DSG(DSGR) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis for the period Financial Statements Presents unaudited condensed consolidated financial statements, including balance sheets, income statements, equity changes, and cash flows, with explanatory notes Condensed Consolidated Balance Sheets As of June 30, 2021, total assets decreased to $244.5 million from $256.3 million at year-end 2020, primarily due to a significant reduction in cash and cash equivalents used for an acquisition payment Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $123,660 | $143,062 | | Cash and cash equivalents | $5,855 | $28,393 | | Total Assets | $244,528 | $256,304 | | Total Current Liabilities | $66,228 | $97,995 | | Accrued acquisition liability | $0 | $32,673 | | Total Liabilities | $113,630 | $133,882 | | Total Stockholders' Equity | $130,898 | $122,422 | Condensed Consolidated Statements of Income and Comprehensive Income For the second quarter of 2021, revenue increased significantly to $106.5 million from $72.1 million in Q2 2020, driving net income up to $2.9 million from $0.6 million Q2 Performance Comparison (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Revenue | $106,540 | $72,146 | | Gross Profit | $54,620 | $38,313 | | Operating Income | $3,382 | $569 | | Net Income | $2,935 | $619 | | Diluted EPS | $0.31 | $0.07 | Six-Month Performance Comparison (in thousands, except per share data) | Metric | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | | Revenue | $210,096 | $163,181 | | Gross Profit | $109,180 | $87,234 | | Operating Income | $8,192 | $19,207 | | Net Income | $6,531 | $13,152 | | Diluted EPS | $0.70 | $1.41 | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased from $122.4 million at the end of 2020 to $130.9 million at June 30, 2021, primarily driven by net income and foreign currency translation adjustments - Total stockholders' equity grew by $8.5 million in the first six months of 2021, reaching $130.9 million[24] - Key drivers for the increase in equity were net income of $6.5 million (sum of $3.6M in Q1 and $2.9M in Q2) and stock-based compensation of $1.0 million (sum of $422k in Q1 and $551k in Q2)[24] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2021, net cash provided by operating activities was $9.3 million, while net cash used in investing activities was $36.9 million, resulting in a net decrease in cash of $22.5 million Six-Month Cash Flow Summary (in thousands) | Activity | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $9,292 | $7,837 | | Net cash used in investing activities | ($36,874) | ($720) | | Net cash provided by (used in) financing activities | $4,852 | ($2,435) | | Decrease in cash | ($22,533) | $4,517 | - A business acquisition payment of $33.0 million was the primary use of cash in investing activities[29] Notes to Condensed Consolidated Financial Statements Provides critical context to financial statements, detailing the Partsmaster acquisition, segment performance, revenue disaggregation, and COVID-19 related impacts - The company acquired Partsmaster on August 31, 2020, for $35.3 million, with the final $33.0 million payment made in May 2021, and Partsmaster contributed $15.3 million in revenue and $0.5 million in operating income in Q2 2021[35][36][38] Revenue by Geography (Six Months Ended June 30, in thousands) | Region | 2021 | 2020 | | :--- | :--- | :--- | | United States | $171,234 | $130,679 | | Canada | $38,862 | $32,502 | | Consolidated Total | $210,096 | $163,181 | - The company has two operating segments: Lawson (VMI service model) and Bolt Supply (branch-based sales), generating $188.2 million and $21.9 million in revenue respectively for the first six months of 2021[90][91] - Under the CARES Act, the company deferred $3.5 million in employer social security payments, with half due in 2021 and the remainder in 2022[94] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting the Partsmaster acquisition's impact, sales drivers, and liquidity, with detailed comparisons of operating results - The Partsmaster acquisition contributed $15.3 million in revenue for Q2 2021 and $31.0 million for the first six months of 2021[99] - The business climate improved significantly in H1 2021 as pandemic-related restrictions were relaxed compared to 2020, leading to increased business activity and improved operating results[104] - Average sales rep headcount increased to 1,081 in Q2 2021 from 957 in Q2 2020, with sales per rep per day increasing 33.0% to $1,361[109] Adjusted Non-GAAP Operating Income Reconciliation (in thousands) | Description | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 | | :--- | :--- | :--- | :--- | :--- | | GAAP Operating Income | $3,382 | $569 | $8,192 | $19,207 | | Adjustments | $3,457 | $4,212 | $5,858 | ($6,484) | | Adjusted non-GAAP Operating Income | $6,839 | $4,781 | $14,050 | $12,723 | Results of Operations: Q2 2021 vs. Q2 2020 Total revenue for Q2 2021 increased by 47.7% to $106.5 million, driven by improved business conditions and a $15.3 million contribution from the Partsmaster acquisition Q2 Revenue by Segment (in thousands) | Segment | Q2 2021 | Q2 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Lawson | $94,861 | $63,214 | $31,647 | 50.1% | | Bolt Supply | $11,679 | $8,932 | $2,747 | 30.8% | | Consolidated | $106,540 | $72,146 | $34,394 | 47.7% | - Consolidated gross profit margin decreased to 51.3% in Q2 2021 from 53.1% in Q2 2020, primarily due to increased freight costs, supply chain disruptions, and inventory reserves for Partsmaster integration[117][118] - General and administrative expenses increased by $5.6 million, driven by Partsmaster operating expenses ($3.3 million) and costs to evaluate the LKCM proposal ($1.4 million), partially offset by a $1.6 million decrease in stock-based compensation[120] Results of Operations: 6M 2021 vs. 6M 2020 For the first six months of 2021, revenue increased 28.8% to $210.1 million, including a $31.0 million contribution from Partsmaster, though operating income fell due to stock-based compensation adjustments Six-Month Revenue by Segment (in thousands) | Segment | 6M 2021 | 6M 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Lawson | $188,191 | $144,705 | $43,486 | 30.1% | | Bolt Supply | $21,905 | $18,476 | $3,429 | 18.6% | | Consolidated | $210,096 | $163,181 | $46,915 | 28.8% | - General and administrative expenses increased by $21.2 million (66.8%), driven by a $10.1 million increase in stock-based compensation expense, $7.2 million from the Partsmaster acquisition, and $1.4 million in costs related to the LKCM proposal evaluation[131] Liquidity and Capital Resources The company's cash position decreased to $5.9 million due to the Partsmaster acquisition payment, but it maintains sufficient liquidity with $91.9 million available under its revolving credit facility - Cash and cash equivalents decreased by $22.5 million, primarily due to the $33.0 million payment for the Partsmaster acquisition[135] - As of June 30, 2021, the company had $5.0 million in outstanding borrowings and $91.9 million of availability under its Revolving Credit Facility[139] - The company was in compliance with all financial covenants as of June 30, 2021[140] Quantitative and Qualitative Disclosure About Market Risk This section is inapplicable and has been omitted from the report - Item 3 of Part I is inapplicable and has been omitted from this report[144] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with ongoing integration of Partsmaster's internal control procedures - The CEO and CFO concluded that disclosure controls and procedures were effective as of the evaluation date[145] - The company is in the process of integrating the internal control procedures of Partsmaster, which constituted approximately 15% of total assets as of June 30, 2021[146] PART II - OTHER INFORMATION This section covers other required information, including unregistered sales of equity securities and a list of exhibits Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to report for the period - None[149] Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, and compensation plans - The exhibits include key corporate governance documents, credit agreements, and executive compensation plans[149][151]