DSG(DSGR) - 2025 Q2 - Quarterly Results

Executive Summary & Business Highlights Q2 2025 Performance Overview Distribution Solutions Group (DSG) reported strong second-quarter 2025 results, with significant revenue growth driven by acquisitions and organic sales, alongside substantial improvements in operating income, cash flows, and Adjusted EBITDA Q2 2025 Key Financial Highlights: | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | % Change YoY | Q1 2025 (in thousands) | % Change QoQ | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | :--------------------- | :----------- | | Revenue | $502,437 | $439,536 | 14.3% | $478,029 | 5.1% | | Operating income | $26,826 | $14,158 | 89.5% | $20,097 | 33.5% | | Non-GAAP adjusted operating income | $39,873 | $38,852 | 2.6% | $34,392 | 15.9% | | Non-GAAP adjusted EBITDA | $48,561 | $45,181 | 7.5% | $42,786 | 13.5% | | Operating income as % of revenue | 5.3% | 3.2% | +210bps | 4.2% | +110bps | | Adjusted EBITDA as % of revenue | 9.7% | 10.3% | -60bps | 9.0% | +70bps | | Diluted net income per share | $0.11 | $0.04 | 175.0% | N/A | N/A | | Cash flow from operations | $33,300 | N/A | N/A | N/A | N/A | | Total liquidity | $314,400 | N/A | N/A | N/A | N/A | - Revenue growth of 14.3% was primarily driven by $48.8 million from five acquisitions closed in 2024, complemented by 3.3% organic sales growth year-over-year and 5.1% sequentially[4][9] - Adjusted EBITDA margin was slightly compressed by approximately 60bps year-over-year due to the Source Atlantic acquisition, but saw a sequential lift of 70bps[4][9] CEO Commentary CEO Bryan King highlighted strong top and bottom-line results, attributing sales growth to acquisitions and organic expansion, noting sequential adjusted margin expansion, progress on margin improvement initiatives, and effective working capital management - Organic sales grew 3.3% year-over-year and 2.4% sequentially (seasonal daily sales)[4] - All operational teams (Lawson, Gexpro Services, TestEquity, Canada Branch Division) delivered sequential expansion of adjusted margins, with ongoing initiatives to improve margins in 2024 acquisitions[5] - Improved working capital management generated $33.3 million from cash flows from operations, ending the quarter with no outstanding revolver debt and $314.4 million in total liquidity[5][9] - The company repurchased $20.0 million of DSGR stock in the first half of 2025, with $8.8 million in Q2, demonstrating alignment with shareholders[6][9] Company Profile Distribution Solutions Group (DSG) is a multi-platform specialty distribution company serving MRO, OEM, and industrial technologies markets, formed by combining Lawson Products, Gexpro Services, and TestEquity to reduce customer operating costs - DSG is a premier multi-platform specialty distribution company providing high-touch, value-added distribution solutions[8] - Serves maintenance, repair & operations (MRO), original equipment manufacturer (OEM), and industrial technologies markets[8] - Comprises Lawson Products (MRO distribution), Gexpro Services (global supply chain services), and TestEquity (electronic test & measurement solutions)[8] - Serves approximately 200,000 customers across diverse end markets, supported by 4,400 employees and strong vendor partnerships, with global distribution capabilities[10] Financial Statements Condensed Consolidated Balance Sheets The balance sheet shows an increase in total assets and stockholders' equity from December 31, 2024, to June 30, 2025, primarily driven by growth in accounts receivable and prepaid expenses, while cash and cash equivalents decreased Condensed Consolidated Balance Sheet Highlights (in thousands): | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $47,430 | $66,479 | | Accounts receivable, less allowances | $283,467 | $250,717 | | Inventories | $350,303 | $348,226 | | Total current assets | $740,906 | $712,174 | | Total assets | $1,751,983 | $1,727,255 | | Total current liabilities | $286,300 | $266,261 | | Long-term debt, less current portion, net | $674,994 | $693,903 | | Total liabilities | $1,102,608 | $1,086,712 | | Total stockholders' equity | $649,375 | $640,543 | Condensed Consolidated Statements of Operations DSG reported substantial improvements in profitability for Q2 2025 and the first six months of 2025 compared to the prior year, with net income and diluted EPS turning positive and growing significantly Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $502,437 | $439,536 | $980,466 | $855,622 | | Gross profit | $170,084 | $151,527 | $334,064 | $294,936 | | Operating income (loss) | $26,826 | $14,158 | $46,923 | $16,941 | | Net income (loss) | $5,003 | $1,896 | $8,264 | $(3,328) | | Diluted