Summary of Conference Call Company Overview - The company discussed is DSG, which operates as a consolidated entity with approximately $2 billion in revenues [1] - DSG was formed by merging three companies: Lawson Products, Jexpro Services, and TestEquity [2][3] - The revenue breakdown includes about 40% from TestEquity, 25% from injectable services, and 35-40% from Lawson [3] Financial Performance - Adjusted EBITDA for the trailing twelve months is reported at 9.7%, fluctuating between 9-10% [3] - The company services over 200,000 customers and offers more than 700,000 SKUs [4] - The average piece price for Lawson Products is $1.22, with gross margins around 70% [25] Business Segments Lawson Products - Focuses on maintenance, repair, and operations (MRO) with a vendor-managed inventory (VMI) model [7][24] - Employs approximately 925 sales reps who provide high-touch service to customers [24] - 40% of products sold are private label, emphasizing high-quality engineering [13][14] Jexpro Services - Specializes in supplying Class C parts to the OEM space, managing the entire supply chain for customers [10][26] - 70% of products are manufactured to customer specifications, providing significant value [27] TestEquity - Provides test and measurement equipment and electronic production supplies, accounting for about 40% of overall revenue [29] - The business includes vendor relationships with key brands like Keysight and Tektronix [30] Growth Strategy - The company has made 11 acquisitions over the past three years, deploying over $600 million in capital [18][31] - The average purchase price for acquisitions is approximately 8.5 times EBITDA [18] - The company aims to grow revenues from $2 billion to $3.3 billion, with half of that growth expected from acquisitions [44] Market Position and Trends - DSG operates in a fragmented market, providing high levels of service and technical expertise [5][6] - The company benefits from a tight labor market by offering labor support to customers [21] - Onshoring of manufacturing and increasing technology integration in products are seen as favorable trends for DSG [22][23] Customer Retention and Relationships - The company reports high customer retention rates, with Jexpro services in the high nineties [17] - Strong relationships with customers allow for better demand forecasting and service delivery [12] Financial Management - The company maintains a debt leverage ratio around 3.5-3.6, with a focus on reinvesting cash flow into organic growth and acquisitions [32][54] - Share buybacks are part of the capital management strategy [32] Conclusion - DSG is positioned well for future growth through its diversified business model, strong customer relationships, and strategic acquisitions [20][45] - The company is focused on expanding its market share within existing customer bases and enhancing product offerings [57]

Financial Performance & Metrics - DSG's adjusted revenue reached $196 billion[12] - Adjusted EBITDA margin is approximately 97%[12] - Adjusted Free Cash Flow exceeds $160 million[12] - Q1 2025 revenue was $478 million, a 149% increase year-over-year, with organic average daily sales growth of 43%[50] - Q1 2025 adjusted EBITDA was $428 million, representing 90% of sales, compared to 87% in the prior year quarter[50] Business Segments & Focus - Industrial Technologies segment accounts for approximately 40% of sales[12] - OEM segment represents about 24% of sales[12] - MRO segment constitutes roughly 36% of total revenue with TTM Adjusted Revenue of $715 million[32] - Gexpro Services in the OEM segment has TTM Adjusted Revenue of $464 million[36] - TestEquity Group in the Industrial Technologies segment has TTM Adjusted Revenue of $781 million[41] Strategic Initiatives & Acquisitions - The company has completed 11 strategic acquisitions since 2022, with purchase price multiples ranging from 46x to 94x (weighted 83x)[22] - DSG has an authorized share repurchase program of $375 million, with $111 million and $112 million repurchased in Q1 2025, and $152 million remaining under prior authorizations[52]

Group 1 - Distribution Solutions Group (NASDAQ: DSGR) has experienced a significant decline of approximately 30% from around $40 per share at the beginning of the year [1] - Following the release of Q1 earnings, the stock has continued to decrease in value [1]

Financial Data and Key Metrics Changes - The company reported first quarter revenue of $478 million, an increase of 14.9% compared to the same quarter last year, with $51 million attributed to acquisitions and organic average daily sales growth of 4.3% [10][31] - Adjusted EBITDA for the first quarter grew to nearly $43 million, an increase of 18.6% year-over-year, with an EBITDA margin of 9%, up 30 basis points from the previous year [12][31] - GAAP net income per diluted share was $0.07 for the quarter, compared to a net loss of $0.11 a year ago, while adjusted EPS was $0.31, up from $0.25 in the prior year [33] Business Line Data and Key Metrics Changes - Lawson Products reported Q1 sales of $120.5 million, with organic average daily sales down 6.8% primarily due to military