Summary of Distribution Solutions Group (DSGR) FY Conference Call Company Overview - **Company**: Distribution Solutions Group (NasdaqGS: DSGR) - **Formation**: Formed in early 2022 by merging three specialty distributors serving different end markets [2][3] - **Revenue**: Approximately $2 billion with an EBITDA of about $190 million, up from less than $1 billion in revenue and $90 million in EBITDA in 2021 [3] Business Verticals 1. **Lawson Products**: - Focuses on MRO (Maintenance, Repair, and Operations) with about 930 sales reps serving 80,000 customers [4][11] - Average piece price is around $1.20, emphasizing high volume and low-cost items critical for customer operations [5] - Provides vendor-managed inventory (VMI) services, integrating deeply into customer operations [4][5] 2. **Gexpro Services**: - OEM-focused, dealing with Class C parts like rivets and screws, serving about 2,500 customers [6][11] - Represents 5-6% of overall production costs but constitutes 50-60% of unit volume [6] - High customer retention rates of approximately 98% [25] 3. **TestEquity Group**: - Accounts for about 40% of overall sales, primarily in test and measurement equipment [8][11] - Focus on improving e-commerce and inside sales to increase customer engagement [27] Growth Strategy - **M&A Activities**: M&A is a significant part of the growth strategy, with nine acquisitions made since the formation of DSGR, deploying about $550 million in capital [28] - **Organic Growth**: Achieved a 6% organic sales increase in Q3, with consistent growth over the last four quarters despite a sluggish industrial backdrop [15][31] - **Capital Allocation**: Maintains a leverage ratio of about 3.5 times, with a focus on working capital efficiency and share repurchase programs [29][30] Financial Performance - **Q3 Results**: Reported solid top-line growth, with EBITDA dollars relatively flat sequentially [31] - **Historical Growth**: EBITDA increased from $90 million to a run rate of $190 million in three years [31] Market Position and Challenges - **Market Diversification**: DSGR serves a wide range of end markets, minimizing concentration risk [20][11] - **Stock Performance**: Despite operational improvements, stock price has not reflected the company's performance, attributed to market misunderstandings and liquidity issues [34][35] Future Outlook - **Focus Areas**: Excitement around the TestEquity Group's new leadership and roadmap for growth, aiming to improve margins above 10% [36] - **Investment in People**: Strategic investments in personnel and sales teams to enhance revenue opportunities [26][27] Key Takeaways - DSGR is positioned as a specialty distributor with a strong focus on customer service and operational efficiency - The company has successfully integrated its three verticals, leveraging synergies for growth - Future growth is expected through continued M&A, organic growth strategies, and improvements in operational performance across its business segments [12][36]

Summary of Distribution Solutions Group (DSGR) FY Conference Call Company Overview - **Company**: Distribution Solutions Group (NasdaqGS: DSGR) - **Date**: November 18, 2025 - **Key Management**: CFO Ron Knutson, VP of Strategy and Investor Relations Brett Scarbrough Industry and Business Segments - **Industry**: Specialty distribution - **Business Segments**: 1. **Lawson Products**: - 73-year-old vendor-managed inventory provider for Class C MRO market - Average piece price of $1.20, with gross margins exceeding 60% [6][7] - Serves approximately 80,000 customers, primarily in maintenance, repair, and operations [26] 2. **Gexpro Services**: - OEM provider of Class C parts, contributing about 25% of DSGR's revenue (~$500 million) [10] - Focuses on supply chain solutions for production environments, handling items like rivets and screws [8][9] 3. **TestEquity Group**: - Comprises electronic production supplies and test and measurement equipment, making up about 40% of DSGR's revenue [11] - Recently doubled in size due to the acquisition of Hisco [11] Financial Performance - **Revenue Growth**: - Consolidated revenues increased from approximately $900 million to a TTM of about $2 billion [22] - EBITDA improved from about $90 million (8% margin) to a run rate of close to $200 million (9-10% margin) [22] - **Organic Growth**: - Recent quarters showed organic growth rates ranging from 2.5% to 6% despite a sluggish industrial backdrop [24][26] Ownership Structure - **Majority Owner**: Luther King Capital Management (LKCM) owns about 78% of DSGR [14] - **Investment Strategy**: Focus on specialty distribution businesses that provide services and technical sales, avoiding commoditized markets [15][16] M&A Strategy - **Acquisitions**: - Nine acquisitions made, deploying about $550 million in capital [56] - Comfortable leverage ratio of approximately 3.5 times, with a $1.1 