Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Distribution Solutions Group Inc (DSGR, Financial) reported record quarterly sales, up 6.6% compared to last year's third quarter.
- The company has made significant progress in integrating acquisitions, capturing more cost savings than anticipated.
- DSGR announced three strategic acquisitions, enhancing its geographic footprint and service offerings.
- The company is expanding its sales force, with plans to increase the number of sales reps to 1,000 by mid-next year.
- DSGR's adjusted EBITDA improved to $49.1 million, up 12.4% over the prior year, indicating better operating leverage.
Negative Points
- Organic sales declined by 2.1% compared to the previous year, indicating challenges in core business growth.
- The industrial backdrop remains lackluster, with weak electronics manufacturing impacting certain verticals.
- The company faces challenges in the federal government sector, contributing to a decline in sales.
- DSGR's leverage increased to 3.7 times due to recent acquisitions, which may impact financial flexibility.
- The company is experiencing choppiness in demand across certain end markets, affecting overall performance.
Q & A Highlights
Q: Can you provide insights into the recent revenue growth at JPro Services and the outlook going forward?
A: John Bryan King, CEO, explained that the growth is driven by improvements in key markets such as renewables and semiconductors, which had been lagging. These markets are now showing better performance, contributing to the revenue increase. The company is also benefiting from investments in acquisitions, which are now yielding positive results. Ron Knutson, CFO, added that aerospace, defense, and technology sectors are also contributing to the growth, with technology sales nearly doubling from the previous year.
Q: What are the expectations for organic trends and margins in the fourth quarter?
A: Ron Knutson, CFO, stated that sales levels are consistent with the third quarter, and they expect to maintain double-digit EBITDA margins despite fewer selling days. The company anticipates continued performance in the double-digit margin range, even with the seasonal reduction in selling days.
Q: Can you elaborate on the new sales territories at Lawson and their potential impact?
A: Ron Knutson, CFO, mentioned that the majority of the 130 new sales territories are new opportunities where they believe they can place sales reps and achieve success. These territories are identified through data-driven analysis, aiming for more productive and successful sales reps. The company is targeting 900 sales reps by year-end and 1,000 by mid-next year, with a focus on larger and more productive territories.
Q: How does the company plan to improve return on invested capital (ROIC) to reach mature distribution business levels?
A: John Bryan King, CEO, explained that the path to higher ROIC involves maturing acquisitions and realizing synergies. The company aims to double EBITDA from acquisitions over time, which will drive ROIC improvements. They are also focused on working capital efficiency and leveraging organic growth from acquisitions to enhance returns.
Q: Is there an opportunity to improve working capital efficiency to enhance the balance sheet?
A: John Bryan King, CEO, acknowledged that while there is room for improvement in working capital efficiency, the primary focus is on doubling EBITDA from acquisitions. The company has made progress in working capital management, but the significant driver of ROIC improvement will be the earnings growth from acquisitions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
