Distribution Solutions Group (DSGR) FY Conference Transcript

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.