Distribution Solutions Group (DSGR) Q1 2025 Earnings Call May 01, 2025 09:00 AM ET Company Participants Steven Hooser - Partner, Senior MD & President - IDEAS Conferences​J. Bryan King - Chairman & CEORon Knutson - EVP & CFOTommy Moll - Managing DirectorKevin Steinke - Managing DirectorBrad Hathaway - Managing Partner Conference Call Participants Katie Fleischer - Associate Analyst - Equity Research Operator and welcome to the Distribution Solutions Group First Quarter twenty twenty five Earnings Conference ...

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]

Financial Data and Key Metrics Changes - Adjusted sales were flat while adjusted operating income and EBITDA improved by 110 basis points and 160 basis points respectively [6] - EPS improved by 19% with solid margin performance in residential AgTech and infrastructure businesses [6] - Operating cash flow generated was $14 million and free cash flow was $2 million [6] Business Line Data and Key Metrics Changes Residential Segment - Net sales decreased by $2.4 million or 1.3% due to lower retail store traffic and soft end market activity [13] - Adjusted operating EBITDA margins decreased by 80 and 70 basis points respectively, remaining at strong levels [14] AgTech Segment - Net sales increased by 32.4% driven primarily by the Lane Supply acquisition [21] - Organic net sales decreased by 12.6% due to permit approval delays [21] Renewables Segment - Adjusted net sales decreased by $7.8 million or 15.1% while bookings were up 3% [27] - Backlog decreased by 23% [27] Infrastructure Segment - Net sales decreased by $600,000 or 2.7% due to project delays [35] - Demand remains strong with backlog increasing by 11% [35] Market Data and Key Metrics Changes - Year-over-year AgTech bookings increased by 226% [7] - Infrastructure bookings increased by 11% [7] - Renewables bookings and backlog were up sequentially by 90% and 30% respectively [27] Company Strategy and Development Direction - The company plans to continue investing in organic growth and explore inorganic growth opportunities through M&A [38] - A new three-year $200 million stock repurchase program was approved to return value to shareholders [39] - The company is focused on expanding its presence in the residential and light commercial metal roofing market [19] Management's Comments on Operating Environment and Future Outlook - Management reaffirmed the full-year outlook and guidance for earnings for 2025, considering key business drivers such as tariffs and order input rates [11][40] - The company expects a solid second half of the year based on current backlog and project schedules [26][40] - Management acknowledged the uncertainty in the renewables market due to ongoing industry challenges and tariff impacts [66][67] Other Important Information - The company generated approximately $14 million in cash from operations, funding a working capital investment of $20 million [36] - The company has a strong balance sheet with $25 million in cash on hand and $395 million available on its revolver [36] Q&A Session Summary Question: Can you discuss the cadence of demand and participation gains in the residential segment? - Management noted that real-time demand continues to flow in as expected, with participation gains starting to materialize [48] Question: What is the expected revenue and EPS contribution from the recent acquisitions? - The expected accretion benefit is about $0.15 EPS with revenue around $50 million [57] Question: Can you provide more details on the adjustments made to the renewables outlook? - Management indicated a 15% to 20% adjustment in revenue and profit outlook for renewables due to timing issues and market uncertainties [65] Question: How is the supply chain currently structured, particularly regarding components from China? - Management stated that they have been redesigning their supply chain to reduce dependency on China and have local suppliers in place [70][72] Question: How does the direct-to-contractor model add value and impact margins? - The direct-to-contractor model enhances speed and responsiveness, which is critical for maintaining competitive margins [73]