- Earnings call transcript Q3 2022

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Operator

Good morning, ladies and gentlemen and welcome to the Distribution Solutions Group Third Quarter 2022 Earnings Conference Call. At this time all participants have been placed on a listen-only mode. And the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host Steven Hooser. Sir the floor is yours.

Steven Hooser

gentlemen, XXXX to earnings and Group Distribution ladies quarter third call. morning, and the welcome Solutions Good In conjunction the with QX at earnings today's call, we that investor.distributionsolutionsgroup.com. been have has posted on company's website presentation IR provided a

me Chief Officer DSG's DSG's Vice and Bryan Financial Chief Knutson, Executive President Ron for and today's and Officer. Joining is Executive King, call Chairman;

During an operational from on the the business call, they financial will perspective. be providing an update and

could Russ statements company Frazee, and Partner DSG as CEOs, LKCM-Headwater be Cesar press operating release for differ materially Please actual those plans, Lanuza, assumptions strategies, and results call Bob Wallace, described. the expectations, Q&A from Brad Additionally, in underlying joining and well Advisor forward-looking that contain will on that Connors are goals, session. risks cause as beliefs, and operating to the note this results that concerning to future subject statements uncertainties and

disclaims the call also as this today, the Investor earnings audio website. the Form Relations XX, on may company has is on on available a made to This Internet In Solutions based earnings so. nearest is the of with forward-looking reconciliations Investor A measures are teleconference update Group the via through statements views Management Relations included the the found be those current company's The being release cause non-GAAP of SEC. November the on measures on any that refer today views will section the website. but company's obligation we anticipates change. XXXX. release posted to issued call filed during the may copy replay addition, press And of elect our The webcast A in page today. future Distribution X-K earlier report been a this and to to statements of GAAP be can will end made of also at do to release. developments

over call turn I'd Now with to to Bryan? Bryan that, the like King.

Bryan King

are share Steven. Distribution good results our to provided Please our follow excited earnings is for appreciate everyone. interest presentation we X. a that along to and morning, And quarter. Distribution you, three We our on separately with your to as both will replenishable the website and refer in Company DSG high start QX supplemental offer third added products. Thank we Solutions products specialized represents Group on And operating well best-in-class Solutions marketplaces. Slide customers remarks. prepared managed Specialty touch parts value industrial our as We in fiscal

solve labor chain We also provide help their to supply management shortages challenges. and outsourced solutions companies for

and unique We of products, have a services, offering solutions.

Our competitive and advantages in are their and underwriting colleagues compelling proud need of specialized industries. products solutions pulling our We're objectives industrial their are executed collaboratively they work third this OEMs, as these important teams businesses and manufacturers, that quarter businesses quarter, commercial together. DSG very and to with our second leadership customers, consistent to and and their in together

million of of margin. comparable achieved XX% For XX% target basis, revenue EBITDA of grew for $XX generated and We and quarter sales our to consisting XX%. acquired growth adjusted adjusted for our companies on million $XXX to a combined XX% nearly of organic EBITDA the sales of

as at three are our operating encouraged above or all results by are companies expectations. We these performing

expanding meaningful each strong in early three We've on this us to days as three cross-selling set customers. with progress for and operating relationships, lower strong our have new organic progress leads results operational hundreds of of business. companies companies up we seasonality We wins provide seeing currently gives significant and share Leveraging less on operating these with relationships growth businesses of all not customer our businesses. does customer QX environment want strategy that Lawson was our our DSG demand said four in We've confidence many for Products, That DSGs November. cross-selling, program. now of year. making our are and we reported been identified remind further the repurchase we It While formal and QX overall Each enter has operating investors largest currently and not today under wallet repurchase strong significant guidance, of our softness in are remains expanded teams. announced also an expansion to authorized share originally share us our and plan.

few allocation capital We will when this discuss to we a moments. speak more strategy our in

cautious are manage ability in our outlook this the our to for XXXX for We across and cycle. business creation value

understand businesses. to seeing a demand working we in changes environments, currently through slowdown, especially how for not are manage we intensive do Although capital

our successfully experienced I've inflationary experienced and has of 'XX years, we business. Also, where and inflation broadly, of capital capital incremental distribution goes our businesses More of a opinion, currently. invested return combined investment business. has changing my as down in drive of how bench XXXX. the of quarter, intensity revenues investments the the our working we the underwritten we cash CEOs. cycles at And back over on are team working about internally think the operated we on are this and XXs DSGs with and DSG one leaned capital environment, that to during learnings cycles, million. through XX third the in capital, and and constructive level or value In distribution benefits best that distribution is 'XX, where businesses has owning and to XXX the late fears understand working Our ways to macro-economic companies had years sound, companies today's Director the that headwater recession trade companies headwinds, grown of on never distribution distribution 'XX, the LKCM seen year, XXs, compound $XXX specialty we've of I'm grow early flow XXXX. in our to end working we between experiencing capital leadership are expertise in one

of has and inventory, top-line driven this, investing in the provides the capital discipline been congruence, towards working and by replenishing tuck-in investment inflationary sold pushing in growing strongly months nine believe revenue. highest return last the capital incremental acquisitions can return Over the through We working pressures businesses capital often skew but enjoyed invested We to on well-priced can strong of math XX% walk cash capital. investment. supported ranges distribution Returns other on by a exceed invested on our acquisition capital working flow for XXX% I've opportunity.