sales and sales force transformation efforts [33] - Gexpro Services achieved first quarter revenue of $118.9 million, up over 20% year-over-year, with adjusted EBITDA of $15 million or 12.6% of sales [36] - Test Equity Group's first quarter sales were $188.8 million, with adjusted EBITDA of $12.8 million or 6.8% of sales, reflecting a slight increase from the previous year [38] Market Data and Key Metrics Changes - The Canadian segment reported first quarter sales of $50.5 million, with organic sales increasing 5.3%, but overall performance was impacted by market disruptions and seasonality [35][20] - The aerospace and defense, renewables, and technology sectors showed strong growth, contributing to the momentum in JetPro Services, while the industrial power and consumer segments experienced softer sales [23] Company Strategy and Development Direction - The company is focused on enhancing its sourcing capabilities and expanding its value-added services to navigate the current trade policy environment and improve customer engagement [5][8] - The management team is committed to maximizing long-term value through disciplined capital allocation, including share repurchases and strategic acquisitions [39][44] - The company aims to double EBITDA over the next three years while improving current EBITDA margins through operational efficiencies and integration of recent acquisitions [15][41] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the long-term positioning of the company amidst current trade policy uncertainties, emphasizing the importance of flexibility in sourcing and customer relationships [5][9] - The company anticipates that the current market noise will stabilize, allowing for better sourcing strategies and improved profitability [6][10] - Management highlighted the importance of ongoing investments in sales force transformation and customer-centric initiatives to drive future growth [18][62] Other Important Information - The company repurchased $11.2 million of stock in the first quarter, with over $15 million remaining under prior authorization [9][40] - The company expects net capital expenditures for the full year 2025 to be in the range of $20 million to $25 million, approximately 1% of revenues [40] Q&A Session Summary Question: Daily sales trends and April pacing - Management noted that April sales trends are relatively flat compared to Q1, with no major movements observed [52][54] Question: Military sales and sales force rebuild - Military sales remain flat, and the sales force transformation is ongoing, with a focus on increasing productivity and expanding the number of sales reps [60][62] Question: M&A pipeline and market opportunities - The current environment is expected to create more M&A opportunities, with a robust pipeline but a measured approach to new acquisitions [71][75] Question: Potential reshoring and onshoring of manufacturing - Management believes there are long-term opportunities arising from current market conditions, with a focus on enhancing sourcing capabilities [77][79] Question: Path to achieving 20% returns on invested capital - The company aims to improve the numerator through better margins from acquisitions while managing working capital effectively [88]

Core Viewpoint - Distribution Solutions Group (DSGR) reported quarterly earnings of $0.31 per share, missing the Zacks Consensus Estimate of $0.36 per share, but showing an increase from $0.25 per share a year ago [1][2] Financial Performance - The earnings surprise for the quarter was -13.89%, with the company previously expected to post earnings of $0.33 per share but actually reporting $0.42 per share in the prior quarter, resulting in a positive surprise of 27.27% [2] - Revenues for the quarter ended March 2025 were $478.03 million, missing the Zacks Consensus Estimate by 2.66%, compared to $416.09 million in the same quarter last year [3] - Over the last four quarters, the company has surpassed consensus revenue estimates two times [3] Stock Performance - Distribution Solutions shares have declined approximately 24.3% since the beginning of the year, while the S&P 500 has decreased by 5.3% [4] - The current Zacks Rank for the stock is 4 (Sell), indicating expectations of underperformance in the near future [7] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.45 on revenues of $509.7 million, and for the current fiscal year, it is $1.64 on revenues of $2.02 billion [8] - The trend for estimate revisions ahead of the earnings release was unfavorable, which may impact future stock performance [7] Industry Context - The Technology Services industry, to which Distribution Solutions belongs, is currently ranked in the top 27% of over 250 Zacks industries, suggesting a favorable outlook compared to lower-ranked industries [9]

