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Distribution Solutions Group Inc (DSGR) (Q1 2024) Earnings Call Transcript Highlights: ...

GuruFocus Research
·3 min read

  • Q1 2024 Revenue: $416 million, up 19.5% year-over-year

  • Organic Growth: 4.7% on a two-year basis

  • Adjusted EBITDA: $36.1 million, 8.7% of sales

  • Operating Income: $2.8 million

  • Net Margin Growth: $2.2 million increase from Q4 2023

  • Adjusted Operating Income: $29.8 million

  • GAAP Diluted EPS: Loss of $0.11 per share

  • Adjusted Diluted EPS: $0.25 per share

  • Free Cash Flow: Not explicitly mentioned, but cash conversion ratio nearly 110% on a trailing 12-month basis

  • Liquidity: Approximately $284 million, including cash and credit facility

  • Leverage Rate: 3.0 times

  • CapEx: $2.9 million for Q1, expected full-year range of $16 million to $20 million

Release Date: May 02, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • First quarter sales totaled $416 million, marking a 19.5% increase due to strategic inorganic growth.

  • Adjusted EBITDA margin improved sequentially from 8.4% in Q4 2023 to 8.7% in Q1 2024.

  • Strong visibility into cost structure improvements and value-added offerings due to internal initiatives.

  • Successful acquisitions such as iMergent Safety Supply and S&S Automotive enhance EBITDA margins and return on invested capital.

  • Positive trends in aerospace and defense verticals with new project and service wins accelerating backlog growth.

Negative Points

  • Organic growth on a two-year basis was 4.7%, below company expectations.

  • Continued softness in certain end markets impacting overall performance.

  • Government and core customer segments in Lawson Products experienced significant delays in purchase orders.

  • Test and Measurement business faced challenges with prolonged customer capital project spending and inventory surplus issues.

  • Integration costs and efforts are masking some underlying progress in profitability and efficiency gains.

Q & A Highlights

Q: Can you provide more details on the S&S Automotive acquisition and its integration into DSG? A (John King, Chairman and CEO): S&S Automotive was a directly sourced deal, enhancing our Kent Automotive division. It brings significant EBITDA margin uplift and complements our product offerings, driving higher organic revenue opportunities. The integration focuses on leveraging product availability and expanding our reach into auto dealerships, which typically have higher spending than collision repair shops.

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Q: What are your expectations for organic sales and margins in Q2? A (Ronald Knutson, CFO): We anticipate organic sales to be flat to slightly down compared to last year due to pressures in the test and measurement business. However, we expect sequential improvement from Q1. Margins are projected to improve sequentially across all segments, driven by ongoing initiatives within each vertical.

Q: How is the Lawson sales representative headcount affecting sales, and what are the plans for growth in this area? A (Ronald Knutson, CFO): The current headcount is slightly down as we optimize territories and recruit for positions in targeted areas. This strategic realignment is expected to enhance productivity and sales effectiveness going forward.

Q: What impact have government orders had on Lawson's performance, and when do you expect a recovery? A (John King, Chairman and CEO): Government orders were delayed due to changes in their ordering system, impacting our Q1 results. We anticipate these orders to gradually return throughout 2024, with no significant customer attrition noted.

Q: What indicators are you looking for to signal a recovery in the test and measurement market? A (Ronald Knutson, CFO): We observed that March sales were stronger than the beginning of the quarter, suggesting stabilization. Recovery signs include increased demand for lower-priced items and improved monthly performance, indicating a potential bottoming out of the market.

Q: Can you elaborate on the strategic focus for DSG following recent acquisitions? A (John King, Chairman and CEO): Our strategy emphasizes enhancing EBITDA margins through acquisitions like S&S Automotive, which not only improve our product offerings but also expand our market reach and operational efficiency. We aim to integrate these acquisitions smoothly to leverage their strengths across our existing operations.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.