Earnings call transcript Q4 2022

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Operator

Greetings. Welcome to the Distribution Solutions Group Fourth Quarter 2022 Earnings Conference Call. At this time all participants are on a listen-only mode. A questions-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

the your turn Steven now will conference host to Hooser. I

begin. may You

Steven Hooser

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

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

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

Brad as session. Lanuza, Q&A LKCM-Headwater company be Additionally, Russ Wallace, as Cesar the Partner for and will Advisor CEOs, Connors joining well DSG Frazee, Bob and operating

forward-looking operating differ statements and those uncertainties goals, strategies, that plans, and risks subject actual expectations, results results concerning on to materially Please and note in contain statements beliefs, future assumptions call could cause and to from this that underlying that are the release described. press

during based change. statements And that but elect In cause obligation today, to future views this anticipates so. any addition, update do the those to call to developments company disclaims company's statements on views we of The are made made may today. as forward-looking the may

of Internet Distribution Group on website. teleconference X-K is earlier the issued refer today available measures of audio also earnings the SEC. A call is website. will of page to included in found on being a copy Management the our March filed will on at XXXX. end A a Solutions release release has the measures and with on posted nearest Investor reconciliations non-GAAP that to replay GAAP the been be XX, of current The the Relations section Relations through company's can this earnings Form press also the report the be Investor release. webcast This via

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

Bryan King

Today solutions you. be our transformation at delivered performance is strategic margins everyone. in know Distribution in a from multiplatform exceptional pleasure profitability to We expanded creating we leadership leading our MRO while growth. enhanced ratio, Steven. M&A. XXXX, records XXXX, reinvestment of achieved with you, and debt reducing company It standalone scale firepower distribution and And and good power sales morning, a drive which more the business Solutions leverage in with the to a specialty Thank to Group the for Products Lawson business sustainable demonstrates net

strong generate target second days. quarter support In And margin share, and selling XXXX. of allocation closely we to addition, fourth we prospects this margin realizing business attained monitoring bullish are year, organic XX.X% of the during our our sales capital an companies take growth beat XXXX that market expansion, continues. the free will flow in environment deliver priorities demand, DSG's for we cash about and EBITDA to we customer I momentum adjusted double delivered remain continue half believe meaningful during February, and fewer the although macroeconomic our EBITDA XXXX. business most on digit recently our and January margin adjusted In expectations

although I and XX%. XX%, industry, organic fewer by billion, in grew We totaled company advantages days, our of seasonality that $XXX we impacted are expansion Turning generated competitive presentation. and for EBITDA sales revenue the products million. X in to scale am included GAAP the report our Slide year specialty to full a by fourth $X.XX breadth traditionally and quarter earnings service adjusted and is of that pleased the strong of industrial distribution which comparable revenues believe

momentum from share, cross businesses. the wins XXXX we selling on realized also volume increases sales in among increase, While price contributed to wallet three and growing this organic

few moments. more Ron pricing discuss a in will on

cross potential customer our selling set believe largest on Our teams leveraging for wallet expansion leads three many relationships strong strong and expanded have We of identified each our growth and that an customers. relationships businesses. share of of up the strategic us based increasing in for organic continued number for

five $XXX in In we $XX XXXX were annualized million. completed acquisitions XXXX. annualized These incremental collective sixes the successfully and cheapened EBITDA of revenues million These have the an times multiple these based for EBITDA produced EBITDA. a acquired our lifted acquisitions upon addition, into of of where acquisitions internal adjusted have XXXX X.X multiple low we and initiatives through the adjusted contribution acquisitions about

on Between strategic better focused that acquisitions, on not them at closer level, together only In while have our investment. each opportunities logic but acquisitions we the working are seek DSG within our we of find after team, companies, organic their successful and for the bringing are three of rates pursuit operating DSG operating Headwater to our commercial capital all three actively we professionals fit also look each and development businesses a returns for we integrations business corporate make that LKCM pursuing dedicated our units, teams keenly and growth of enhancing also close.