Financial Data and Key Metrics Changes - The company reported first quarter revenue of $478 million, representing a 14.9% increase compared to the same quarter last year [8][29] - Adjusted EBITDA for the first quarter grew to nearly $43 million, an increase of 18.6% year-over-year, with an EBITDA margin of 9%, up 30 basis points from the previous year [10][29] - GAAP net income per diluted share was $0.07, compared to a net loss per share of $0.11 a year ago, while adjusted EPS was $0.31, up from $0.25 in the prior year [31] Business Line Data and Key Metrics Changes - Lawson Products generated first quarter sales of $120.5 million, with organic average daily sales down 6.8% primarily due to military sales decline and sales force transformation efforts [31] - Gexpro Services reported first quarter revenue of $118.9 million, up over 20% year-over-year, with adjusted EBITDA of $15 million, or 12.6% of sales [34] - Test Equity Group's first quarter sales were $188.8 million, with adjusted EBITDA of $12.8 million, or 6.8% of sales, reflecting a slight increase from the prior year [36] Market Data and Key Metrics Changes - The Canadian segment's first quarter sales were $50.5 million, with organic sales increasing 5.3%, but softer sales were noted due to market disruptions and tariff changes [33][18] - The aerospace and defense, renewables, and technology sectors showed strong growth, contributing to the momentum in JetPro Services [21] Company Strategy and Development Direction - The company is focused on maximizing long-term value through strategic acquisitions and organic growth initiatives, with a robust M&A pipeline [40][41] - Investments in sourcing capabilities and customer-centric sales platforms are expected to enhance margins and profitability [17][39] - The company aims to double EBITDA over the next three years while improving current EBITDA margins [13] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding the impact of trade policy changes on customer engagement and profitability [4][5] - The company anticipates that the current market noise will stabilize, allowing for better sourcing strategies [5][6] - There is a belief that the ongoing reshaping of global trade patterns may create long-term opportunities for the company [72][73] Other Important Information - The company repurchased $11.2 million of stock in the first quarter, with over $15 million remaining under prior authorization [7] - The company expects to maintain a debt leverage ratio of 3.6 times, with a focus on managing working capital effectively [38] Q&A Session Summary Question: Daily sales trends and April pacing - Management noted that April sales trends are relatively flat compared to Q1, with no major movements observed [48][49] Question: Military sales and sales force rebuild - Military sales remain flat, with sequential improvement seen in strategic accounts, while the sales force transformation is ongoing with a focus on productivity [55][56][57] Question: M&A pipeline and market opportunities - The current environment is expected to create more M&A opportunities, with a robust pipeline but a measured approach to new acquisitions [67][70] Question: Path to 20% returns on invested capital - The company aims to improve the numerator through acquisitions and manage working capital effectively to reach the target [80][82]

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) For Q1 2025, Distribution Solutions Group, Inc. reported total revenue of $478.0 million, a 14.9% increase, achieving a net income of $3.3 million from a prior-year loss, with total assets reaching $1.76 billion due to acquisitions and segment realignment [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2025, total assets increased to $1.76 billion, total liabilities rose to $1.13 billion due to long-term debt, and total stockholders' equity slightly decreased to $636.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | **$1,762,912** | **$1,727,255** | | Total current assets | $744,802 | $712,174 | | Goodwill | $464,098 | $462,789 | | **Total Liabilities** | **$1,126,199** | **$1,086,712** | | Long-term debt, less current portion, net | $712,370 | $693,903 | | **Total Stockholders' Equity** | **$636,713** | **$640,543** | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) In Q1 2025, the company achieved a significant turnaround, reporting a net income of $3.3 million ($0.07 per diluted share) compared to a $5.2 million net loss in Q1 2024, driven by a 14.9% revenue increase to $478.0 million and higher operating income Q1 2025 vs. Q1 2024 Statement of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Revenue | $478,029 | $416,086 | | Gross Profit | $163,980 | $143,409 | | Operating Income (loss) | $20,097 | $2,783 | | Net Income (loss) | $3,261 | $(5,224) | | Diluted Income (loss) per share | $0.07 | $(0.11) | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) In Q1 2025, net cash used in operating activities was $4.8 million, a reversal from the prior year, while net cash used in investing activities decreased to $5.1 million, and financing activities provided $7.6 million from credit facility borrowings Q1 2025 vs. Q1 2024 Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $(4,762) | $6,615 | | Net cash provided by (used in) investing activities | $(5,053) | $(16,008) | | Net cash provided by (used in) financing activities | $7,633 | $(3,951) | | Increase (decrease) in cash, cash equivalents and restricted cash | $(1,689) | $(14,024) | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) The notes detail a Q3 2024 segment realignment, the $50.8 million revenue contribution from 2024 acquisitions, total debt of $758.0 million with covenant compliance, $11.2 million in share repurchases, and the settlement of a 2022 cyber incident legal matter - The company realigned its reportable segments in Q3 2024 following the Source Atlantic acquisition, creating four segments: Lawson, TestEquity, Gexpro Services, and Canada Branch Division[28](index=28&type=chunk)[29](index=29&type=chunk)[95](index=95&type=chunk) - Acquisitions completed in 2024 contributed **$50.8 million** in revenue and **$2.1 million** in net income during the first quarter of 2025[60](index=60&type=chunk) - Total debt outstanding was **$758.0 million** as of March 31, 2025, with the company in compliance with all financial covenants[76](index=76&type=chunk)[87](index=87&type=chunk)[194](index=194&type=chunk) - In Q1 2025, the company repurchased **320,638 shares** of its common stock for **$11.2 million**, with **$15.2 million** remaining under the authorized program[90](index=90&type=chunk)[199](index=199&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 14.9% consolidated revenue growth in Q1 2025 to acquisitions and organic growth, with all segments contributing to improved performance, and the company maintains sufficient liquidity for future strategic initiatives - Consolidated revenue increased by **$61.9 million** in Q1 2025, driven by **$50.8 million** from acquisitions completed in 2024 and organic revenue growth of **$11.1 million** (**2.7%**)[154](index=154&type=chunk) Adjusted EBITDA by Segment (in thousands) | Segment | Q1 2025 Adjusted EBITDA | Q1 2024 Adjusted EBITDA | % Change | | :--- | :--- | :--- | :--- | | Lawson | $14,307 | $13,426 | 6.6% | | TestEquity | $12,811 | $11,611 | 10.3% | | Gexpro Services | $14,975 | $10,811 | 38.5% | | Canada Branch Division | $2,616 | $1,372 | 90.7% | | **Consolidated** | **$42,786** | **$36,067** | **18.6%** | - The company believes its liquidity, consisting of **$65.4 million** in cash and **$224.7 million** in borrowing availability, is sufficient to meet its needs for the next twelve months[185](index=185&type=chunk) - The company expects to spend approximately **$20.0 million** to **$25.0 million** for net capital expenditures during the full fiscal 2025 year[197](index=197&type=chunk) [Results by Reportable Segment](index=39&type=section&id=Results%20by%20Reportable%20Segment) In Q1 2025, Gexpro Services achieved strong organic revenue growth, the Canada Branch Division's revenue surged due to acquisition, Lawson's revenue grew with acquisitions offsetting legacy declines, and TestEquity's operating income significantly improved - Lawson: Revenue increased **1.9%** to **$120.5 million**, with acquisitions contributing **$10.4 million**, partially offset by an **$8.1 million** decline in legacy revenue; operating income grew **53.8%** to **$6.3 million**[156](index=156&type=chunk)[157](index=157&type=chunk) - TestEquity: Operating income swung to a **$4.1 million** profit from a **$6.1 million** loss in the prior year, primarily due to a **$9.2 million** decrease in severance and acquisition-related retention expenses[162](index=162&type=chunk)[166](index=166&type=chunk) - Gexpro Services: Revenue grew **20.5%** to **$118.9 million**, driven by increased sales in renewable energy, technology, aerospace, and defense; operating income rose **105.8%** to **$11.2 million**[168](index=168&type=chunk)[169](index=169&type=chunk) - Canada Branch Division: Revenue increased **304.5%** to **$50.5 million**, primarily driven by **$37.4 million** from the Source Atlantic acquisition[174](index=174&type=chunk)[175](index=175&type=chunk) [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2025, the company maintained $65.4 million in cash and $224.7 million in credit availability, with net cash used in operations at $4.8 million, and key uses including capital expenditures and share repurchases Q1 2025 vs. Q1 2024 Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash from operating activities | $(4,762) | $6,615 | | Net cash from investing activities | $(5,053) | $(16,008) | | Net cash from financing activities | $7,633 | $(3,951) | - The company had **$758.0 million** in outstanding borrowings as of March 31, 2025, and was in compliance with all financial covenants[194](index=194&type=chunk)[195](index=195&type=chunk) - Contractual purchase commitments for the next twelve months total approximately **$181.1 million**[196](index=196&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations, as 100% of its debt obligations are at floating rates, and it does not currently use derivative financial instruments to mitigate this risk - A hypothetical **100 basis point (1%)** increase or decrease in interest rates would change the company's annual interest expense by approximately **$7.6 million**[203](index=203&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Senior management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the evaluation date, March 31, 2025[204](index=204&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[205](index=205&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=46&type=section&id=Item%201.