investments We manage tightly our to continue will accounts inventory and monitor receivable navigate as XXXX. we especially

framework. in capital discussing strategy. laid versus levels. entire related allocation efficiency capital X, of deployment. compete few our for capital that a working want XXXX expect rates I to there capital year. And revenue always support investment growth to and growth when these prudent under out to core intensity The economic some investment world We Slide spend the we from capital are risks management made continuously valuations. recalibrate gains the also to we've working this and rank consider highest returns. way seek the should capital affect we team On And allocation also be M&A. decisions coming changing over changes we've will operates In our projects DSG view the minutes a today in Hurdle the reflect

of leverage was As the debt third net our X.Xx. of quarter, end the

the coming after growth alignment expect cash and We months. flow the working free skew XX significant investment capital recent over to enjoy in for

capital out understand end combined environments should deleveraging cash in we capital of how flow softer free we working our can We see to also will further. cash much of take economic markets. We generate working accelerate out

cycles. have experienced we As economic businesses distribution previous in consistently in soft

board reported that We we ROIC is headwater, a our will repurchase LKCM continue in float that announced already XX% to shares. Since capital program. Today, were the can And the as we prudent we operate share disciplined the has owned concern. also we on our manner expanded deployment and that market over by in opportunities. be back highest in appreciate a we DSG buying decide QX,

we However, in framework, our we with our how a value rates our hurdle appropriate. return our to IRR enhancement. capital have focus allocation think strategic when to on to criteria shareholders that With in repurchase allocation, regard can capital capital teamed we internal long-term about share want so

economy continuing and for our evolve. like business platforms are We our to lens flexibility to to this macro evolved and and for want Our today, as customers. has evolves maintain plan remain resilient much environment, our the

currently embraced With not are DSG is significant free days P&L all of specialty the have the understated capital to early arrears our benefit are Remember by companies and in evaluating the flow and we members, enhanced year this cycle as earlier each still of network are or to team cash to putting with return foundation, a relative we capture we full returns drive on through leadership significant a merged an year our had annual businesses them the capital acquisition objectives now. and acquisitions. are year, scale where We to to framework profile. valuations, busy solid which the for allocation a tuck-in from team fit at distribution have continue and at see which DSG will goal of our our timing, corporate is progress. see Our eager build we development flowing these that for show measure to since invested we is we and pipeline robust capital, and appreciate working in

as for robust daily improved like cases, levels move recognize operators past forward. alone, being three some months should and trophy transactions moving demand in the the opportunities. currently, interest owners confidence other current cases new The us to softening in and numerous for compelling of are on enjoying environment flux time profitability, are inflation rates Over a are in shareholders. more but as in appear first Multiples some reviewed target discussed creating we some decades, be we've and assets make

labor of a having Bob Gexpro and their Services Fasteners. improve SKU Lawson State in challenging the I material from turn further solutions services is a as and each operating passed level and Lawson's technologies through customers Gexpro three pricing, growth new needs C-parts as customers industrial products. DSG the team vendor of as C-parts strong specialized target largely within a specification from solutions XXXX. also to and accounts, driving TestEquity Slide of test market, the the pass as customer. are to via Industrial to and managed in Solutions culture and In near-term MRO measurement Ron to support and depending aftermarket orders brought growth a nice solutions ownership of distribution through seen a to Technologies, our vendor OEM Services managed level on programs Services challenging solutions. Services manufacturing is on through VMI, to selling in success been leader of products cross well customers production and using only work on kitting will from not Frontier capture Lawson inventory electronic customers, developing of assembly of covers chain freight pricing prospective pricing synergies at in team Omni focus accounts. continue and escalations partners, to intensive the are Lawson for and services. and inflationary commodity the division. in toolkits customers. specific core are growth of a help VMI distributor embracing to services, specializing has Cesar legs but strong cost benefits supply to Gexpro well and In Gexpro pricing as total continues new and successfully Premier high their as implementing carefully evaluating activity, vertically leading price customers key to supplies by the our helped advantage return in on channels each market, three consolidated also customer acquisition Kent light by integrating manufacturing We've rationalization the established and for the their inventory X acquisitions. significant continues realized customized well and leading focus programs customers Before the kitting with of supplier risking leader has Automotive accelerating market please equipment turn services Resolux, their the results, companies. and incremental financial to comment company this of largest successfully as outsourcing and on strategic Products, our versus few solutions, areas a offering C partners, and on has Class and has complex leader

acquisition with platform TestEquity team accelerate and an percentage quarter. is migration is their Our the of of transacted e-commerce this at digital XX% continues since leadership release the in estimated now This Europe accelerating our TEquipment. online first to

margin sales industrial show categories acceleration will TestEquity metrics deliver a driving distributors. to and digital realizing enhancements continues levels We are in best-in-class to further and between synergies in for operating the peer believe TEquipment ROIC and in strong this product and leverage

turn the the financials, would to I to Ron like over Ron? Now through to walk call

Ron Knutson

Thank you, everyone. Bryan, and good morning

the we're this as X, comment presentation results Slide we before Also, on Solutions share morning on to to accounting posted results. QX excited third Briefly presentation Distribution Turning let the XXXX discuss for the our we DSG. required Group. with quarter of me website you results mentioned, Bryan IR financial GAAP our

TestEquity the in XXXX companies is few the April quick treated merger a perspective, as to operating Lawson As stock review the of reminder, we combination day. a an of mind as of as acquired Gexpro reverse GAAP to the results. three be From under X Services and merger. required keep Products accounting items the QX A

April The includes date Products Services TestEquity information April for and includes full from the XX. six first operating for GAAP three all information for merger include for The [indiscernible]. the the quarter. comparative given includes TestEquity results September only as XXXX company and the XXXX X X for quarter accounting third Gexpro months Services XXXX year-to-date GAAP companies Lawson to Gexpro The of the and only predecessor

of For we this conversation slides activity the the ease are for Lawson of morning for the are using comparing results, adjusted Products. that these pre-merger