and cycles creation. optimistic be had a has XXXX our significant XXXX ability confident start strong for are pulling unlocking value. about continue we cautiously the been to value outlook remain our We have as in to levers manage through

discrete efforts to enduring create that advantages and our continue more without facing to a to teams three build the business separate customer of stronger, roadmap operating channels manage out market. We losing initiatives for

capital the improve growth payables and three managing at refine receivables, trade on solutions capital the intensity capital end was have progresses. a all of specialty are We return working DSG's rate. and companies that invested will approximately for especially their and $XXX best is heavy committed markets. are end of at as drive investment organic We manage to investments, best one on capital for XXXX to we teams XXXX focus million. and customer working on the what prudently believe working inventory XXXX The continue ways continuously to vendor understand

strategies managed, added value models. position service robust inventory our confidence properly across a reinforces our organic our and having delivery categories that appreciate also key We growth in

willingness grow to who with Our good commitment and working is capital and investment vendors our a want disciplined them. our us framework to for customers

DSG at principal Our free above scale attractively throws demonstrates profitable off distribution specialty as a market and network that for returns cash, is build growth significant goal shareholders. to

what identified accelerate are shared will We unfolding that these inside resources the seeing transpire and that confident platforms is and we on with have learnings initiatives working of are and currently our with teams that and returns. are numerous

at end believe we full the month XX that cycle these the in through the of we captures XXXX, capital of working measurable becomes of demonstrating early benefit compounding had innings committed progress we and have this metrics to companies are on and P&L significant a colleagues to only transparency shareholders benefit flow seasoned. Since QX as are the not combined DSG more at platform returns. We and of still our these alike in driving

to customers, stages margin XXXX, web sales, our well recoveries. customers pricing is and the few freight channels of we operating each of results, division. early in significant on three inventory strategic investing improved Ron I the a to discipline as including MRO leader offering sales improvements managed recognized enhanced enhancements. a account through Products strategic vendor focus the inside financial within and like Before covers of support Lawson of additional C-parts our Kent distribution with in outbound growth company the managers as would in comment gross realized areas operational Automotive consolidated In services companies. Lawson and is has

Lawson our representatives also of all in and customers. better investing sales allow capabilities is lead goal tools, with more productive helping CRM serve and generation the our to be us

Cesar including for in in new investments During using technology, will building the and and ordering to platform, investments our momentum CRM on BI make and build XXXX, capabilities. strategic our technology we are an enhanced lead these XXXX. generation team tools, out

our on leader recovery as largely large in our XXXX C-parts chain high-spec in for power customers. and and kitting solutions, team end services supply and regarding Gexpro expanding sustained are Aerospace and capturing working in double as in during gas digit strong, specializing industry. year, his VMI oil synergies and well This pilot e-commerce services a markets. acquisitions helped Bob and the actively part five our by programs platform. growth the we remains defenses industrial the are OEM launching partial from closed XXXX is

transportation and customer moderation vertical and spend growth industrial to project from consumer and expect interest due in rates inflationary impacting in to reduced We consumer due the slower spending.

We continue renewables consolidate we the in continuing in await into position. sluggishness credit guidance XXXX leadership our XXXX expect to offshore as tax to a see vertical onshore this developers projects, although where vertical and customers continue government the of for re-acceleration we

Finally, demand soft is the in likely until remain inventories to stabilize. technology vertical

customers new were our focusing are new XXXX, more in we certain from existing revenue a exhibited in markets growth we As headwinds end than from offset SKU on securing to base, large customer funnel signing of with opportunities expansion. able and

in adding Lawson that improved tuck opportunities greatly were and with growth acquisitions association and through All five TestEquity. the the

technologies equipment test electronic production leading partners. distributor specialized manufacturing supplies toolkits TestEquity from customized and is of a leading measurement and industrial and solutions,

and have accelerated and Russ TestEquity and multiple consolidated onto platform. migration digital their web brands team concepts the the

across that TestEquity teams the TEquipment continued the TEquipment believe TestEquity sales and further fully product We XXXX. synergies aligned the growth and outsourced capabilities strong in operating We will digital categories enhancements company. more also margin in expect in deliver TestEquity TEquipment leverage. platform digital and and solutions between across to We've the and leverage

this revenue. is organic strengthening And to broader growth of with DSG's our expanding enhance an market opportunity identified business where for of believe for VMI digital improve the Apps XXXX, position this commercial our and our acquisitions we piece The in across we XX% in ways more now have initiatives. growth and us made offerings TestEquity approximates

the through to to and Now the I'd closing be Ron with I'll comments. turn like Ron? back some financials, to call talk over

