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]

Group 1 - The stock of Distribution Solutions Group, Inc. (DSGR) is experiencing significant attention due to high implied volatility in the options market, particularly the Nov 21, 2025 $22.50 Put option [1] - Implied volatility indicates the market's expectation of future price movement, suggesting that investors anticipate a significant change in the stock's price, potentially due to an upcoming event [2] - Distribution Solutions Group holds a Zacks Rank 2 (Buy) in the Technology Services industry, which is in the top 37% of the Zacks Industry Rank, indicating a positive outlook [3] Group 2 - Over the past 60 days, one analyst has raised the earnings estimates for Distribution Solutions Group for the current quarter from 40 cents per share to 42 cents, reflecting a positive trend in earnings expectations [3] - The high implied volatility may indicate a developing trading opportunity, as options traders often seek to sell premium on options with high implied volatility, aiming for the underlying stock to remain stable [4]

Summary of Distribution Solutions Group (DSGR) Conference Call Company Overview - **Company**: Distribution Solutions Group (DSGR) - **Industry**: Specialty distribution for maintenance, repair, operating (MRO), OEM, and industrial technologies - **Revenue**: Approximately $2 billion - **Free Cash Flow**: About $175 million - **Adjusted EBITDA Margin**: Ranges from 9% to 10% [4][41] Core Business Verticals 1. **Lawson Products**: Focused on MRO, servicing around 80,000 customers with class C fasteners and consumable items [4][25] 2. **Jexpro Services**: OEM-focused distributor serving about 2,000 customers, providing high-value services [4][27] 3. **Test Equity Group**: Accounts for about 40% of DSG's revenue, servicing the industrial technology space with test and measurement equipment [4][24] Key Points and Arguments - **High Touch Distribution**: DSG emphasizes its role as a high-touch, value-added distributor, providing not just products but also expert technical support and just-in-time delivery [5][6] - **Market Diversification**: DSG services over 200,000 customers and works with more than 10,000 suppliers, ensuring no single customer accounts for more than 3% of sales [20][19] - **Acquisition Strategy**: DSG has completed nine acquisitions in the last three and a half years, deploying about $550 million in capital [8][33] - **Revenue Growth**: Total revenues increased by over 14% year-over-year, with 3.3% attributed to organic growth, particularly from Jexpro Services [35] - **Customer Retention**: DSG boasts a revenue retention rate of approximately 92%, indicating strong customer loyalty [19] Financial Performance - **EBITDA Growth**: The company has seen EBITDA margins improve from less than 8% pre-DSG to around 10% currently, with a target of reaching 13.5% [20][41] - **Cash Flow Generation**: DSG operates with an asset-light model, with only about 1% of revenues allocated to capital expenditures, allowing for significant free cash flow generation [13][31] - **Share Buybacks**: DSG has repurchased approximately $20 million in shares in the first half of the year, indicating a commitment to returning capital to shareholders [31][38] Market Position and Future Outlook - **Onshoring Trend**: DSG is well-positioned to benefit from the trend of onshoring and near-shoring manufacturing back to the U.S. [22] - **Labor Challenges**: The company provides skilled sales support to help customers address labor shortages, enhancing its value proposition [22][23] - **Technological Advancements**: The Test Equity Group is positioned to capitalize on advancements in technology, particularly in IoT and electronic production [24] Additional Insights - **Vendor Managed Inventory (VMI)**: DSG employs VMI strategies, placing bins and cabinets at customer locations to streamline inventory management [14][15] - **Competitive Moat**: The extensive service offerings and technical expertise create a competitive advantage, making DSG a preferred partner for many customers [12][10] - **Vertical-Specific Strategies**: Each vertical operates with distinct sales strategies and customer bases, ensuring tailored approaches to market demands [18][19] This summary encapsulates the key points discussed during the conference call, highlighting the strengths, strategies, and financial performance of Distribution Solutions Group.

Company Overview - DSG is a leading specialty industrial distribution platform with a focus on MRO, OEM, and Industrial Technologies [12] - The company's TTM Adjusted Revenue as of June 30, 2025, was $1.96 billion [13] - Adjusted EBITDA margin was approximately 9.6% [13] - The company has over 200,000 customers and offers over 740,000 unique SKUs [13] Financial Performance - Q2 2025 revenue reached $502 million, a $63 million or 14.3% increase year-over-year, with organic average sales growing 3.3% [51] - Q2 2025 adjusted EBITDA was $48.6 million, representing 9.7% of sales [51] - The company has authorized a $37.5 million share repurchase program, with $20 million repurchased YTD 2025 and $6.3 million still available under prior authorizations [53] Strategic Focus - The company has a dual-pronged growth strategy, focusing on end markets with long-term strong tailwinds and strategic acquisitions [23] - Since 2022, DSG has completed 11 strategic acquisitions with purchase price range from 4.6x – 9.4x (weighted 8.3x) [23] - The company serves a broad and diverse set of end markets, catering to over 200,000 customers [24]