We prior-quarters. the also shareholders of of many lack heard from visibility on

adjusted presenting now sales EBITDA quarters adjusted and trailing a basis. we're combined So of five on

strong basis, the the line quarter summarize me bottom On Let line we third principal across a and operating results. companies. combined reported three results top

both sales price Today volume. million sales total closed acquired mentioned, a Bryan on four XXXX, revenues. XX% through and Broadly, growing strong. organic product demand growth As XX.X% of of total have reported in acquisitions, for we over of with $XXX annual we remains

into operating XXXX line companies We've new with some above macro synergies. expected cautious on However, realizing And companies opportunities operating performance the levels. cost in made among our selling good and progress was economic given indicators. the wins in we customer three going cross of early are finally, business three on also all or

Now the through of let's some on basis. walk combined a numbers

sales were consolidated First $XXX.X million.

increase on X. commencing represents Services business an of made Gexpro Although a this of and meaningful, by XXXX of not both on driven acquisitions Products XXXX. inclusion April basis, TestEquity necessarily Organic XXX% the and by growth Lawson and in GAAP

With of slightly XXXX over from the inclusion or growth third with $XX a $XXX.X million increased coming quarter of comparative and basis, million XX% acquisitions from sales Lawson organic of over the XX%.

ago a income million operating sequential EBITDA basis, adjusted basis, to $X.XX severance over for of third, Second million of for items, On earnings a of million On taking And reported third compared for second $X adjusted the EBITDA XX% year-ago EPS versus costs, represents was diluted of adjusted diluted quarter also an quarter. merger $X.XX quarter. million $XX.X third GAAP year an $XX.X into and adjusted the adjusted per share $X.X was quarter. the This improved $X.XX XXXX other quarter. improvement was compensation, million a related $XX sales. to account non-recurring by stock or based

activity for full X of Now X, all they other of acquisitions of each to Slide Slide quarter as while run Lawson if for includes included the acquisitions moving and acquisition. presented. XX, owned the September date were rate pre-merger since X Slide as on completed

you can this our each of As three strong quarter-to-quarter the rate operating growth performance companies. from acquisitions run has the see seen of inclusive reflecting of nice full page,

our activity. days fewer slowest typically is selling QX mentioned, Bryan lower seasonal in customer As quarter given

Lawson, our slide E for is companies end of broken and based the numbers X, in on is individual a Lawson reported segment the companies the to have we their briefly the that they XXXX for the how on three on filed Turning gap operating with comment we XX-Q acquire with in markets. let go recall within have or reporting each three operating GAAP the not now me accounting that comparative focus QX Starting to numbers XXXX. down

XXXX. this supply we've purposes quarter third in results. segment. now that for included pre for other slides, they $XXX.X does these note not both However, the as Xst the million of of were are include included all the reporting April Sales Please

increasing of quarter the in of an second quarter increase XX% driven over a the organically basis EBITDA up XXXX. was supply had Lawson by of on ago XX.X% business within performance the segments excess The sales third both over with adjusted adjusted another great was at X.X% sequentially quarter grew sales sales. year XX% over However, The XXXX strong XX%. strategic

Our business Kent up government Automotive XX%. being XX% and up business core XX%, the up

and in customers within large approximately continues its in percentage by particular increased the growth volume wallet unit driven gross accounts. quarter during improvement realize margin price relationships, excluding to existing with remainder Lawson's being quarter non-recurring increased or in new the achieved During with was strategic through customer mix. Lawson share X% items.

the expansion third mix gross pressure was reported While into gross $X.X margin mentioned. focus continue envision continues of putting previously will inclusive the is customer margin percentage, quarter Lawson's business on which the we to income opportunities, items overall non-recurring for million on the XXXX. operating

these as the adjusted to care primarily Excluding increased a partially by compensation EBITDA for previous ago, $X.X offset of Lawson's year as driven and and adjusted costs. to million sales improved million well quarters compared items $X.X margin gross health by EBITDA improvements,

driven sales QX Services were of million Gexpro of XX. to $XX.X third increase for $XX.X XXXX, Turning XXXX, $XXX.X over an by which the of quarter acquisitions million million Slide was and on and Resolux on XX. million In on earlier from transactions. closed the Gexpro on March organic on the has SIS Frontier in In XXXX year $X.X Services Services and Omni, growth. XXXX, NEF, closed Total Gexpro

operates Services in aggregate in renewables. with grew the acquisitions exception came impact organic the quarter in end was price. headwinds by The X% approximately third sales of are nearly of from which of the of on slightly existing from through XX%, down Gexpro on the of sales increase Excluding Reported the markets these The the margins relationships. gross year be Services acquired team to was the driven by margin a profiles expansion improvements. strategic Gross sourcing new by primarily continue lower margin customer customers in Gexpro managed ago expanding businesses.

over expanded of of movement Gexpro New EBITDA year I'll increase. for approximately the the Sales $X.X $X.X earnings ago grew development $XX.X million drove million, for quarter. sales XX%. supplier Acquisitions quarter X.X% or agreements. turn Slide And $XX.X or XX. Services XX% lastly, longer-term compared and adjusted supplier the towards on the to million to TestEquity as the for million