billion credit facility available [56][57] - **Future Plans**: M&A remains a key growth strategy, with a dedicated team for sourcing acquisitions [18] Market Conditions and Outlook - **Demand Environment**: - Characterized as sluggish, with some positive trends in unit volumes for Lawson and Gexpro Services [26][27] - Cautious outlook for 2026, with ongoing initiatives across all verticals [28] - **Tariffs**: - DSGR has managed tariff impacts effectively, with 6% of products directly imported [30][32] Technology and Innovation - **Artificial Intelligence**: - Early stages of AI deployment, with initiatives in accounts receivable collection and sales processes [34] Segment-Specific Insights - **Lawson Products**: - Focus on increasing sales rep productivity and optimizing sales processes [36][37] - **Gexpro Services**: - Strong performance in industrial power and aerospace markets, with ongoing investments in Southeast Asia [52][53] - **TestEquity Group**: - New leadership focused on enhancing go-to-market strategies and improving e-commerce conversion rates [49][50] Capital Allocation - **Share Repurchase Program**: - Recently authorized an additional $30 million for share repurchases, viewed as a return to shareholders [58][59] Key Market Segments - **Revenue Distribution**: - Industrial (15%), Auto and Transportation (13%), Aerospace and Defense (10%), Renewable Energy (8%), Government and Military (4%), Electronic Assembly (20%) [60] This summary encapsulates the key points discussed during the conference call, providing insights into the company's structure, performance, market conditions, and strategic initiatives.

Summary of Distribution Solutions Group (DSG) FY Conference Call Company Overview - **Company Name**: Distribution Solutions Group (DSGR) - **Industry**: Specialty Distribution - **Market Capitalization**: Approximately $2 billion, up from less than $1 billion three years ago [3][2] - **EBITDA**: Currently around $190 million, increased from approximately $90 million at the time of the merger [3][2] Core Business Segments 1. **Lawson Products** - Established 73 years ago with about 1,000 sales representatives [4][2] - Focuses on Class C and MRO (Maintenance, Repair, and Operations) products, managing vendor inventory for over 80,000 customers [4][2] - Gross margins near 70% before sales costs [7][2] 2. **Gexpro Services** - A leading OEM provider, with 70% of products customized to client specifications [4][2] - Manages the supply chain for Class C items, which are low-cost but high-volume components [5][2] - Operates with margins of 13%-14% [22][2] 3. **TestEquity Group** - Comprises about 40% of DSG's revenue, focusing on electronic production supplies and test measurement equipment [5][2][23][2] - Recently appointed a new CEO to revamp the go-to-market strategy [23][2] Financial Performance - **Organic Growth**: Achieved 6% organic growth year-over-year [28][2] - **Recent Acquisitions**: Made five acquisitions in 2024, three of which were on the Lawson side [21][2] - **Cash Flow**: Generated cash flow from operating activities of $38 million in Q3 and $33 million in Q2 [27][2] - **Capital Allocation**: Deployed approximately $550 million in capital for acquisitions since the formation of DSG [26][2] Strategic Initiatives - **M&A Strategy**: DSG has a dedicated M&A team supported by Luther King Capital Management (LKCM), which owns 78% of DSG shares [10][2][25][2] - **Customer Retention**: High revenue retention rates, particularly in Gexpro Services, with minimal customer churn [11][2][17][2] - **Diversification**: Serves over 200,000 customers across various end markets, with no single market exceeding 20% of total sales [12][2][17][2] Competitive Advantages - **Asset-Light Model**: CapEx is about 1% of sales, allowing for significant free cash flow generation [12][2] - **Strong Supplier Relationships**: Maintains a diverse supplier base with minimal concentration risk [13][2] - **Integrated Sales Approach**: Sales teams incentivized to cross-sell services among the three verticals, enhancing customer relationships [31][2][32][2] Challenges and Considerations - **Internal Competition**: There exists a competitive nature among the three verticals for capital allocation, but this is viewed positively as it drives performance [36][2][37][2] - **Market Adaptability**: The company has shown resilience through various business cycles, adjusting resources as needed across different end markets [22][2][12][2] Conclusion Distribution Solutions Group is positioned strongly within the specialty distribution industry, demonstrating significant growth, a robust M&A strategy, and a commitment to customer service and operational efficiency. The company’s diversified approach across its three verticals provides a solid foundation for continued success and resilience in fluctuating market conditions.

