DEFA14A: Distribution Solutions Group Announces Details for 2024 Annual Stockholders Meeting

Distribution Solutions Group (DSG) will hold its annual stockholders meeting virtually on May 23, 2024, to vote on director elections, auditor ratification, and executive compensation.

Summary

• Distribution Solutions Group (DSG) will hold its Annual Meeting of Stockholders online on May 23, 2024, at 10:00 a.m. Central Time.
• Stockholders will vote on the election of seven directors, ratification of Grant Thornton, LLP as the independent auditor, and an advisory vote on executive compensation.
• The record date for determining stockholders eligible to vote is March 28, 2024.
• The Board of Directors recommends voting 'FOR' all director nominees, the ratification of Grant Thornton, LLP, and the approval of executive compensation.
• In 2023, the Say-on-Pay Proposal received 99.96% support from stockholders.
• J. Bryan King, Chairman, President, and CEO, does not accept any form of compensation from the Company in connection with his role with the Company.
• Luther King Capital Management Corporation (LKCM) is listed as owning 77.7% of the company's stock.
• The company's workforce includes approximately 3,700 individuals as of December 31, 2023.
• The company has a clawback policy in place for recoupment of incentive compensation received by current or former executive officers on or after October 2, 2023.
• The company prohibits executive officers and board members from purchasing financial instruments designed to hedge or offset any decrease in the market value of company common stock.

Sentiment

Score: 7

Explanation: The document presents a balanced view with positive growth metrics but also acknowledges a diluted loss per share. The focus on corporate governance and shareholder engagement is a positive sign.

Positives

• High stockholder support (99.96%) for the Say-on-Pay proposal in the previous year indicates confidence in executive compensation practices.
• The company has adopted several corporate governance initiatives, including a Board Diversity Policy, Social and Environmental Responsibility Policy, and Anti-Hedging Policy.
• The company has a clawback policy in place for recoupment of incentive compensation received by current or former executive officers on or after October 2, 2023.
• The annual stock price appreciation from fiscal year-ending 2022 to 2023 was 71.2%.
• Revenue was $1.57 billion, an increase of $419.0 million or 36.4% compared to 2022.
• Non-GAAP adjusted EBITDA grew to $157.0 million in 2023, or 10.0% of revenue, compared to $123.0 million or 9.7% of comparable revenue inclusive of Lawson for 12 months in 2022.

Negatives

• The company reported a GAAP Diluted loss per share of $0.20 for the year compared to earnings per diluted share of $0.21 in the year-ago period.

Risks

• Cybersecurity threats are a key enterprise risk, requiring ongoing management and oversight.
• The company's success depends on attracting, motivating, and retaining executive talent.
• The company's performance is subject to various economic and market conditions.

Future Outlook

The company plans to drive sustainable growth through DSGs unique, high-touch service models in fragmented end markets with scale in specialty distribution and remains excited about its acquisition pipeline, which it expects to continue to accelerate growth in 2024 and beyond.

Management Comments

• Our leadership team in 2023 demonstrated its ability to accelerate growth through accretive acquisitions, organic growth, and key operational improvement programs.
• We plan to drive sustainable growth in the future through DSGs unique, high-touch service models in fragmented end markets with scale in specialty distribution.
• We remain excited about our acquisition pipeline, which we expect to continue to accelerate growth in 2024 and beyond.
• Our vision is to leverage our distinct platform of products, solutions, and capabilities to capitalize on strong secular tailwinds, organic and inorganic growth, and long-term profitability and cash flow, creating long-term value for our shareholders.

Industry Context

DSG operates in the specialty distribution market, which is characterized by fragmented end markets and opportunities for growth through acquisitions and organic expansion.

Comparison to Industry Standards

• The document references a peer group of 13 companies aligned with the size and industry classification of DSG, including Applied Industrial Technologies, Inc., Kadant Inc., and Barnes Group Inc.
• The DSG peer group had a median revenue of approximately $1.469 billion and a market capitalization of $1.499 billion for 2023 compared to DSGs 2023 revenue of $1.570 billion and market capitalization of $1.478 billion.
• The OPG consists of 14 companies with similar industry classification and revenues to that of the operating companies, including AMPCO-Pittsburgh Corp., Hurco Companies, Inc., and Ascent Industries Co.
• The OPG companies had 2023 median revenue of approximately $452 million as compared to the operating companies 2023 revenue of $525 million for Lawson, $406 million for Gexpro and $642 million for TestEquity.

Corporate Governance

Related Party Transactions

• Individuals employed by LKCM Headwater Operations, LLC, a related party of LKCM, have provided the Company with certain consulting services in order to identify cost savings, revenue enhancements and operational synergies of the combined companies.
• As of December 31, 2023, an expense of $0.6 million was recorded within Selling, general and administrative expenses within the Consolidated Statements of Operations and Comprehensive Income (Loss), reflecting expenses accrued during 2023 for these consulting services.

Stakeholder Impact

• Stockholders have the opportunity to vote on key company matters, influencing the direction of the company.
• Employees are subject to a Code of Conduct and various compliance training programs.
• The company is committed to understanding, monitoring and managing our social and environmental impact, and we recognize the importance of this responsibility as a discipline that helps us manage risks.

Next Steps

• Stockholders are urged to vote using one of the available voting options outlined on the proxy card.
• The Board and the Compensation Committee will review the voting results and take into account the outcome when considering future executive compensation arrangements.

Key Dates

Keywords

Annual Meeting, Stockholders, Proxy Statement, Corporate Governance, Executive Compensation, Board of Directors, Distribution Solutions Group, DSG