XXXX, TestEquity and During the of the the acquisitions, Test price. and increase approximately of the generated Measurement the lumpy continue XX.X% quarter some sales to organic on orders XXXX Customer Of We half the the from million million be anticipate and XXXX sales supply business for $XX.X quarter, Test sales second Equipment. receipt of of chain chamber XXXX with closed for National TEquipments while challenges. remainder two 'XX & $XX.X coming increased approximately the from product. X% acquisitions, quickly into of continuing that upon first in to we're remain will and the ship able strong was given

been quarter ended increase previously issues. into the came an move third chain $X.X creates customer to positive ongoing as $XX.X basis, the from representing has a On million, of we million delivery level mentioned. momentum year sporadic Having XXXX. $X.X quarter XXXX supply higher over which and of due or of acquisitions orders a XXXX back adjusted ago approximately However, an sales at X.X% EBITDA of million

to commented XX. repeat Bryan on I our so allocation previously capital Moving his comments. Slide approach on to won't

to approximately credit have our million perspective, $XX.X available of and cash access an million existing we capital However, from facility. under $XX.X

accordion ratio ended X.Xx As also net additional increased debt have of we an leverage earnings. a We the our with credit $XXX quarter facility, of on million feature. part

the $XX that support growth, Net on we the time million items invest the at to capital for organic of flow the our quarter in and the million year-to-date During a had quarter, same cash approximately to impacted the million cash while basis. expenditures $X.X $X.X during continue were sales non-recurring XX% quarter. business

quarter. in call for let to me some Brian strong top strength just reemphasize second Before quarter reported the remarks, of I our closing initial realized on that we the the turn previously third continued

We adjusted well XX.X%, pleased to We progress as We million the for by on or incremental basis. the for are a a of underlying exhibited firmly benefit results, both we very believe about operating acquisitions. the excited three on the is on be as are our our the of organic growth target operations combined with EBITDA that financial strong companies. $XX.X the quarter, the hit our future of continue and our margin quarter XX% sales and path

strong, macro was to we're close While in trends the economic third marketplace. attention the paying quarter also the

financial manage call back will our I'll as develops. the We our turn financial to XXXX including prudently leverage now Bryan. position,

Bryan King

Thank you, Ron.

Slide We expected businesses say expected with the to accomplish Turning in well together. that we of much teams now merging front I more And than have by The XX. what us. accomplished set more working are to we out April. in we since September achieved XX would

Let successful of for effort in me strategy strong market. enhanced our the highlight importantly, few our areas We've of colleagues to as these channels our go-to-market a the acknowledgement three an expanded and DSG. accountability businesses throughout by shared

operationalized headwater at each I is you sales rolled to and our differently team companies. consultants. done management LKCM to ambitious briefly, retired program mostly than maybe strategic of C earnings DSG. typically our partner have Also, on is not There We've for this. and our a As as our leads work, calls incentive for other our out typically pipeline this operating and distribution wins quite largest like cross-selling mentioned support groups initiatives. we fee for accounts growth for an support And executives goals team operating we've hear suite by

through value As with to and price with fully this cash and investors in collaboration in the teams enterprise improve performance. team, management build shareholders operational flow stock appreciation. line support long-term financial Generate and are

XX. to Slide Turning

in in business a scale results margins, investment strong improve and report structurally leverage acquisition working and higher, opportunities remain they leaders EBITDA believe and accelerating and has adjusted that the margin. and grow operating to hard the ability to cash growth best our Third are further the XX% by organically to substantially capital quarter DSG generate the drive We We We free chain off and of and of a with believe flow cash and provide industrial, distribution solutions TestEquipment MRO are and cash. revenue marketplace. time for set our that OEM investor open Operator? And increasingly of reaffirmed level like comprehensive customers you support Thank generate products, of our the services your dollar we today. demonstrated up with generate daily being industry, the to each for customers confident vendors now sales, by supply drive questions. about working margins flow. line and and would to the

Operator

the for gentlemen, now floor Instructions] and Thank Ladies is open questions. you. [Operator

Please question Ken coming from first Markets. Our ahead. Newman with is Capital KeyBanc go

Ken Newman

Hey, good morning guys.

Bryan King

Good morning, Ken.

Ron Knutson

Ken. morning, Good

Ken Newman

guiding you're all. any this you much have pushing of So start curious the point? color out? at guess you're your year or XXXX of seeing not, just side we'll I'm I following at into not, demand ready you're Obviously, on not any delaying not backlog or But that guide on how not provides I to if you're seeing know, I'm evidence to the customers current projects here. visibility you're orders

Bryan King

end-markets, more across most tightly demand it's levels that In exception should all he's reaccelerate we're whole vertical backlog kind Bob the our the have perspective that to demand the saying. you production OEMs. this more seen throughout inflation, inflation, comment your the side, Renewables stayed the MRO congressional, or exactly we inflation, one year. we've the calling waiting year. verticals, don't tax are might experienced elevated. levels consistent been what with tax of from but that credit seeing it would consistent they're on depressed markets, on but Gexpro, And On whatever and the it? we've driven. has what aligned of impacted has the with renewables, Bob the with But And, been And on on of this country year. for extension, Well, activity a more we keep usually want we've throughout

Bob Connors

going it way of are double-digits markets five QX. to the vertical six best into look the And at up is

is has sustained and lift Technology, as seeing consumer headwinds we're are headwinds Reduction industrial. the we nice and anticipated Inflation extended. transportation. seeing So we where that, in is in renewables. A tailwind And Bryan Act aerospace defense said, been nice

So be next is and growth. know we the to the renewables market going positioned wind over years XX for that well

versed We'll we're in if 'XX, And into environments. point, well accordingly. forward going see adjust know, and Bryan's to you some operating cautionary So and headwinds. we tailwind headwind

Ken Newman

Okay. And then obviously, organic growth…

Bryan King

be It end everybody's market mean, in this he's so SKU let we've than And solid are on there's saying. demand minds think I topic no good now I speak that's because more markets at activity. any had helpful acceleration Lawson, we're increase doing actually in probably is just Cesar seeing demand. end our demand right But may what that in the that about an To on Lawson. mind. of

So don't as your we each let Cesar question and answer Russ why well.

say get their everybody so end-markets we So to there's there wanted that out well. end they what about got Lawson's can speak about to can as that something markets for to understand we're Cesar, seeing.