income (loss) per share | $0.11 | $0.04 | $0.17 | $(0.07) | - Revenue increased by 14.3% for the three months ended June 30, 2025, and 14.6% for the six months ended June 30, 2025, compared to the prior year periods[18] - Net income for the six months ended June 30, 2025, was $8.264 million, a significant improvement from a net loss of $(3.328) million in the prior year period[18] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, DSG generated positive cash flow from operations, while investing activities resulted in a net outflow, significantly less than the prior year due to fewer business acquisitions, and financing activities resulted in a net cash outflow Condensed Consolidated Statements of Cash Flows Highlights (in thousands): | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $28,536 | $28,009 | | Net cash used in investing activities | $(11,989) | $(102,370) | | Net cash used in financing activities | $(39,058) | $33,208 | | Increase (decrease) in cash, cash equivalents and restricted cash | $(19,963) | $(42,715) | | Cash, cash equivalents and restricted cash at end of period | $61,763 | $56,911 | - Business acquisitions, net of cash acquired, decreased significantly from $(95.437) million in 2024 to $(1.426) million in 2025[21] - Repurchase of common stock amounted to $(20.256) million in the first six months of 2025, compared to $(1.683) million in the prior year[21] Segment Performance Segment Realignment In Q3 2024, DSG realigned its reportable segments by adding a new 'Canada Branch Division' segment, which includes Source Atlantic and Bolt Supply House, to focus on the Canadian MRO market, with prior period segment results recast - A new 'Canada Branch Division' segment was added in Q3 2024, incorporating Source Atlantic and Bolt Supply House, focusing on the Canadian MRO market[23] - The results of Bolt Supply House were previously included in the 'All Other' non-reportable segment[23] - The realignment had no impact on financial condition or results of operations, and prior period segment results were recast[23] Selected Segment Financial Data All reportable segments showed year-over-year revenue growth in Q2 2025, with the Canada Branch Division experiencing the most significant increase due to acquisitions, and operating income also improved across all segments Selected Segment Financial Data (Three Months Ended June 30, in thousands): | Segment | Revenue Q2 2025 | Revenue Q2 2024 | Operating Income Q2 2025 | Operating Income Q2 2024 | | :------------------ | :-------------- | :-------------- | :----------------------- | :----------------------- | | Lawson Products | $124,313 | $121,118 | $7,975 | $6,129 | | Canada Branch Division | $55,852 | $14,471 | $1,751 | $1,463 | | Gexpro Services | $127,807 | $107,134 | $13,902 | $8,091 | | TestEquity | $195,046 | $197,481 | $4,813 | $703 | | Total | $502,437 | $439,536 | $26,826 | $14,158 | - Canada Branch Division revenue grew significantly from $14.471 million in Q2 2024 to $55.852 million in Q2 2025, largely due to the Source Atlantic acquisition[25] - Gexpro Services' operating income nearly doubled from $8.091 million to $13.902 million year-over-year[25] Non-GAAP Reconciliations GAAP to Non-GAAP Adjusted EBITDA Reconciliation DSG provides a reconciliation of GAAP Net Income and Operating Income to Non-GAAP Adjusted EBITDA, which excludes non-cash and non-recurring items to offer a clearer view of underlying business trends GAAP to Non-GAAP Adjusted EBITDA Reconciliation (Three Months Ended, in thousands): | Item | June 30, 2025 | June 30, 2024 | March 31, 2025 | | :-------------------------------- | :------------ | :------------ | :------------- | | Net income (loss) | $5,003 | $1,896 | $3,261 | | Operating income (loss) | $26,826 | $14,158 | $20,097 | | Depreciation and amortization | $20,338 | $18,535 | $19,979 | | Stock-based compensation | $1,250 | $(307) | $974 | | Severance and acquisition related retention expenses | $355 | $8,313 | $1,628 | | Acquisition related costs | $(208) | $3,598 | $108 | | Non-GAAP adjusted EBITDA | $48,561 | $45,181 | $42,786 | | Adjusted EBITDA as a percent of revenue | 9.7% | 10.3% | 9.0% | - Adjusted EBITDA increased by 7.5% year-over-year and 13.5% sequentially[4][29] - Adjusted EBITDA margin was 9.7% in Q2 2025, down 60bps YoY but up 70bps QoQ[4][29] GAAP to Non-GAAP Adjusted Net Income & EPS Reconciliation This section reconciles GAAP Net Income and Diluted EPS to their Non-GAAP adjusted counterparts by excluding specific non-recurring and non-cash items to provide a normalized view of profitability GAAP to Non-GAAP Adjusted Net Income & EPS Reconciliation (Three Months Ended, in thousands, except per