DSG(DSGR) - 2022 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated sales for Q4 were $328.9 million, representing a 155$1.15 billion, with adjusted EBITDA of $123 million, reflecting a 64$100.1 million for Q4, an increase of $33.6 million year-over-year, with$26.3 million from acquisitions and $7.3 million from organic growth [40] - TestEquity's sales grew by$42.7 million, or over 68%, to $105.4 million, with approximately$33.9 million from acquisitions and organic sales increasing by 14.5% [41] Market Data and Key Metrics Changes - The renewables vertical is expected to see a reacceleration as customers await government tax credit guidance, while demand in the technology vertical remains soft until inventories stabilize [31][32] - Customer orders remain strong across all three businesses, with no destocking observed, indicating a healthy demand environment [69][70] Company Strategy and Development Direction - The company aims to build profitable scale as a specialty distribution network, focusing on significant free cash flow and above-market returns for shareholders [27][65] - Strategic investments in technology and lead generation capabilities are planned to enhance sales productivity and customer service [30][50] - The company is actively pursuing acquisitions that enhance organic growth rates and returns on working capital investment [49][113] Management's Comments on Operating Environment and Future Outlook - Management remains cautiously optimistic about the 2023 outlook, with strong momentum continuing from 2022 [26][46] - The company is closely monitoring macroeconomic conditions and customer demand while maintaining a focus on operational efficiency and margin expansion [80][81] Other Important Information - The company successfully completed five acquisitions in 2022, producing annualized revenues of about $204 million and adjusted EBITDA of$21 million [48][72] - The net debt leverage ratio improved from 3.6 times at the time of the merger to 3.1 times by the end of 2022 [62] Q&A Session Summary Question: How has demand trended in January and February? - Management indicated that there has not been a destocking trend and overall customer conversations remain positive, with a focus on inventory replenishment [69][70] Question: What are customer conversations like regarding inventory needs? - Customers are not destocking but are looking to fill inventories, indicating a stable demand environment [70][90] Question: What is the company's approach to capital allocation and M&A? - The company prioritizes organic growth opportunities but remains selective in pursuing M&A that significantly enhances organic growth rates and shareholder value [93][113] Question: What enabled the sequential margin expansion in Q4? - The margin expansion was attributed to continued growth throughout 2022, effective management of operating expenses, and contributions from acquisitions [117][119]