Cesar Lanuza

fleet, earlier, see that management through Bryan lot to We're market, different industrial we it. the waste automotive, diverse from demand very our heard serve, we flowing which of markets you've industries. Like our continue Bryan. name MRO end utilities, you serving a Thanks, is companies,

significant everybody, of So when into share And we're it we signal across any very continue labor role when customer acquisition is now. customers But cautiously But a comes the coming to growing shortages. any piece type play you right heard sticky for across been it continue be very to with feel our we've our as the and to and our that strong we approach about business, we're seeing significant comes from not softness it to the the wallet, XXXX. or major end different as of seeing board. increasing markets, new

Bryan King

see. wondering end about your But of everybody of Indications, is don't all I and kind Russ, looking with we're business what strongest all are think saying kind end the it, end markets at aren't markets speak got we that But backlog. you've performing. the your we you the why might markets?

Russ Frazee

as throughout markets be steady And Technology years it's have seems any end remained softness a softening the anything defense. And that's aerospace But significant that in supply sector to But on growing. a base we're seen a that the in the beginning lumpiness steady from we're our stabilized little have in the due as forward. backlog lumpy. to seeing We've we chain. Our seeing in right and bit. going the build due can now customer year technology mainly the market, significant not to to indications to well. of continue

Ken Newman

was obviously, color help three really benefit then appreciate the on if cost all much carryover is you've this just benefit I'm all what a across maybe taken on really you that. far us actions side, was how from segments. how pricing into great three a much of curious quarter, price My as and also, growth year the in you understand color here the strong XXXX? do that kind all up from segments? follow taken so carryover That's the price across any expect price organic And was

Bryan King

will institutions, dollars to inventory. cost set into, return for it, and it that had with higher each going in talked going turn an opportunity companies we've us in over that his say to for increase normalized you due just for you especially to dollar that to that to I flow it profile, cycles. invested the you're to but desire to normalized are, And studying led not as receivables nimble prices or think in that banks is distributors. I on inventory into XXs, you, step had investing was replacing in the work longstanding of really when years distribution cycle businesses earlier, that and the to can I how raise in and cash of which things prided inflation When up pricing, just in a as get led pressures. on ourselves about spent a advantage into so capital one a money our staying we inflationary particularly distribution capital Ron incremental us team lot well inflationary XXs our of that whether financial be, really now in were were And working we investments inflationary roll time would for capital And the cycle. our have can distribution I compound alluded in XX an Ron of that to and particularly really on of working kind higher on we

and longer where consistent through some that some standing, customers pricing taking working year actions with collaboratively elements of work Ron, bit business we've them. front percentage a verticals got are a getting taken have our we've we've flow take pretty got it? make constructive where Bob's Are to that you little We've why over this or But able them. prospectively started were we've some probably been we you with in had even we so you we've with there, That's to where more have we us. on contracting that. sure actions with this you've customers other the and able And we're it? speak that know quarter. of our seeing more don't specifically that list larger than take more continue pricing on contract continued taken basis sold. that be in to flow goods others. price We're And more pricing cost being through we we're early, And very to it is Gexpro with to getting our to to get expect

Ron Knutson

Sure. Yes, thanks, Bryan.

So really increases the benefits businesses, realize took -- each the can was the and out price and in three quarter. we price of organic throughout increase laid large for the to sales Bryan's within terms all how deck the of companies comments,

-- half sales that our about we was organically about again Services, Lawson TestEquity on about that price. was were up and about were up Gexpro about price. of XX% XX%, side, up about For up about X%. was And of X% the X% about And half volume then organic was that organic of XX%.

XXXX, I the XX% comment, been price up we've business, that Bryan's Lawson particularly bit, versus would to and call And catching that's think within mix. throughout on it I So XXXX. a say

portion So I why larger our operating of related companies. price the three other think that's a than increases

in I to will the base. think come October, we itself saw side Lawson three little We I have all from that in organizations through cost continue tempered increases last a continued, say bit. our see what supplier

at and gross those can this staying vendor ahead three So companies, this forward. point, margin in costs sign moving the you of increases. percentages, a maybe that's But good see all are margin,

that's to some there XXXX. of certainly into that going spill So is

But actions continue well. from taken bit that, year. made the anticipating price, into throughout softer will full-year as those effect right move now, certainly terms next In increase for of a October a get year, little vendor was that we'll XXXX though we're any cost the that even to

Ken Newman

cognizant that I'm Got are it. being talked And but then you internal you repurchases, you But seen pipeline uncertainty, correct you just initiatives. strategy. how talk pretty Bryan, the wrong, just positively the -- can one macro going think M&A the like Obviously, more back also here. bit towards I some back it sounds to capital share about mean then and me you're a growth we've little about if shift you of full. about towards

mean, I Just the it and an with clarify, today. where we interest assume rates not the is near-term? profile for that Or with deployment the leverage that top Should priority in rising, just capital it's that unfair to statement? is

