a 14.9% revenue increase to $478.0 million and higher operating income Q1 2025 vs. Q1 2024 Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $478,029 | $416,086 | | Gross Profit | $163,980 | $143,409 | | Operating Income (loss) | $20,097 | $2,783 | | Net Income (loss) | $3,261 | $(5,224) | | Diluted Income (loss) per share | $0.07 | $(0.11) | Condensed Consolidated Statements of Cash Flows In Q1 2025, net cash used in operating activities was $4.8 million, a reversal from the prior year, while net cash used in investing activities decreased to $5.1 million, and financing activities provided $7.6 million from credit facility borrowings Q1 2025 vs. Q1 2024 Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(4,762) | $6,615 | | Net cash provided by (used in) investing activities | $(5,053) | $(16,008) | | Net cash provided by (used in) financing activities | $7,633 | $(3,951) | | Increase (decrease) in cash, cash equivalents and restricted cash | $(1,689) | $(14,024) | Notes to Condensed Consolidated Financial Statements (Unaudited) The notes detail a Q3 2024 segment realignment, the $50.8 million revenue contribution from 2024 acquisitions, total debt of $758.0 million with covenant compliance, $11.2 million in share repurchases, and the settlement of a 2022 cyber incident legal matter - The company realigned its reportable segments in Q3 2024 following the Source Atlantic acquisition, creating four segments: Lawson, TestEquity, Gexpro Services, and Canada Branch Division[28][29][95] - Acquisitions completed in 2024 contributed $50.8 million in revenue and $2.1 million in net income during the first quarter of 2025[60] - Total debt outstanding was $758.0 million as of March 31, 2025, with the company in compliance with all financial covenants[76][87][194] - In Q1 2025, the company repurchased 320,638 shares of its common stock for $11.2 million, with $15.2 million remaining under the authorized program[90][199] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 14.9% consolidated revenue growth in Q1 2025 to acquisitions and organic growth, with all segments contributing to improved performance, and the company maintains sufficient liquidity for future strategic initiatives - Consolidated revenue increased by $61.9 million in Q1 2025, driven by $50.8 million from acquisitions completed in 2024 and organic revenue growth of $11.1 million (2.7%)[154] Adjusted EBITDA by Segment (in thousands) | Segment | Q1 2025 Adjusted EBITDA | Q1 2024 Adjusted EBITDA | % Change | | :--- | :--- | :--- | :--- | | Lawson | $14,307 | $13,426 | 6.6% | | TestEquity | $12,811 | $11,611 | 10.3% | | Gexpro Services | $14,975 | $10,811 | 38.5% | | Canada Branch Division | $2,616 | $1,372 | 90.7% | | Consolidated | $42,786 | $36,067 | 18.6% | - The company believes its liquidity, consisting of $65.4 million in cash and $224.7 million in borrowing availability, is sufficient to meet its needs for the next twelve months[185] - The company expects to spend approximately $20.0 million to $25.0 million for net capital expenditures during the full fiscal 2025 year[197] Results by Reportable Segment In Q1 2025, Gexpro Services achieved strong organic revenue growth, the Canada Branch Division's revenue surged due to acquisition, Lawson's revenue grew with acquisitions offsetting legacy declines, and TestEquity's operating income significantly improved - Lawson: Revenue increased 1.9% to $120.5 million, with acquisitions contributing $10.4 million, partially offset by an $8.1 million decline in legacy revenue; operating income grew 53.8% to $6.3 million[156][157] - TestEquity: Operating income swung to a $4.1 million profit from a $6.1 million loss in the prior year, primarily due to a $9.2 million decrease in severance and acquisition-related retention expenses[162][166] - Gexpro Services: Revenue grew 20.5% to $118.9 million, driven by increased sales in renewable energy, technology, aerospace, and defense; operating income rose 105.8% to $11.2 million[168][169] - Canada Branch Division: Revenue increased 304.5% to $50.5 million, primarily driven by $37.4 million from the Source Atlantic acquisition[174][175] Liquidity and Capital Resources As of March 31, 2025, the company maintained $65.4 million in cash and $224.7 million in credit availability, with net cash used in operations at $4.8 million, and key uses including capital expenditures and share repurchases Q1 2025 vs. Q1 2024 Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $(4,762) | $6,615 | | Net cash from investing activities | $(5,053) | $(16,008) | | Net cash from financing activities | $7,633 | $(3,951) | - The company had $758.0 million in outstanding borrowings as of March 31, 2025, and was in compliance with all financial covenants[194][195] - Contractual purchase commitments for the next twelve months total approximately $181.1 million[196] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations, as 100% of its debt obligations are at floating rates, and it does not currently use derivative financial instruments to mitigate this risk - A hypothetical 100 basis point (1%) increase or decrease in interest rates would change the company's annual interest expense by approximately $7.6 million[203] Item 4. Controls and Procedures Senior management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the evaluation date, March 31, 2025[204] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[205] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company settled a class action lawsuit related to a 2022 cyber incident on April 10, 2025, with the non-material settlement payment fully covered by insurance - A class action lawsuit (Cyber Incident Suit) filed in April 2023 regarding a 2022 cyber incident was settled in April 2025[108] - The settlement amount was not material and was entirely covered by insurance[108] Item 1A. Risk Factors No material changes occurred to the risk factors disclosed in the 2024 Annual Report on Form 10-K, with the report reiterating the potential negative impact of tariffs and trade policies on global economic conditions and operating margins - The company highlights the risk that tariffs and trade disputes could negatively affect operating profit margins if increased costs cannot be passed to customers or if operations cannot be modified accordingly[211] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company conducted no unregistered equity sales in Q1 2025, but repurchased 320,638 shares for $11.2 million under its authorized program, with $15.2 million remaining for future repurchases Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2025 | 320,638 | $34.94 | | February 2025 | — | $— | | March 2025 | — | $— | | Total | 320,638 | | Item 5. Other Information No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the first quarter of 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter ended March 31, 2025[216] Item 6. Exhibits The report lists various exhibits filed with the Form 10-Q, including credit agreements, executive employment agreements, and CEO/CFO certifications