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.

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]

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]

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]