%20Legal%20Proceedings) The company settled a class action lawsuit related to a 2022 cyber incident on April 10, 2025, with the non-material settlement payment fully covered by insurance - A class action lawsuit (Cyber Incident Suit) filed in April 2023 regarding a 2022 cyber incident was settled in April 2025[108](index=108&type=chunk) - The settlement amount was not material and was entirely covered by insurance[108](index=108&type=chunk) [Item 1A. Risk Factors](index=46&type=section&id=Item%201A.%20Risk%20Factors) No material changes occurred to the risk factors disclosed in the 2024 Annual Report on Form 10-K, with the report reiterating the potential negative impact of tariffs and trade policies on global economic conditions and operating margins - The company highlights the risk that tariffs and trade disputes could negatively affect operating profit margins if increased costs cannot be passed to customers or if operations cannot be modified accordingly[211](index=211&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company conducted no unregistered equity sales in Q1 2025, but repurchased 320,638 shares for $11.2 million under its authorized program, with $15.2 million remaining for future repurchases Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2025 | 320,638 | $34.94 | | February 2025 | — | $— | | March 2025 | — | $— | | **Total** | **320,638** | | [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the first quarter of 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the quarter ended March 31, 2025[216](index=216&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) The report lists various exhibits filed with the Form 10-Q, including credit agreements, executive employment agreements, and CEO/CFO certifications

Revenue Growth - First quarter revenue increased by $61.9 million, or 14.9%, to $478.0 million, including $50.8 million from five acquisitions closed in 2024[6] - Revenue for the three months ended March 31, 2025, was $478.03 million, a 14.9% increase from $416.09 million in the same period of 2024[19] - Total revenue for Q1 2025 reached $478,029 thousand, up from $416,086 thousand in Q1 2024, indicating a growth of 14.9%[44] - The Canada Branch Division generated $50.54 million in revenue, a notable increase from $12.50 million in the prior year, indicating successful market expansion[26] Profitability - Adjusted EBITDA for the first quarter rose to $42.8 million, up 18.6%, representing 9.0% of sales compared to 8.7% in the prior year[11] - Adjusted EBITDA for Q1 2025 was $42,786 thousand, compared to $36,067 thousand in Q1 2024, representing an increase of 18.5%[44] - Gross profit increased to $163.98 million, up 14.4% from $143.41 million year-over-year[19] - Operating income was $20.1 million, significantly up from $2.8 million in the prior year, with adjusted operating income at $34.4 million[11] - Operating income rose significantly to $20.10 million compared to $2.78 million in the prior year, reflecting a substantial improvement in operational efficiency[19] - Non-GAAP adjusted operating income for Q1 2025 was $34,392 thousand, compared to $29,761 thousand in Q1 2024, reflecting a year-over-year growth of 8.2%[40] Net Income - Net income per diluted share was $0.07, compared to a net loss per diluted share of $0.11 in the year-ago quarter[11] - Net income for the quarter was $3.26 million, a turnaround from a net loss of $5.22 million in the same quarter of 2024[19] - The company reported a basic income per share of $0.07, compared to a loss of $0.11 per share in the same period last year[19] Liquidity and Assets - Total liquidity at the end of the quarter was $304.8 million, consisting of $80.0 million in cash and $224.7 million available under the credit facility[11] - Total assets increased to $1,762.9 million from $1,727.3 million at the end of the previous quarter[17] - Cash and cash equivalents at the end of the period were $65.44 million, down from $73.10 million at the end of Q1 2024[22] Expenses - The company incurred $19.98 million in depreciation and amortization expenses, up from $17.05 million in the prior year[22] - Interest expense increased to $14.22 million from $11.83 million year-over-year, reflecting higher borrowing costs[19] - The company incurred $14,295 thousand in total selling, general and administrative adjustments for Q1 2025, down from $26,978 thousand in Q4 2024[40] - Acquisition-related costs for Q1 2025 were $108 thousand, a decrease from $1,954 thousand in Q4 2024[40] - Stock-based compensation expenses for Q1 2025 were $974 thousand, down from $2,198 thousand in Q4 2024[40] Strategic Initiatives - The company aims to improve structural margins and achieve higher return goals through strategic scaling and M&A[5] - Capital allocation priorities included opportunistic share repurchases totaling $11.2 million during the quarter[5] Market Performance - Organic average daily sales grew 4.3% year-over-year, with a constant currency increase of 4.7%[3] - The company reported year-over-year net margin expansion in all three verticals, with Lawson's net margin increasing from 11.4% to 11.9%[4]

