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.