Powerful Solutions. Proven Results. NASDAQ: DSGR Baird Global Industrial Conference November 13, 2025 Disclaimers Cautionary Note Regarding Forward-Looking Statements This presentation contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the "safe-harbor" provisions under the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. The terms ...

Financial Data and Key Metrics Changes - The company reported consolidated revenue of $518 million for Q3 2025, reflecting a 10.7% increase year-over-year, driven by a 6% organic daily sales increase and $23.3 million from 2024 acquisitions [22][23] - Adjusted EBITDA for the quarter was $48.5 million, representing 9.4% of sales, with cash flows from operations exceeding $38 million [22][23] - Non-GAAP adjusted EPS improved to $0.40, an 8.1% increase from the previous year [23] Business Line Data and Key Metrics Changes - **TestEquity Group**: Sales reached $206.5 million, with a 5.8% increase year-over-year, but faced margin pressure due to competitive pricing and product mix shifts [27] - **Gexpro Services**: Achieved record adjusted EBITDA of $17.8 million, with an 11.4% revenue increase driven by aerospace, defense, and renewable energy sectors [26] - **Lawson Products**: Reported Q3 sales of $121.5 million, a 3% organic sales increase, but faced margin contraction due to higher employee-related costs and ongoing sales transformation investments [23][24] Market Data and Key Metrics Changes - Demand remained strong in sectors such as aerospace, defense, renewables, and industrial power, contributing to overall revenue growth [5][12] - The Canadian segment saw sales of $60 million, including $20.1 million from the Source Atlantic acquisition, with organic sales for Bolt Supply increasing by 6.5% [25] Company Strategy and Development Direction - The company is focused on enhancing profitability through strategic investments and refining its go-to-market strategy to unlock growth and margin expansion opportunities [7][12] - Continued investments in internal initiatives are expected to yield returns and improve EBITDA margins in the coming quarters [6][8] - The company is pursuing strategic inorganic opportunities to enhance its market position and customer service capabilities [34][35] Management's Comments on Operating Environment and Future Outlook - Management expressed a cautious outlook for Q4 2025 due to tougher year-over-year comparisons but remains confident in the company's ability to execute on value-driving initiatives [31][43] - The company is navigating market volatility while focusing on long-term value creation through disciplined decision-making [31][34] Other Important Information - The company has repurchased approximately 670,000 shares in the first nine months of 2025, reflecting confidence in its trajectory despite macroeconomic challenges [6][23] - Total liquidity at the end of the quarter was $335 million, providing flexibility for future acquisitions and organic growth investments [28][29] Q&A Session Summary Question: What does October look like in terms of organic pacing? - Management noted that October has 23 selling days, and while there is a cautious outlook, there are no dramatic shifts observed in sales trends [40][42] Question: Any significant variance expected in consolidated EBITDA margin? - Management indicated that some margin changes are due to ongoing investments and timing issues, with no significant one-time items anticipated for Q4 [44][45] Question: How durable is the momentum in Gexpro Services? - Management highlighted a strong backlog and new customer wins, indicating resilience and growth potential in Gexpro Services [46][48] Question: Update on Lawson Products sales force initiatives? - Management acknowledged ongoing challenges in ramping up new sales representatives but noted positive trends in sales metrics and customer engagement [50][53] Question: How much did tariff-based pricing benefit sales this quarter? - Management reported strong volume growth across all verticals, with pricing actions taken earlier in the year, but the impact of tariffs has been manageable [59][60] Question: Expectations on TestEquity margins and labor costs? - Management expects higher labor costs to persist due to ongoing investments in sales and support, with a focus on improving operating leverage over the next year [64][70]