Ron Knutson

Thank morning, good Bryan and you, everyone.

share excited with Group. Distribution morning the We're X. quarter this Slide of to Solutions results to fourth Turning you

companies merger me given is you the included results. fourth year-to-date GAAP reverse in subsequent the All the quarter numbers the Lawson X, that date. merger to accounting for Let XXXX treatment GAAP are only three remind Products April

pre-merger ease For results, Lawson for we're this comparing of utilizing of adjusted are slides the activity Products. the that morning the

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

acquisitions higher the $XX total mentioned, $XXX revenue XX% of of In run both sales on rate XXXX acquired product through growth annualized volume. of five Broadly, with growth Bryan strong. organic remains we million. we an with and price XXXX nearly of XX%, EBITDA demand As million reported closed sales and

are we some indicators. cautious However, the of given macroeconomic

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

for on million. the Products a by GAAP both driven an XXX% represents First, of increase Services X, This QX Lawson on in and growth by XXXX. and of businesses basis April acquisitions made the inclusion consolidated and TestEquity Gexpro organic XXXX of $XXX.X sales were commencing

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

was million reported income of a Second ago stock-based a taking compensation, million into quarter. $XX year merger of costs, and of share On adjusted $X.X loss diluted nonrecurring our $X.XX was compared GAAP EBITDA basis, million, to operating to $XX.X other severance loss items, exiting related account adjusted and million, improved the or $XX.X goal quarter. by XX% XXXX for per at stated sales, previously third XX.X% exceeding fourth an

XXXX However, was diluted a EPS the adjusted $X.XX quarter. for versus $X.XX ago an year basis, on of for fourth quarter

million Before on really XX% increase Lawson basis, developed. individual adjusted progressed our $XXX the and basis, year sales activity, XX%. a $XX adjusted feel I comment EBITDA an how on on results grew million the including good companies of to On increased as an full pre-merger for the or we year year-to-date

Now to X. moving on Slide

the five of of December of XX, Slide run included each for slide full X for completed of the acquisitions as the owned since all quarters activity date pre-merger if While and acquisitions other presented. includes acquisition, Lawson were as they rate

the seasonal had full fewer growth, Bryan QX As than activity. selling Services our given And quarter, typically inclusive sequential this mentioned, day companies. and slowest performance and page, is of you QX the TestEquity, as customer quarter-to-quarter three see strong and at can lower each Lawson from days selling fewer at of one reflecting Gexpro seen at acquisitions nice our operating run rate

QX briefly comment is Lawson accounting since for individual on XXXX Starting not recall Turning comparative in or of that operating the reported GAAP to three with included the in Lawson slide the XXXX. E, it each GAAP now X. for I'll companies. numbers numbers is acquirer the

the results. of pre-April have However, we included these purpose for the X slides,

other this were Sales that bolt million included note as does Please now quarter. all for supply, are the include not $XXX they fourth segment. the in reporting

supply sales great bolt XX.X% EBITDA XX% had increasing However, to branch through strong another with quarter, of sales. performance with adjusted

grew performance an the Lawson XXXX. nearly daily The was daily XX%. increase core strong the XXXX XX.X% The segment Kent the X.X% quarter over year and up business, and quarter of on sales of average grew organically business up a XX%, strategic XX%, government sequentially over average adjusted by third Automotive sales nearly up over basis fourth XX%, up within ago the driven

X% unit strategic wallet mix. the with increased quarter, achieved and was in priced customer quarter and in increased with volume During the being large the through approximately Lawson's share within customers during existing remainder particular new of accounts. growth relationships,

its nonrecurring Lawson continues percentage in excluding improvement margin gross realize to items.

