Summary of Distribution Solutions Group (DSGR) FY Conference Call Company Overview - **Company**: Distribution Solutions Group (NasdaqGS: DSGR) - **Date**: November 18, 2025 - **Key Management**: CFO Ron Knutson, VP of Strategy and Investor Relations Brett Scarbrough Industry and Business Segments - **Industry**: Specialty distribution - **Business Segments**: 1. **Lawson Products**: - 73-year-old vendor-managed inventory provider for Class C MRO market - Average piece price of $1.20, with gross margins exceeding 60% [6][7] - Serves approximately 80,000 customers, primarily in maintenance, repair, and operations [26] 2. **Gexpro Services**: - OEM provider of Class C parts, contributing about 25% of DSGR's revenue (~$500 million) [10] - Focuses on supply chain solutions for production environments, handling items like rivets and screws [8][9] 3. **TestEquity Group**: - Comprises electronic production supplies and test and measurement equipment, making up about 40% of DSGR's revenue [11] - Recently doubled in size due to the acquisition of Hisco [11] Financial Performance - **Revenue Growth**: - Consolidated revenues increased from approximately $900 million to a TTM of about $2 billion [22] - EBITDA improved from about $90 million (8% margin) to a run rate of close to $200 million (9-10% margin) [22] - **Organic Growth**: - Recent quarters showed organic growth rates ranging from 2.5% to 6% despite a sluggish industrial backdrop [24][26] Ownership Structure - **Majority Owner**: Luther King Capital Management (LKCM) owns about 78% of DSGR [14] - **Investment Strategy**: Focus on specialty distribution businesses that provide services and technical sales, avoiding commoditized markets [15][16] M&A Strategy - **Acquisitions**: - Nine acquisitions made, deploying about $550 million in capital [56] - Comfortable leverage ratio of approximately 3.5 times, with a $1.1 billion credit facility available [56][57] - **Future Plans**: M&A remains a key growth strategy, with a dedicated team for sourcing acquisitions [18] Market Conditions and Outlook - **Demand Environment**: - Characterized as sluggish, with some positive trends in unit volumes for Lawson and Gexpro Services [26][27] - Cautious outlook for 2026, with ongoing initiatives across all verticals [28] - **Tariffs**: - DSGR has managed tariff impacts effectively, with 6% of products directly imported [30][32] Technology and Innovation - **Artificial Intelligence**: - Early stages of AI deployment, with initiatives in accounts receivable collection and sales processes [34] Segment-Specific Insights - **Lawson Products**: - Focus on increasing sales rep productivity and optimizing sales processes [36][37] - **Gexpro Services**: - Strong performance in industrial power and aerospace markets, with ongoing investments in Southeast Asia [52][53] - **TestEquity Group**: - New leadership focused on enhancing go-to-market strategies and improving e-commerce conversion rates [49][50] Capital Allocation - **Share Repurchase Program**: - Recently authorized an additional $30 million for share repurchases, viewed as a return to shareholders [58][59] Key Market Segments - **Revenue Distribution**: - Industrial (15%), Auto and Transportation (13%), Aerospace and Defense (10%), Renewable Energy (8%), Government and Military (4%), Electronic Assembly (20%) [60] This summary encapsulates the key points discussed during the conference call, providing insights into the company's structure, performance, market conditions, and strategic initiatives.

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.