Core Insights - Distribution Solutions Group (DSGR) reported quarterly earnings of $0.4 per share, missing the Zacks Consensus Estimate of $0.42 per share, but showing an increase from $0.37 per share a year ago, resulting in an earnings surprise of -4.76% [1] - The company posted revenues of $517.96 million for the quarter ended September 2025, exceeding the Zacks Consensus Estimate by 3.20% and up from $468.02 million year-over-year [2] - Distribution Solutions has underperformed the market, with shares down about 13.5% year-to-date compared to the S&P 500's gain of 17.2% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.37 on revenues of $490 million, and for the current fiscal year, it is $1.41 on revenues of $1.97 billion [7] - The estimate revisions trend for Distribution Solutions was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6] Industry Context - The Technology Services industry, to which Distribution Solutions belongs, is currently in the top 35% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors [5]

Financial Performance - Q3 2025 revenue reached $518 million, a 10.7% increase year-over-year, driven by 6.0% organic daily sales growth and acquisitions[23] - Organic daily sales grew 3.1% sequentially over Q2 2025[14, 23] - Adjusted EBITDA was $48.5 million, representing 9.4% of sales, compared to 9.7% in Q2 2025 due to sales mix shift, initiative investments, and increased employee-related costs[14, 23] - Cash flow from operations was $38 million in Q3 2025, following $33 million in Q2 2025[16] Segment Performance - Lawson Products' Q3 2025 revenue was $121.5 million with adjusted EBITDA of $14.0 million, or 11.5% of revenue[25, 27, 28] - Canada Branch Division's Q3 2025 revenue was $60.0 million, up from $39.1 million in Q3 2024, with adjusted EBITDA of $5.8 million, or 9.6% of revenue[30, 32, 33] - Gexpro Services' Q3 2025 revenue was $130.5 million, with adjusted EBITDA of $17.8 million, or 13.6% of revenue[35, 37, 38] - TestEquity's Q3 2025 revenue was $206.5 million, with adjusted EBITDA of $12.4 million, or 6.0% of revenue[40, 42, 43] Capital Allocation - Approximately $20 million of shares were repurchased year-to-date[16] - Total liquidity at the end of Q3 2025 was approximately $335 million[16, 44]

Financial Performance - DSG reported a consolidated net income of $6,452,000 for the three months ended September 30, 2025[145]. - Adjusted EBITDA for DSG was $48,457,000 for the three months ended September 30, 2025, reflecting strong operational performance across segments[145]. - Total revenue for Q3 2025 was $517.96 million, up from $468.02 million in Q3 2024, representing a growth of approximately 10.7%[150]. - Operating income for Q3 2025 was $23.62 million, compared to $18.95 million in Q3 2024, reflecting an increase of 24.5%[150]. - Net income for Q3 2025 was $6.45 million, down from $21.92 million in Q3 2024, indicating a decline of 70.5%[150]. - Adjusted EBITDA for the nine months ended September 30, 2024, was $130.36 million, compared to $139.80 million for the same period in 2025, showing a decrease of approximately 6.8%[148]. - The company reported a net income of $14.7 million, or 1.0% of total revenue, compared to a net income of $18.6 million, or 1.4% of total revenue, in the prior year[183]. Revenue Growth - Consolidated revenue increased by $49.9 million in Q3 2025 compared to Q3 2024, driven by $23.3 million from acquisitions and an organic revenue increase of $26.6 million or 6.0%[151]. - Consolidated revenue increased by $174.8 million, or 13.2%, to $1,498.4 million in the first nine months of 2025 compared to $1,323.6 million in the same period of 2024, driven by $123.7 million from acquisitions and a 4.0% increase in organic revenue[184]. - Lawson segment revenue increased by $3.6 million or 