Summary of Distribution Solutions Group (DSGR) FY Conference Call Company Overview - **Company Name**: Distribution Solutions Group (DSGR) - **Ticker**: DSGR - **CFO**: Ron Knudson - **Key Shareholder**: LKCM, owning 78% of shares - **Formation**: Merged from Lawson Products, Gexpro Services, and TestEquity Financial Performance - **Revenue**: Approximately $2 billion, up from less than $1 billion three and a half years ago [5] - **EBITDA**: Adjusted EBITDA running around 10%, with a trailing 12-month EBITDA of about $195 million [5][13] - **Customer Base**: Servicing over 200,000 customers, with 85% of revenue from North America [6] - **Revenue Retention**: Upwards of 92%, with 98% retention on Jexpro services [19][20] Business Model and Value Proposition - **Specialty Distribution**: DSG positions itself as a high-touch, high-value distributor, providing not just products but also labor and services [4][5] - **Product Sourcing**: Works with over 10,000 suppliers and offers more than 500,000 SKUs [7] - **Labor Support**: Addresses labor shortages by providing on-site labor solutions [9][10] - **IoT Integration**: Emphasizes technology integration in all services [11] Growth Strategy - **Acquisition Strategy**: Completed nine acquisitions since formation, deploying about $550 million in capital [12][36] - **Market Positioning**: Focused on GDP plus growth, leveraging macro changes for expansion [23][24] - **Diversification**: No significant customer or end-market concentration, providing resilience through business cycles [6][15] Segment Performance 1. **Lawson Products**: - Revenue includes Canadian operations, with a focus on vendor-managed inventory (VMI) [25][29] - High gross margin of around 70% due to service value [8] 2. **Jexpro Services**: - Accounts for about 25% of DSG's revenue, focusing on Class C parts for manufacturing [29] - Strong performance across diverse end markets, including renewables and aerospace [31][32] 3. **Test Equity Group**: - Represents about 40% of DSG's revenue, with a recent acquisition doubling its size [33] - Offers test and measurement equipment alongside electronic production supplies [34] Financial Health and Capital Allocation - **Free Cash Flow**: CapEx is only about 1% of revenue, allowing for strong free cash flow generation [13] - **Leverage**: Maintains a leverage ratio of about 3.5, comfortable within a range of 3 to 4 times [41] - **Share Buybacks**: Approximately $20 million worth of shares repurchased in the first half of the year [35] Market Challenges and Opportunities - **Tariffs and Inflation**: DSG has strong pricing capabilities and does not see tariffs as a significant margin compression issue [48][50] - **Private Label Products**: 40% of Lawson's sales are private label, providing a competitive edge in response to tariffs [50] Conclusion - DSG is well-positioned for growth through its diversified business model, strong customer relationships, and strategic acquisitions, while effectively managing market challenges and leveraging opportunities in the industrial distribution space.

Core Insights - Distribution Solutions Group (DSGR) reported Q2 2025 earnings with GAAP revenue of $502.4 million, exceeding the consensus estimate of $484.4 million, reflecting a 14.3% year-over-year increase [1][2] - Adjusted EPS was $0.35, surpassing forecasts, while GAAP EPS was $0.11, missing expectations by $0.10 [1][2] - The company is focusing on integrating recent acquisitions to drive sales growth, but profit margins are under pressure due to these integrations, particularly in Canada [1][5] Financial Performance - GAAP revenue for Q2 2025 was $502.4 million, a 14.3% increase from $439.5 million in Q2 2024 [2] - Adjusted operating income rose to $39.9 million, a 2.6% increase year-over-year [2] - Adjusted EBITDA increased by 7.5% year-over-year to $48.6 million, although margins declined slightly due to acquisition integration [2][5] Business Strategy - DSG has executed an aggressive acquisition strategy, completing five acquisitions in 2024, including Source Atlantic Limited and ConRes Test Equipment [4] - The company aims to leverage operational synergies and improve efficiency through effective integration of these new businesses [4][5] - Management is focused on achieving a target 10% adjusted EBITDA margin in the Canada division, with significant progress expected by 2026 [7][11] Segment Performance - Lawson Products saw a 2.6% sales increase with improved margins, while TestEquity experienced a 1.2% revenue decline compared to Q2 2024 [8] - The Canada Branch segment, now including Source Atlantic, reported GAAP revenue of $55.9 million in Q2 2025, significantly up from $14.5 million in Q2 2024, but faced margin pressures with an adjusted EBITDA margin of 6.5% [8] Market Outlook - DSG management expressed cautious optimism for the remainder of the year, citing macroeconomic uncertainties, particularly regarding tariffs and the Canadian market [10] - The company maintains significant liquidity of $314.4 million and a net leverage ratio of 3.5x, indicating potential for further acquisitions [11]