share data): | Item | June 30, 2025 Amount | June 30, 2025 Diluted EPS | June 30, 2024 Amount | June 30, 2024 Diluted EPS | March 31, 2025 Amount | March 31, 2025 Diluted EPS | | :-------------------------------- | :------------------- | :---------------------- | :------------------- | :---------------------- | :-------------------- | :--------------------- | | Net income (loss) | $5,003 | $0.11 | $1,896 | $0.04 | $3,261 | $0.07 | | Total pretax adjustments | $13,047 | $0.29 | $24,702 | $0.52 | $15,295 | $0.31 | | Tax effect on adjustments | $(3,135) | $(0.08) | $(7,238) | $(0.15) | $(4,044) | $(0.07) | | Deferred tax asset valuation allowance | $1,536 | $0.03 | $(410) | $(0.01) | $190 | $0.00 | | Non-GAAP adjusted net income | $16,451 | $0.35 | $18,950 | $0.40 | $14,702 | $0.31 | - Adjusted diluted EPS for Q2 2025 was $0.35, compared to $0.40 in Q2 2024 and $0.31 in Q1 2025[33] GAAP to Non-GAAP Adjusted Operating Income Reconciliation This reconciliation details the adjustments made to GAAP Operating Income to arrive at Non-GAAP Adjusted Operating Income, primarily by adding back non-cash items and non-recurring expenses GAAP to Non-GAAP Adjusted Operating Income Reconciliation (Three Months Ended, in thousands): | Item | June 30, 2025 | June 30, 2024 | March 31, 2025 | | :-------------------------------- | :------------ | :------------ | :------------- | | Operating income (loss) | $26,826 | $14,158 | $20,097 | | Inventory step-up | $0 | $634 | $0 | | Acquisition related costs | $(208) | $3,598 | $108 | | Amortization of intangible assets | $11,650 | $12,206 | $11,585 | | Stock-based compensation | $1,250 | $(307) | $974 | | Severance and acquisition related retention expenses | $355 | $8,313 | $1,628 | | Other non-recurring | $0 | $250 | $0 | | Non-GAAP adjusted operating income | $39,873 | $38,852 | $34,392 | - Non-GAAP adjusted operating income increased by 2.6% year-over-year and 15.9% sequentially[4][39] Segment-wise Non-GAAP Adjusted EBITDA Reconciliation This reconciliation provides a detailed breakdown of Non-GAAP Adjusted EBITDA and its percentage of revenue for each segment, highlighting individual segment performance after accounting for non-cash and non-recurring items Segment-wise Non-GAAP Adjusted EBITDA (Three Months Ended Q2, in thousands): | Segment | Q2 2025 Adjusted EBITDA | Q2 2024 Adjusted EBITDA | Q2 2025 Adjusted EBITDA % of Revenue | Q2 2024 Adjusted EBITDA % of Revenue | | :--------------------- | :---------------------- | :---------------------- | :----------------------------------- | :----------------------------------- | | Lawson Products | $15,709 | $16,503 | 12.6% | 13.6% | | Gexpro Services | $17,082 | $12,740 | 13.4% | 11.9% | | TestEquity | $13,477 | $15,448 | 6.9% | 7.8% | | Canada Branch Division | $3,620 | $2,018 | 6.5% | 13.9% | | All Other | $(1,327) | $(1,528) | N/M | N/M | | Consolidated DSG | $48,561 | $45,181 | 9.7% | 10.3% | - Gexpro Services showed strong growth in Adjusted EBITDA, increasing from $12.740 million to $17.082 million, and its margin improved from 11.9% to 13.4%[43] - Canada Branch Division's Adjusted EBITDA increased from $2.018 million to $3.620 million, but its margin decreased from 13.9% to 6.5%, likely due to the integration of Source Atlantic[43] Additional Information Conference Call Details Distribution Solutions Group hosted a conference call on July 31, 2025, to discuss its second-quarter results, with replay options available via telephone and archived audio on its investor relations website - Conference call held on July 31, 2025, at 9:00 a.m. Eastern Time[7] - Replay available by telephone through August 14, 2025, and archived on the company's investor relations website[7] Forward-Looking Statements This section serves as a cautionary statement regarding forward-looking statements, emphasizing that they are based on current expectations and involve inherent risks and uncertainties that could cause actual outcomes to differ materially - Forward-looking statements are identified by terms like 'aim,' 'anticipate,' 'believe,' 'expect,' 'plan,' 'will,' and variations thereof[12] - Such statements are based on current expectations and involve inherent risks, uncertainties, and assumptions that could cause actual outcomes to differ materially[13] - DSG undertakes no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events, or otherwise[13] Contact Information Contact details for Distribution Solutions Group's company management and investor relations team are provided for inquiries - Company contact: Ronald J. Knutson, Executive Vice President, CFO and Treasurer[46] - Investor Relations contact: Three Part Advisors, LLC (Steven Hooser / Sandy Martin)[46]