Financial Performance - Q1 2025 adjusted revenue was $478 million, a $62 million or 14.9% increase year-over-year, primarily due to acquisitions, but down 0.5% sequentially[14] - Organic average daily sales grew 4.3% year-over-year (4.7% on a constant currency basis)[14] - Q1 2025 adjusted EBITDA was $42.8 million, or 9.0% of sales, compared to $36.1 million, or 8.7% in the prior year quarter[14] - Diluted income per share was $0.07, compared to a diluted loss per share of $0.11 in the year-ago quarter; Non-GAAP adjusted diluted earnings per share was $0.31 compared to $0.25 year-over-year[14] Segment Performance - Lawson Products' Q1 2025 revenue was $120.5 million, with adjusted EBITDA of $14.3 million or 11.9% of revenue[16, 18] - Canada Branch Division's Q1 2025 revenue was $50.5 million, with adjusted EBITDA of $2.6 million or 5.2% of revenue; Excluding Source Atlantic, adjusted EBITDA was 13.1% of revenue[22, 24, 25] - Gexpro Services' Q1 2025 organic revenue increased by $19.1 million or 19.4% year-over-year, with adjusted EBITDA of $15.0 million or 12.6% of revenue[30] - TestEquity's Q1 2025 adjusted EBITDA was $12.8 million or 6.8% of revenue[35] Strategic Initiatives - The company is focused on organic growth, M&A, and deleveraging via earnings growth and free cash flow generation[36] - A $37.5 million share repurchase program is in place, with $11.2 million repurchased in Q1 2025 and $15.2 million still available under prior authorizations[36]

Financial Data and Key Metrics Changes - The company reported revenue of $1.8 billion for fiscal 2024, an increase of almost 15%, primarily driven by strategic acquisitions [8] - Adjusted free cash flow grew to $175 million, reflecting strong operational performance [8] - The trailing twelve-month total revenues were approximately $1.95 billion, indicating significant growth since the 2021 pre-merger results [10] Business Line Data and Key Metrics Changes - Lawson Products reported Q4 sales of $111.8 million, with organic sales down 10.9% due to lower rep counts and military sales decline [53] - Gexpro Services experienced a revenue increase of 27.4% year-over-year, reaching $118.8 million, driven by organic expansion [58] - Test Equity Group's sales were $191.3 million, with adjusted EBITDA of $14.8 million, reflecting a positive growth trajectory in test and measurement [60] Market Data and Key Metrics Changes - The aerospace and defense, technology, and renewables markets showed sequential growth, contributing to Gexpro Services' performance [34] - Military sales for Lawson were down over 50%, significantly impacting total sales [32] - The company noted improvements in market conditions, particularly in the OEM vertical, which is expected to enhance performance in 2025 [17] Company Strategy and Development Direction - The company is focused on strategic acquisitions to broaden scale and geographic footprint, with five acquisitions completed in 2024 [12] - Investments in sales force and technology are aimed at enhancing customer engagement and long-term profitability [19][24] - The company is prioritizing high-growth opportunities in Southeast Asia and integrating recent acquisitions to drive future growth [14][35] Management's Comments on Operating Environment and Future Outlook - Management acknowledged persistent macro headwinds but expressed confidence in the company's positioning for record performance in 2025 as market conditions improve [17] - The company is optimistic about the recovery in end markets and expects to see sales and margins build quickly as conditions normalize [46] - Management highlighted the importance of adapting to new regulatory environments and potential impacts from government spending [72] Other Important Information - The company ended Q4 with approximately $473 million in net working capital and $335 million in liquidity [61] - Debt leverage at the end of Q4 was 3.5 times, with a targeted range of three to four times [62] - The company repurchased $2.6 million of stock during fiscal 2024 as part of its capital allocation strategy [64] Q&A Session Summary Question: Can you provide insights on quarter-to-date sales levels across DSG compared to Q4? - Management indicated that Lawson has started strong in Q1, with sales up compared to the previous year, while consolidated sales are relatively flat [84][86] Question: How have consolidated margins trended in Q1 versus Q4? - Margins are expected to improve as 2025 develops, particularly with the realization of synergies from recent acquisitions [88][89] Question: Was the fourth quarter organic revenue growth of 3.5% a positive surprise? - Management noted that the fourth quarter was firmer than expected, reflecting better performance in several verticals [98][100] Question: What is the outlook for Lawson's margins moving through 2025? - Management expects gradual improvement in margins as investments in the sales force begin to yield results, despite challenges from military sales [106][114]