3.0% to $121.5 million in Q3 2025 compared to $117.96 million in Q3 2024[154]. - TestEquity segment revenue increased by $11.2 million, or 5.8%, to $206.5 million in Q3 2025, driven by an $8.0 million increase in test and measurement sales[161]. - Gexpro Services segment revenue increased by $14.4 million, or 12.4%, to $130.5 million in Q3 2025, primarily due to increased sales in renewable energy and aerospace markets[167]. - Canada Branch Division revenue increased by $20.9 million to $60.0 million in Q3 2025, primarily driven by the full quarter contribution from the 2024 acquisition of Source Atlantic[173]. - Lawson segment revenue increased by $9.1 million, or 2.5%, to $366.3 million, with a gross profit margin of 55.5% compared to 55.1% in the prior year[187][188]. - TestEquity segment revenue grew by $10.4 million, or 1.8%, to $590.3 million, while gross profit decreased by $4.3 million to $127.9 million, resulting in a gross profit margin of 21.7%[192][194]. - Gexpro Services segment revenue increased by $55.3 million, or 17.2%, to $377.2 million, with gross profit rising by $17.4 million to $118.0 million, maintaining a gross profit margin of 31.3%[198][200]. - Revenue from external customers for the Canada Branch Division increased by $100.2 million, or 151.7%, to $166.3 million for the nine months ended September 30, 2025, compared to $66.1 million in the same period of 2024[204]. Expenses and Costs - Selling, general and administrative expenses totaled $146.71 million in Q3 2025, up from $139.90 million in Q3 2024, reflecting an increase of 4.0%[150]. - Selling, general and administrative expenses decreased by $3.7 million to $60.9 million in Q3 2025 compared to $64.6 million in the prior year quarter, primarily due to lower severance and merger-related expenses[157]. - Total selling, general and administrative expenses increased to $433.8 million, or 29.0% of total revenue, compared to $417.9 million, or 31.6% of total revenue, in the prior year[184]. - Interest expense decreased to $13.96 million in Q3 2025 from $15.16 million in Q3 2024, a reduction of approximately 8.0%[150]. - Interest expense increased by $2.6 million to $42.4 million in the first nine months of 2025, primarily due to higher borrowings related to acquisitions[210]. - Income tax expense was $1.9 million in Q3 2025, reflecting a 23.0% effective tax rate, compared to an income tax benefit of $19.0 million in the prior year[181]. Strategic Initiatives - TestEquity's revenue growth is supported by strategic acquisitions and investments in e-commerce, targeting high-growth sectors like aerospace and telecommunications[129]. - Gexpro Services aims to increase revenue through geographic expansion and leveraging recent acquisitions to enhance installation and aftermarket services[131]. - Canada Branch Division's strategy includes introducing new product lines and services to previously underserviced geographic areas[133]. - The company plans to pursue acquisition opportunities that are complementary and financially accretive to its existing businesses[123]. - The company completed several acquisitions in 2024, contributing significantly to revenue growth and operational performance in 2025[151]. Cash Flow and Capital Expenditures - Net cash provided by operating activities was $66.9 million for the nine months ended September 30, 2025, compared to $10.7 million in the same period of 2024[218]. - The company had $69.2 million in cash and cash equivalents as of September 30, 2025, compared to $66.5 million at the end of 2024[214]. - Total net capital expenditures for property, plant, and equipment were $18.3 million for the nine months ended September 30, 2025, with expectations of $22.0 million to $25.0 million for the full fiscal year[228]. - The company repurchased 653,213 shares of common stock at an average cost of $30.69 per share for a total cost of $20.0 million during the nine months ended September 30, 2025[230]. - As of September 30, 2025, the company had $711.6 million in outstanding borrowings under the Amended Credit Agreement[225].

