On November 2, 2023, Distribution Solutions Group Inc (DSGR, Financial), a premier specialty distribution company, announced its consolidated results for the third quarter ended September 30, 2023. The company reported a significant increase in total revenue, driven primarily by revenue from 2022 and 2023 acquisitions. However, consolidated organic revenue declined 4.2% for the quarter, primarily due to softness in the Industrial Technologies (TestEquity) vertical.
Financial Highlights
DSGR's total revenue increased by $91.8 million, or 26.4%, to $438.9 million, which included $106.3 million of revenue from 2022 and 2023 acquisitions. Operating income was $12.8 million, reflecting higher intangible amortization from recent acquisitions and $13.9 million of non-recurring severance, acquisition-related retention costs, stock-based compensation, and other non-recurring items. This is compared to operating income of $22.0 million in the prior year quarter. Adjusted operating income excluding these items was $26.7 million compared to $25.7 million a year ago quarter.
Performance Analysis
Despite the challenges in the Industrial Technologies vertical, DSGR managed to grow its adjusted EBITDA by 26% to $43.7 million compared to $34.7 million in the prior year quarter. The adjusted EBITDA margin was 10.0% in both periods. However, the company reported a diluted loss per share of $0.03 for the quarter compared to diluted income per share of $0.42 in the year-ago quarter, primarily due to higher depreciation and amortization expenses and a higher share count in the third quarter of 2023.
Cash Flow and Liquidity
The company generated $47 million of cash flows from operations for the quarter and ended the quarter with $80.5 million of unrestricted cash on hand and $198.3 million of availability under its committed credit facility. Net debt leverage was 2.9x as of the end of the quarter.
CEO Commentary
Bryan King, CEO and Chairman of the Board, said, “We delivered a strong quarter with Adjusted EBITDA growing nearly 26% and a 10.7% Adjusted EBITDA margin excluding the Hisco impact. Revenue grew slightly more than 26% primarily from recent acquisition activity. For the first nine months of fiscal 2023, we generated significant cash flows from operating activities of $74 million, of which $47 million was realized in the third quarter, demonstrating the power of scale, solid margins in each of our business verticals and our focus on working capital efficiency."
Outlook
DSGR is closely monitoring the demand environment in light of the continued tightening monetary policy, as well as fluctuations in customer ordering patterns. The company continues to strategically invest in initiatives which generate long-term profitable growth and cash flow across the DSG platform. It is also proactively identifying margin improvement and cost savings opportunities and is taking steps to sustainably improve its business to mitigate sales and margin risks for the remainder of 2023 and into 2024.
Explore the complete 8-K earnings release (here) from Distribution Solutions Group Inc for further details.
