Summary of Distribution Solutions Group (DSGR) FY Conference Call Company Overview - Company: Distribution Solutions Group (NasdaqGS: DSGR) - Formation: Formed in early 2022 by merging three specialty distributors serving different end markets [2][3] - Revenue: Approximately $2 billion with an EBITDA of about $190 million, up from less than $1 billion in revenue and $90 million in EBITDA in 2021 [3] Business Verticals 1. Lawson Products: - Focuses on MRO (Maintenance, Repair, and Operations) with about 930 sales reps serving 80,000 customers [4][11] - Average piece price is around $1.20, emphasizing high volume and low-cost items critical for customer operations [5] - Provides vendor-managed inventory (VMI) services, integrating deeply into customer operations [4][5] 2. Gexpro Services: - OEM-focused, dealing with Class C parts like rivets and screws, serving about 2,500 customers [6][11] - Represents 5-6% of overall production costs but constitutes 50-60% of unit volume [6] - High customer retention rates of approximately 98% [25] 3. TestEquity Group: - Accounts for about 40% of overall sales, primarily in test and measurement equipment [8][11] - Focus on improving e-commerce and inside sales to increase customer engagement [27] Growth Strategy - M&A Activities: M&A is a significant part of the growth strategy, with nine acquisitions made since the formation of DSGR, deploying about $550 million in capital [28] - Organic Growth: Achieved a 6% organic sales increase in Q3, with consistent growth over the last four quarters despite a sluggish industrial backdrop [15][31] - Capital Allocation: Maintains a leverage ratio of about 3.5 times, with a focus on working capital efficiency and share repurchase programs [29][30] Financial Performance - Q3 Results: Reported solid top-line growth, with EBITDA dollars relatively flat sequentially [31] - Historical Growth: EBITDA increased from $90 million to a run rate of $190 million in three years [31] Market Position and Challenges - Market Diversification: DSGR serves a wide range of end markets, minimizing concentration risk [20][11] - Stock Performance: Despite operational improvements, stock price has not reflected the company's performance, attributed to market misunderstandings and liquidity issues [34][35] Future Outlook - Focus Areas: Excitement around the TestEquity Group's new leadership and roadmap for growth, aiming to improve margins above 10% [36] - Investment in People: Strategic investments in personnel and sales teams to enhance revenue opportunities [26][27] Key Takeaways - DSGR is positioned as a specialty distributor with a strong focus on customer service and operational efficiency - The company has successfully integrated its three verticals, leveraging synergies for growth - Future growth is expected through continued M&A, organic growth strategies, and improvements in operational performance across its business segments [12][36]
Distribution Solutions Group (NasdaqGS:DSGR) FY Conference Transcript