Bryan King

such an to to unfair statement, being value the of want but aggressive continue way business around believe We're a a expectations with want lot to with be I as around that longer-term. acquisition reckless in say public to anchor compound don't it's shareholders. that that going also we any partners we'd us don't

that actively, our acquisitions are are be core. attractive very we on right there So we're tuck-in will that for queue accelerating and now in think our revenue working

like and capital I attractively high then is your deliberate XXs. roll-up better, a of sustainability So doing the cringe an I it makes the our long-term term. not reason back where to is -- objective. make into something have to But financial a absolutely engineering there's alone there's think If gone I core not for you not even real always financial this not purposes that attractively, the remarks, distribution is can in about reason internal capital, returns so to on cash and because businesses go through invested incremental -- your capital tried our capital in lay initiatives. capital or in you business to compound the out invested on working in most very talk that working prepared off invested capital are acquisition

have of allow for bind revenue we think be where to and some the to but shortage And no that got together, what we've going are so there platform might from right growth the now of we those key also it organic to be continue otherwise. opportunities are Tighter that some slope accelerated elements on of we together. pull

were cycles in key Bob's that's that lead you acquiring cycle -- Sometimes long. think sales the customers business are I Services, know, Gexpro you can is in really long. those

And get the than a got some acquiring. SKU so expertise customers, if you're that can customers company you've lot deeper into or some more you

other with a go asking asked that whole think focused make more to we of equity America, you go vendors off into being you're and that candidly. geography like in those by dialogue the in And to going in jumping financially, are be Europe, to assets were better that for then vendors, were have acquisition, acquisitions platform, asked owners small to customers with some to direct couple but some North vendors. If to We're for trophy allow on with test to our on working a may small partner there key the in other There you why reasons are that's but a already, clear, -- it's that I spot a transformational your areas. a for the America look be geographies. that really importantly, you've to North customers key are accretive our are us

production technical vision Gexpro knowledge, to Gexpro elements their that of pieces services -- so business, engineer, TestEquity of as kind one supply on Lawson capabilities OEM solution. marketplace of And the the SKU our as fit we really there's some Lawson together tighter part pull that and have and and how and MRO, look bind and and together the at those well, long pulling in of been

and going But going years know environment, this still sometimes in of kind to that's many of started when you conversations opportunities are pushing and those leverage land. objective. they're ago, not our in those terms so don't And

Our good long-term. objective is a business to build really

significantly working next quite a incrementally And cash what's wouldn't very of have going because skew the the to in be probably markets, a careful in to we lot so pulling can analysis confidence invested want anything on working that. our which on we've to as we indicate of it'll around that confidence top-line overly But in end businesses And that's and going would capital the doing not continue lens it'll -- judicious. grow as year, we're we generate bit capital. of together. without but get will. M&A That a in lot of and visibility I that be most We year, this our towards so part investing

higher have put the continues if selling also that can you that growing. some are inflation than to replacing realize receivables to if forward for hard in Now, because XX% your dollars And all inventory top-line you are the be on that than dropped would continuing inventory dropping side. it at that paid more push ought pressure indicate then past. growing, through that is But what and we you're investment we to

Ken Newman

Thanks. Helpful color.

Operator

you. Thank

is from next question Steinke with Please Barrington ahead. go coming Kevin Research. Our

Bryan King

Good morning, Kevin.

Kevin Steinke

channels new Good exploring could to the Lawson you all. I if some on that expand mentioned comments Products In at you morning. prepared market. know don't

Bryan King

best to probably you're this. Cesar, tackle

Cesar Lanuza

Kevin. Thanks, Hi, Bryan.

Kevin Steinke

Good morning.

Cesar Lanuza

within on When precious our that for our of to to such become a got be day think to more sides our very we in are for every customer customers in being our base to with both our one rep, with Bryan's end active about single a right future base sales markets, of continue our testing with ways XX,XXX team and think different carefully diverse team allow specific bit channel more through node. and little you a looking better a terms develop field Elaborating but in to customer ways we it, as able our needs customers. now different But for there as the of go-to-market well, we to serve stickier, different time and customers. in we segments field we're working have better A front sales

continue that about us more the these that's quarters hear next continue ways you customer and So to continues, it as talking different or develop of to you over coming different serving alternative ways we sites. more something

Kevin Steinke

Okay, thank you.

Ron Knutson

for their EP those how for into is that and been solutions tight to the into ability of engagements. instance has add, things with some the procurements one MRO engineered has OEM Gexpro look TestEquity of been I Services relationship customers would most also Lawson's us the pulling exciting

may in does people it different those because has market Services way require, to that's expansion inside require OEM really service that's already Lawson, those it Gexpro another because so of embedded And some channel facilities. ways, a for to accounts,

is it the so even of piece can Managed And top up revenue Gexpro Vendor going though the to be hitting be Services, colleagues, line. on the Lawson's their by and and product picked

So that's helpful. I hope

Kevin Steinke

color. for Thanks absolutely. that Yes, is the

had did that obviously that you a call you health maybe adjusted nice some meaningful costs. the just but in You elaborate EBITDA on was? bit more little how and compensation Can expansion out higher and there care margin quarter,

Ron Knutson

Kevin, is this morning. Ron. Yes, Good

that side, was really our more compensation organic with line the on in So growth variable in sales.

for it sales to saw team organic we the So, and quarter. support amount the for support that growth dollar was just XX% sizable the higher

the companies three care health bps our costs margins. On was across about XX on

just it in a the So about increase quarter. in was third costs in our million all $X

us say in three business little third and again, particular, in quarter, the the settle a would probably within bit Lawson coming is the biggest the And driver in claims the down we so higher in then jumped companies, the bit probably was I quarter quarter what second little the saw, seem of a to first across on that.

margin net to our just care the So on answer your yes, alone. question XX bps about health on

Kevin Steinke

thanks for the detail. Okay,

of the that in quarter but to of XX%. greater XXXX think year? continue goal know we exiting slower, something with than seasonally the EBITDA exiting margin think to think You've about about adjusted trying talked lower, I Is the is fourth to the the should about how past an margin just generally about?

