Distribution Solutions Group reports second quarter revenue growth of 11%
Distribution Solutions Group Inc. reported ssecond quarter revenue increased 11% year-over-year to $557.7 million, driven by organic sales growth of 10.2% with daily sales improvement across all of the verticals.
As reported by Industrial Supply Weekly, subsequent to the second quarter, on July 15, the company entered into a definitive merger agreement under which newly formed entities controlled by LKCM Headwater Investments, LLC will acquire all of the outstanding shares of common stock of DSG not already owned by LKCM Headwater and its affiliates for $35.00 per share in cash.
The first quarter acquisition of Eastern Valve contributed approximately $4.1 million of revenue in the second quarter. Sequentially, revenue increased 12.4% over the first quarter on two additional selling days.
Profitability improved sequentially on higher sales. Adjusted EBITDA margin as a percentage of sales was 9.7%, a sequential improvement of 210bps, while a sequential improvement in operating income to $27.9 million drove improved adjusted earnings per share from $0.24 to $0.47.
Improved profitability and working capital management in the quarter drove cash flows from operations to $22.0 million for the quarter, an improvement over cash flows used in operations of $20.4 million in the first quarter of 2026.
Gross margin decreased from 33.9% to 32.3% primarily due to customer and vertical sales mix shifts and higher tariff rates on inbound shipments partially offset by pricing benefits realized.
Operating income was $27.9 million, net of $11.1 million of non-cash acquired intangible amortization and $6.2 million of non-recurring severance and acquisition-related retention costs, stock-based compensation, acquisition-related costs and other non-recurring items. This compares to operating income of $26.8 million in the prior year quarter which was net of $11.7 million of intangible amortization and $1.4 million of non-recurring items. Adjusted operating income, excluding these non-cash and non-recurring items, was $45.2 million in the current quarter compared to $39.9 million in the year-ago quarter and $29.1 million in the first quarter of 2026.
Net income was $8.5 million for the quarter compared to net income of $5.0 million in the year-ago quarter.
Additional Information on Proposed Merger Agreement
LKCM Headwater and its affiliates currently own approximately 79% of DSG’s outstanding common stock. J. Bryan King, DSG’s chairman and chief executive officer, is the managing partner of LKCM Headwater.
The $35.00 per share purchase price represents an increase of $5.50 per share over LKCM Headwater’s initial non-binding proposal of $29.50 per share submitted to the company’s board of directors on March 14, and an approximately 81% premium to the Company’s closing share price of $19.31 on March 13, the last trading day prior to public disclosure of LKCM Headwater’s proposal. Upon completion of the transaction, the Company will become a privately held company 100% controlled by LKCM Headwater and its affiliates, and the company’s common stock will no longer be listed on Nasdaq.
Following LKCM Headwater’s delivery of the initial proposal and in light of LKCM Headwater’s existing ownership position and King’s roles with both LKCM Headwater and the company, the board of directors of the company formed a special committee consisting of disinterested directors (the special committee) to evaluate the Initial proposal and negotiate a potential transaction with LKCM Headwater. The special committee unanimously approved the transaction and recommended that the board approve the transaction. The board, upon the special committee’s unanimous recommendation, with certain directors recusing themselves from the vote, approved the transaction. In connection with the merger agreement, the company amended itsexisting credit agreement to permit, subject to its terms and conditions, revolving loans to be used to finance the merger and related amounts.
INDUSTRIAL SUPPLY MAGAZINE
The July/August issue of Industrial Supply magazine features an in-depth cover story about Global Industrial. Plus, we're featuring articles by contributing writers Dr. Bharani Nagarathnam and Frank Hurtte, as well as interviews with numerous product and distribution industry experts.
