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.
Distribution Solutions Group (NasdaqGS:DSGR) FY Conference Transcript