Ron Knutson

is again. Kevin, this Ron Yes,

little days terms generally for selling in the on And fewer really three quarter companies. of spot you're The slower across typically as four a fourth three well. us, seasonality. is to So

companies of of effect selling on in bit we In so past of QX kind days But fact, us. we've had deleveraging I that based in upon well can't taking all that place identifying talked a are the of sales we've opportunities to what XX the a in for we're you really those itself into some seeing, XXXX, XX about, of the than get well, across we're guidance it continual relative fourth expand 'XX. a cause that the But QX, feel a in versus once be 'XX, in does the we enter looking in the coming to are as cost that through organic as formal quarter will terms realized M&A those which as the XX%. on margins, more currently again, as quarter growth we expansion, give we're initiatives specific certainly, number, three of XXXX that lot P&L

to little again really in understanding about QX to off that bit, a of not So but and we expansion, the feel good softens relative XXXX, part just again, margin we're first bit up dramatically, the a the first races then little quarter.

Kevin Steinke

you to will another Thanks. more Okay, call But great, with tomorrow. here. Appreciate catch thanks color. got for it. I on I've jump up all the some

Ron Knutson

Sounds good, Kevin. thanks

Bryan King

you, Thank Kevin.

Operator

Hathaway with from go View is Brad coming question next Far Capital. Our ahead. Please

Ron Knutson

Good morning, Brad.

Brad Hathaway

just so in everyone. the appreciate environment and each capital the the regards not better really margins, obviously, working potential us things in but kind of downside right help much for in mind With just if Thank was kind in demand behave terms qualitatively, scenario. good top you that. discuss a new financial each, for we of factors three for now. influence Hi, detrimental but discussion, to, of as and guess recessionary the responded helpful of Hi, allocation how are incremental are impact obviously, new a better especially to Lawson love just of the some that that how get that TestEquity that included disclosure kind numbers, understand morning. I would Gexpro businesses businesses factors necessarily getting volatility, know the maybe we're and DSGR, maybe of all recessions like to And a of everyone I to capital,

Ron Knutson

it may we and during I points, congruence, all and I mostly to on distribution with going working others forward so participate. even manage things down these inflationary that to Notwithstanding one I that, to of Brad, XXX intensity, larger bringing working to our do alluded of able out Sure, the companies in which trying working them or that, XXX several we being pull that working cycle. top to we businesses, percentage big softer to, invested year, in were back end percent revenue have pressures -- then periods, COVID the capital is companies instances, I'm a place. watching the points, this we've would it. the cash what as come several to across and much as together base, associated to historically, capital, be capital been or these that of were basis kind start able either money able say significant get going to in on during we've our picture, And skew the ask capital

Lawson was, there a lens so of in of bit how they a good terms how And asking, responded, know you're and responded. the good question you

So and top surprisingly, stable grew non-contractual through I'll speak line Gexpro, COVID of the grew, actually is was, for was to COVID us which revenue, project during Gexpro activity during the cycle XXXX. revenue outside

margin up our know, it to the And as growth so gross got profitability able pricing through a initiatives on some to, actually the P&L as improved tighten during you key continued supplier, side, COVID. and flowed as we we we were

as And at tighter so our are did. we ran P&L Gexpro Bob Services

of pressures, we would some of as abate expect actually repricing inventory COVID next our OEMs end biggest our On attractive. inflationary issues contracted chain elected COVID during as the with obviously, was or positions key some top-line. that is a mean, us. if cycle the more a vendor to Gexpro facing EBITDA recessionary invested at off for to more us there well since challenge not year, it during would threw we mention take there some then capital that lot we was a it require on and with revenue very are kind TestEquity, off positions. that pre vendors, much a lot still one the that, suppliers, so with fact diversion, did there And fallout We've during supply cash were that then And disruptions to take there, I cash then, that'll our to a of Services as of of inventory our threw

of was though still their we MRO And equipment side. wasn't. the Some our tend at Even like it issues that less through have had It softening to there Tektronix, large was our the softer chain supply caused key more saw on TestEquity vendors of own. but in and activity us to Keysight Lawson, constructive channel. over demand that sell at

and But I although mean, that trying challenge much we're the we're leverage to and negative we as And on there revenue pulling art also businesses so sure the leverage, Our in I much kind I was -- we've out drop basis. try some leverage dollar about of these when that detrimental we biggest from you think I like that's acquisitions. end figure of the had of of making same a meet each of operating been supply contraction. in so of as demand to different. off detrimental together think from margins in margins they're have early than reverse market made an of more softness, are an think and the about science. therefore, is and and customers, still terms the a and cost businesses, growth, investing realizing it might I on But operating benefits operating about kind a businesses incremental Oftentimes, incremental sometimes,

cost what support we've consolidated in that And of and businesses in we've costs costs then some office, We're the in things if an would on if terms of kind softer. bearing. business consolidated benefits, took just we've some people you in your purchasing the the an those, Guys, healthcare, we might you, and take yet not growth a itemized while are And to been of where think there got benefits like that G&As was of through purchasing, we organic or purchasing we're during general Cesar or costs just back to flowed we have the and 'XX, through top-line there dollarized there we are investing benefits recession. that so of we've And some can year? we've and comfortable that in vision at been both of a next savings just working profitability worked environment that took through and COVID 'XX, detrimental some P&L. talk incremental some we've actions those are ended dollarized, are up out enjoying three ought that in and Bob Lawson we've that margins, in Russ cost add? think experiences current our to of solid about headwind got perspective able -- environment anything we you how else or about what that pretty been like we've

