DSG(DSGR) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported 2023 annual sales of $1.6 billion, an increase of over 36%, with comparable sales rising by almost 24% despite a challenging sales environment in key markets like technology and renewables [2][10] - Adjusted EBITDA for the year was$ 157 million, up nearly 28%, with an EBITDA margin of 10% [136] - The company ended the year with a GAAP diluted loss per share of $0.20, compared to earnings per share of$ 0.21 in the previous year [12] Business Segment Data and Key Metrics Changes - Lawson Products achieved sales of $468.7 million for the full year, a 9.1% increase, while fourth-quarter sales were$ 109.8 million, slightly up from $108 million year-over-year [13] - Gexpro Services' full-year adjusted EBITDA grew to$ 45.2 million, or 11.1% of sales, compared to $43.2 million the previous year [15] - TestEquity's fourth-quarter sales increased by$ 85.3 million to $190.7 million, with Hisco contributing$ 96.6 million, although organic volume declined by 11.4% [16] Market Data and Key Metrics Changes - The renewables marketplace is expected to improve in 2024, supported by a positive book-to-bill ratio [7] - The technology market faced challenges, delaying several customer projects into 2024, which negatively impacted EBITDA by over $8.4 million for the year [7][57] Company Strategy and Development Direction - The company aims to increase consolidated EBITDA margin into the teens and ensure all business verticals operate with a margin above 12% within the next few years [3] - The integration of Hisco is expected to unlock significant cost synergies and enhance revenue opportunities across the company's verticals [4][8] - The company plans to continue making prudent decisions to create value and improve long-term returns while generating cash [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate current market challenges and highlighted a commitment to driving business growth through innovative leadership and distribution experience [20] - There are indications of increased quoting activity and a potential revenue reacceleration in softer market segments [21] - Management acknowledged the need for normalization of inventory levels and customer spending to achieve positive organic growth in the second half of 2024 [27][46] Other Important Information - The company ended 2023 with$ 99.6 million in cash and no borrowings on its revolver, while also increasing its share repurchase program by $25 million [47][48] - A successful rights offering and a two-for-one stock split were executed to balance capital structure and liquidity objectives [48] Q&A Session Summary Question: What is the outlook for organic growth in 2024? - Management indicated that organic growth is expected to return in the second half of 2024, contingent on improvements in softer end markets [27][46] Question: How are margins trending in the first quarter? - Management noted that margin pressure is anticipated in Q1, similar to Q4, but expects sequential improvement as the year progresses [52][88] Question: What are the impacts of inventory destocking on revenue? - Management acknowledged that inventory destocking has affected revenue, particularly in the test and measurement equipment sector, but expects recovery as market conditions normalize [55][57] Question: How is the integration of Hisco progressing? - The integration of Hisco is expected to enhance margins and operational efficiencies, with significant synergies anticipated over the next few years [119][120] Question: What is the company's approach to share buybacks? - The company is focused on disciplined capital allocation and will consider share buybacks if the stock price is significantly below its perceived terminal value [115][125]