Distribution Solutions Group (DSGR) Q2 2024 earnings summary

Executive summary

• Q2 2024 revenue reached $440 million, up 16.3% year-over-year, driven by acquisitions despite a 5.7% organic sales decline; organic sales grew 3.8% sequentially from Q1 2024.

• Adjusted EBITDA was $45.2 million (10.3% margin), up 12.7% year-over-year and 25.3% sequentially, with margin expansion across all verticals.

• Net income for Q2 2024 was $1.9 million, with diluted EPS of $0.04, impacted by higher depreciation, amortization, and non-recurring costs.

• Strategic initiatives and process improvements are underway to optimize costs, drive higher margins, and enhance returns on invested capital.

• Announced acquisition of Source Atlantic (CAD $250 million annual sales), expected to close in Q3 2024, expanding Canadian market presence and anticipated to be accretive to margins and returns by end of 2025.

Financial highlights

• Q2 2024 consolidated revenue was $439.5 million, up $61.6 million or 16.3% year-over-year, mainly from acquisitions.

• Adjusted EBITDA was $45.2 million (10.3% of sales), up from $40.1 million in Q2 2023 and 8.7% in Q1 2024.

• Adjusted operating income was $38.9 million, up from $29.8 million in Q1 and $34.9 million in Q2 2023.

• GAAP EPS was $0.04, with adjusted EPS at $0.40, up from $0.25 in Q1 but slightly down from $0.42 in Q2 2023 due to higher share count.

• Gross margin for Q2 2024 was 34.5%, down from 36.0% year-over-year.

Outlook and guidance

• Organic sales growth expected to be flat to slightly positive in the second half of 2024 as comps ease.

• Margin profiles for all three verticals anticipated to expand in H2 2024 over Q2 run rates.

• Targeting double-digit EBITDA margin run-rate for Source Atlantic by end of 2025, driven by growth and synergies.

• Cautious outlook due to macroeconomic uncertainty and need for normalization in end markets and customer capital spending.

• Pipeline for additional bolt-on acquisitions remains strong, supporting continued M&A-driven growth.