Bob Connors

first leading we're Yes, Bryan, all, I these businesses. decent think, fortunate executives of we that have

look help first fewer to experience your you over you recessionary they XX past the want to their a thing supply environment, fewer customers you years. Rexel go to with do our are and I Just suppliers. GE rationalize and customers and mean, asking is at chain,

value productivity. everything supply becomes for excel engineering, for chain. a They're looking So They're that strategic labor looking that that we at.

business Bryan it the wallet a over for base. development, drive still skew share, opportunity. can you Lawson earlier, still Gexpro still we've in And you had communicated we you So drive just install still drive as walk mining me, an environment, drive we identified when just can headwind situation you new new that Services, into to TestEquity view opportunities XXX collectively can can cross-selling. expansion,

we'll expand in share continue is multi-billion and resources a process thought our to vertical just to take reallocate market. dollar So

Russ Frazee

year. lines people we've And even digitally, down recession product with we're since our fill product lines in mean a exponentially of added will frankly, company and COVID. that customers the TestEquity, cycle. that to business first the We've actually end With structure somewhat changed the purchase every increasing lower that

go market the times. digitally, get makes we it as to to much to So that easier recessionary

Brad Hathaway

XX we've perspective bit talk in, Services and kind Lawson, for our about in on working platform, done? [indiscernible] months, place that's in X,XXX in as investment you're of in of kind about, SKUs, SKUs test the jumps little SKUs and six in digital additions days the of last X,XXX Russ the added that are capital that Brad, Talk last SKU of you the taken in -- Gexpro that well. a part

Russ Frazee

digital go we the new our our stockable for stock. Sure, automatically expand customers that items as and them them have as for with products can what are to go looking as sales that through and And increase we look those have customers tends sure. digital basically platform, start We we platform. I through forward, that increases we product don't our that, our one. lines, And product exponentially. we that monitor expand currently in lines stock. that to we adding And the sales

Ron Knutson

Lawson the other, for the place our see them from our customers, looking And to our side, to we because our way support what leverage drive times, us in, one for today. very their -- reduce similar opportunities shuffle through really in on customers and Bryan the case chime Gexpro we help continue portfolio these we cross resources to one described Services, Yes, have that's difficult for to the they're to costs, times where and that's partners from team goes opportunities and that our save to companies these out as there across who Bob money. different where help selling can

Bob Connors

you're familiar with and Brad, couple ago, just And in XXXX. Lawson's performance a years of

a point had working cost the Bryan's really the on we that time to flows perspective, cash side, and well. as So during from cash in ability remained period, the capital to flows strong

sales year So quite flat, what though even to the previous margins off in bit. pull, our though fell know we to from know, a EBITDA were fact, we levers XX, XX even

sure what deliver pull the we to continue performance. that know can to make financial still levers to we So,

Brad Hathaway

that the remember correct? I is Great, Lawson,

Ron Knutson

that. remember I

Brad Hathaway

go. You

Ron Knutson

in XXX% there's private more 'XX, significant than, I worst in right August think the tends scenarios. to of in be cycles, than EBITDA off before, 'XX a here, of and 'XX revenue bought downcycle, faced ticket the of much this in certainly a afterwards, in with any cash of we're off even down talked And I right, us about expect decline shock conversion we or these larger. IDG our

spending. 'XX, companies in and purchases so supply a we of we rooms as in declined. off a tight were same And of we cash on were their very the lot embedded lot deeply 'XX at that end And threw time of

significantly working lower delivered we held flat and EBITDA out the revenue, so And significantly. of on coming our cash business capital conversion

had that of had during going a actually a that ratios recession on we much our lot my lower of into the indicate we in working ways. would most so recession. should would trough we debt-to-EBITDA And And than model the it we into of capital, all go this all efforts worked different delever

Cash we're or we down So may, drastic the holding taking the flat, assuming us, levels our to of cost that decline on at of costs company most but still have our we EBITDA benefits business synergy than EBITDA. may cutting a we be would top greater a out in that level front the if line. initiatives the ought and consistent come of at come aren't advantage or cost are take of

Brad Hathaway

you was Thank obviously about and to especially very historically. with helpful. more because learn It's very Great, a good. we experience Gexpro you. more much. that's discussion. useful That TestEquity, Thank Good have Lawson very

congrats continue think, building a on to see looking forward great and I quarter here. you're what to

So thank you.

Ron Knutson

your support. for Brad Thank you,

Operator

no further Instructions] there to appear queue. in [Operator questions Okay, be

So I for King to Bryan comments. back it closing will any hand

Bryan King

that certainly appreciate by in DSG. be businesses in September of well Thank XX. today, near the further intermediate they We're at we expect operator. how visibility point you, are, we as it a are and in excited term, continues this would. confidence where those us our or lot are about many we performing the above you we for initiatives, time participated imagined The we term. give of thank your as to And our in along Okay, to interest at

and changing our their and respectful interest the last of are and effort I appreciate of rates the to particularly want with we management six months. environment inflation. call Although teams out over the colleagues

DSG for we everybody working year to profitably and successfully the together there's today. prospective together, amount is. As as really working as a by up to have hard we've been And it tremendous we get pulled been as our teed appreciate make the business where to are they employees of across effort as

to we this everyone's you Bye. at engage of you please year. So us hopefully efforts. you, everybody. throughout to quarter you end will the And look thank talking forward the or reach for either hear you out to Thank with we

Operator

Thank ladies conclude and gentlemen, today's you, call. does conference this and

You you day. We lines wonderful at for and disconnect thank time your may your this a participation. have

Distribution Solutions (DSGR) 6 Nov 222022 Q3 Earnings call transcript