Financial Data and Key Metrics Changes - The company reported consolidated revenue of $520 million for Q2 2025, representing a 14.3% increase compared to the same quarter last year, driven by acquisitions and a 3.3% growth in organic daily sales [11][32] - Adjusted EBITDA margin increased to 9.7% in Q2, up from 9% in Q1, with all business verticals achieving sequential margin improvements [11][32] - Cash flow from operations improved to $33 million, compared to approximately $21 million in the same quarter last year [12][34] Business Line Data and Key Metrics Changes - **Lawson Products**: Q2 sales totaled $124.3 million, a 2.6% increase in average daily sales, with organic average daily sales down 1% due to lower military sales volume [34][35] - **Canadian Segment**: Q2 sales were $55.9 million, with organic sales increasing 0.7% and adjusted EBITDA at 6.5%, expanding 130 basis points from Q1 [36][37] - **Jexpro Services**: Q2 revenue was $127.8 million, up 18.2% year-over-year, with adjusted EBITDA at 13.4%, an increase from 11.9% a year ago [38][39] - **Test Equity Group**: Q2 sales were $195 million, with average daily sales down 1.2% year-over-year but up 1.7% sequentially from Q1, and adjusted EBITDA at 6.9% [27][39] Market Data and Key Metrics Changes - The company noted strong demand in end markets such as aerospace, defense, technology, and renewables, while production supplies in Test and Measurement remained soft [12][22] - The Canadian division's revenues increased 2% on a constant currency basis, with EBITDA margins expanding sequentially [22][36] Company Strategy and Development Direction - The company aims to transform its business units into a more profitable and resilient platform for growth, focusing on world-class global supply chain capabilities and services [6][11] - A significant investment in sales transformation is underway, with a focus on talent acquisition and territory planning to enhance productivity [13][17] - The company is committed to a disciplined capital allocation strategy, including share repurchases and investments in organic growth [41][43] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate uncertain macroeconomic conditions and highlighted the importance of accountability in achieving growth objectives [4][12] - The outlook for the second half of the year remains positive, with expectations for year-over-year sales increases despite tougher comparisons [54][56] Other Important Information - The company has completed five acquisitions in 2024, contributing to revenue growth and operational scale [32][41] - The average compensation for sales representatives has increased by 25% over the past couple of years, reflecting the company's investment in its sales team [17][18] Q&A Session Summary Question: Can you frame third quarter expectations and any insights on July pacing? - Management indicated that July trends are consistent with Q2, with no major movements expected [51][52] Question: Any updates on the Canadian branch consolidation? - The company is on track with consolidating four locations in 2025, with no major disruptions reported [56][58] Question: What are the longer-term margin goals for Lawson and TestEquity? - Management aims for Lawson to achieve mid to high teen EBITDA margins over time, while TestEquity is expected to reach double-digit margins [68][71]

Core Viewpoint - Distribution Solutions Group (DSGR) reported quarterly earnings of $0.35 per share, missing the Zacks Consensus Estimate of $0.36 per share, and showing a decline from $0.40 per share a year ago [1] Earnings Performance - The company experienced an earnings surprise of -2.78% for the quarter, and previously, it had an earnings surprise of -13.89% when it reported $0.31 per share against an expectation of $0.36 [1][2] - Over the last four quarters, the company has surpassed consensus EPS estimates only once [2] Revenue Insights - Distribution Solutions posted revenues of $502.44 million for the quarter ended June 2025, exceeding the Zacks Consensus Estimate by 1.77%, and up from $439.54 million year-over-year [2] - The company has topped consensus revenue estimates two times over the last four quarters [2] Stock Performance - Shares of Distribution Solutions have declined approximately 16.2% since the beginning of the year, contrasting with the S&P 500's gain of 8.2% [3] Future Outlook - The company's earnings outlook will be crucial for assessing future stock performance, including current consensus earnings expectations for upcoming quarters [4] - The current consensus EPS estimate for the next quarter is $0.40 on revenues of $502.1 million, and for the current fiscal year, it is $1.40 on revenues of $1.96 billion [7] Industry Context - The Technology Services industry, to which Distribution Solutions belongs, is currently ranked in the top 38% of over 250 Zacks industries, indicating a favorable industry outlook [8]

Financial Performance - Q2 2025 revenue reached $502 million, a 14.3% increase year-over-year, primarily driven by acquisitions, with organic sales growing 3.3%[22] - Adjusted EBITDA for Q2 2025 was $48.6 million, representing 9.7% of sales, compared to $45.2 million in the previous year[22] - Diluted income per share was $0.11, while non-GAAP adjusted diluted earnings per share was $0.35, compared to $0.40 in the same period last year[22] Segment Highlights - Lawson Products saw Q2 2025 revenue of $124.3 million with adjusted EBITDA of $15.7 million, a 12.6% margin[25, 27] - Canada Branch Division's Q2 2025 revenue was $55.9 million with adjusted EBITDA of $3.6 million, a 6.5% margin, with Source Atlantic contributing $41.3 million in sales[30, 32, 34] - Gexpro Services experienced Q2 2025 revenue of $127.8 million with adjusted EBITDA of $17.1 million, a 13.4% margin, with organic revenue up $19.5 million or 18.2% year-over-year[36, 38, 39] - TestEquity's Q2 2025 revenue was $195 million with adjusted EBITDA of $13.5 million, a 6.9% margin[40, 41] Strategic Initiatives and Capital Allocation - The company generated $33 million in cash flow from operations in Q2 and repurchased approximately $20 million of shares year-to-date, with $9 million occurring in Q2[16] - Total liquidity at the end of the quarter was approximately $314 million[16]