Revenue and Sales Performance - Revenue increased by $49.9 million, or 10.7%, to $518.0 million, driven by $23.3 million from three acquisitions closed in the second half of 2024[10] - Organic daily sales grew by 6.0% year-over-year and 3.1% sequentially over the second quarter of 2025[10] - Revenue for the three months ended September 30, 2025, was $517,958 thousand, an increase of 10.6% compared to $468,019 thousand for the same period in 2024[19] - Total revenue from the TestEquity segment for the three months ended September 30, 2025, was $206,479 thousand, up from $195,244 thousand in 2024, reflecting an increase of 5.6%[24] - The company's total revenue for Q3 2025 was $517,958,000, an increase of 10.7% from $468,019,000 in Q3 2024[42] Profitability and Income - Operating income was $23.6 million, a 24.7% increase from $18.9 million in the prior year quarter[10] - Operating income for the three months ended September 30, 2025, was $23,619 thousand, representing a 24.3% increase from $18,947 thousand in the prior year[19] - Diluted net income per share was $0.14, down from $0.46 in the year-ago quarter, while non-GAAP adjusted diluted earnings per share was $0.40[10] - Net income for the nine months ended September 30, 2025, was $14,716 thousand, compared to a net income of $18,593 thousand in 2024, indicating a decrease of 21.0%[22] - Basic income per share for the three months ended September 30, 2025, was $0.14, down from $0.47 in the same period of 2024[19] Cash Flow and Liquidity - Operating cash flow for the quarter was $38.4 million, with net capital expenditures of $7.7 million[10] - Total liquidity at the end of the quarter was over $335 million, consisting of $82.7 million in cash and $252.7 million available under the credit facility[5] - Cash and cash equivalents at the end of the period were $69,214 thousand, an increase from $61,344 thousand at the end of September 2024[22] - The company reported a net cash provided by operating activities of $66,906 thousand for the nine months ended September 30, 2025, compared to $10,736 thousand in 2024[22] Cost and Expenses - Adjusted EBITDA totaled $48.5 million, or 9.4% of sales, compared to $49.1 million, or 10.5% of sales in the prior year quarter[10] - Non-GAAP adjusted EBITDA for the three months ended September 30, 2025, was $48,457 thousand, slightly down from $49,110 thousand in 2024[28] - The adjusted EBITDA as a percentage of revenue for Q3 2025 was 9.4%, down from 10.5% in Q3 2024[42] - The gross profit adjustments for Q3 2025 included $1,126,000 related to inventory step-up, while total selling, general and administrative expenses adjustments were $16,446,000[38] - The company incurred interest expenses of $13,955 thousand for the three months ended September 30, 2025, compared to $15,160 thousand in the same period of 2024, a decrease of 8.0%[19] Strategic Outlook and Challenges - The company maintains a cautious outlook for the fourth quarter due to tougher year-over-year comparisons and ongoing economic uncertainty[5] - The company continues to focus on strategic projects and non-recurring items, with other non-recurring costs totaling $215,000 in Q3 2025[41] Other Financial Metrics - The Canada Branch Division achieved a margin improvement to 9.6% compared to 6.5% in the second quarter[4] - The company ended the quarter with no outstanding revolver debt and a net debt leverage of 3.5x[5] - For Q3 2025, Distribution Solutions Group, Inc. reported a non-GAAP adjusted operating income of $40,065,000, compared to $42,458,000 in Q3 2024, reflecting a decrease of 5.6%[38] - Stock-based compensation expenses were $2,400,000 in Q3 2025, slightly down from $2,432,000 in Q3 2024[41] - Acquisition-related costs for Q3 2025 amounted to $87,000, a significant decrease from $2,901,000 in Q3 2024[41]

Core Points - Distribution Solutions Group, Inc. (DSG) will report its third quarter results for fiscal year 2025 on October 30, 2025, before the market opens [1] - A conference call with prepared remarks will take place at 9:00 a.m. Eastern Time on the same day [1] - Supplemental slides will be available on the Company's investor relations Events page [1]