DSG(DSGR) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported record quarterly sales of $468 million, an increase of 6.6% compared to the previous year's third quarter, driven by$ 38.1 million from acquisitions [53][7] - Organic sales declined by 2.1% year-over-year but improved by 0.2% sequentially from the second to the third quarter [54][12] - Adjusted EBITDA for the quarter was $49.1 million, representing a 12.4% increase over the prior year and an adjusted EBITDA margin of 10.5%, up 50 basis points year-over-year [55][13] - GAAP diluted income per share was$ 0.46, compared to a loss per share of $0.30 in the year-ago quarter [57] Business Line Data and Key Metrics Changes - Lawson's sales were$ 118 million, with organic average daily sales down 10% due to lower sales rep counts and federal government ordering process changes [58][60] - The new Canada Branch segment, which includes Source Atlantic, generated $39.1 million in sales, with$ 24.7 million from the Source Atlantic acquisition [62] - Gexpro Services saw a 12.5% increase in average daily organic sales, driven by recovery in key end markets such as technology and renewables [64][44] - TestEquity Group reported sales of $195.2 million, with a decline in daily sales of 7.4% due to headwinds in the electronics assembly market [66] Market Data and Key Metrics Changes - The company noted a continued lackluster industrial backdrop but highlighted strong performance in renewables, technology, and aerospace and defense markets [7][44] - The aerospace and defense market has shown strong performance, with technology sales nearly doubling compared to the same quarter last year [88][87] - The company is optimistic about recovery in key OEM end markets and improving demand in Test & Measurement categories [77][78] Company Strategy and Development Direction - The company is focused on integrating acquisitions and enhancing customer intimacy while managing costs to improve operating leverage [17][19] - A disciplined capital allocation strategy is in place, with a robust pipeline of acquisition opportunities to drive long-term growth [82][19] - The company aims to expand its market potential through strategic acquisitions and by enhancing its sales force capabilities [80][81] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in certain end markets and the potential for improved sales and margins as macroeconomic pressures ease [78][79] - The company is preparing for potential choppiness in demand but is encouraged by early signs of recovery in key markets [77][78] - Management emphasized the importance of maintaining a disciplined approach to cost management and capital allocation to drive shareholder value [81][82] Other Important Information - The company ended the quarter with approximately$ 498 million in net working capital and $328 million in liquidity, including$ 76 million in cash [68] - The leverage ratio at the end of Q3 was 3.7 times, within the target range of 3 to 4 times [70] - The company has a trailing 12-month free cash flow conversion of approximately 90%, resulting in a return on invested capital (ROIC) of approximately 10% [71] Q&A Session Summary Question: Insights on Gexpro's revenue recovery - Management noted that end markets such as renewables and semiconductors are showing improvement, contributing to Gexpro's revenue growth [85][88] Question: Fourth quarter pacing and margin expectations - Sales levels are consistent with Q3, and management expects to maintain double-digit EBITDA margins despite fewer selling days [90][91] Question: New sales territories in Lawson - The majority of the 130 new sales territories are new markets where the company anticipates success, with a goal of increasing the sales rep count to 1,000 by mid-next year [92][96] Question: Path to improving return on invested capital - Management discussed the impact of acquisitions on ROIC and the expectation of improved returns as the company integrates these acquisitions and realizes synergies [104][106]