compensation pressure mix customer While the healthcare the on Lawson's EBITDA increased adjusted to primarily how $XX.X sales to as compared comparing XX.X basis quarter, Lawson's of partially exited versus over XXXX. driven year by points business to a $X.X million putting basis, year. is year-to-date gross adjusted product XXXX and million $XX.X in improvements, million million improved how margin margin overall grew XXX by On we $X.X some million compared costs. the of adjusted realized the percentage, we offset entered expansion, a EBITDA EBITDA and to ago

Gexpro Total driven to Services of which Turning was and million XXXX million million for acquisitions increase growth. over by $XXX.X quarter on $X.X of the an million from organic of XXXX, Slide $XX.X QX sales of were fourth $XX.X X.

Omni In year in in XXXX, on first NEF the on SIS the Gexpro and the Frontier Services the quarter. Services closed on In transaction Resolux transactions. XXXX, early Gexpro closed and

by these from was organic by new fourth XX%, increase the Excluding driven grew sales aggregate of acquisitions This of impact the sales on approximately quarter, X% primarily in which came of price. or the existing of customers million, to Gexpro customer as or relationships, to EBITDA $X.X Services quarter. ago the XX.X% expanded $XX.X adjusted million, for sales, expansion compared with X.X% nearly year

million of to increase a EBITDA X.X Gexpro quarter, $XX.X million, the and approximately over increase grew the of an $XX.X XXXX. on earnings basis, Services drove for Acquisitions year-to-date adjusted

$XX.X quarter XX% to Slide grew the XX. I'll million. TestEquity or on million, Lastly, $XXX.X turn Sales over to for

in the Test XXXX During X% approximately the XXXX XXXX in the Equipment TestEquity from with increased Instrumex coming increase $XX.X QX. while and XX.X% was $XX.X closed on million QX organic million from three acquisitions, for Tequipment, sales approximately National quarter, generated and sales price. Of acquisitions

anticipated, the chain is was continuing latter continue and and measurement in challenges. we of the test in first given business to lumpy half into sales of expected XXXX supply some half As the the XXXX of

of upon are ship product. able the product orders strong remain we Customer and to quickly the receipt

approximately and organic ongoing which EBITDA On the of of million, fourth came However, million delivery has basis, an a $X.X the adjusted million at X.X% acquisitions. supply ended adjusted quarter issues. previously to $XX.X from ago and been of sporadic $XX.X year a EBITDA improved through due by or basis growth million year-to-date the to quarter chain TestEquity's the sales $XX.X increase representing acquisitions $X.X over both million XXXX XXXX On mentioned. an

credit access XX. to have a will on allocation approximately cash on the a From $XX.X million leverage approach existing Moving accordion under ended Also, XX. feature. we cover XX of I will an as credit mostly and Bryan of ratio $XX times We items debt in Slides earnings. Slide $XXX our on additional to part have net capital, to an increasing million facility, capital facility. Since available few of and quarter the million discuss in our X.X we moments, our

for debt to basis. and in Net leverage times, rental time we on intention deleveraging is of range. in our of was the $X.X consistent progress equipment net million the a $XX.X expenditures, our We manage capital was at leverage merger, finished XXXX, million debt quarter During and nice our times. are times with to year-to-date a the the levels the early company. three prudently X.X of four realized sub-three. XXXX At our and inclusive we This XXXX, X.X now

QX I as the back fewer as closing Before companies The to margins I quarter-to-quarter being turn together. in QX XXXX remarks, our are year-to-date selling the performing the sequential EBITDA pleased for wanted extremely call companies with very adjusted we well, improvement in to three particular days. strong developed, are expand and despite to some able Bryan our we results reemphasize brought and operating

exciting on a operating three basis. All that make combined a XXXX for have companies us company stronger planned will initiatives

couple trends XXXX quarter paying plans of to as While the are strong manage was marketplace, and months attention we of first are fourth the of in our running will position prudently the internal also in close financial ahead the macroeconomic XXXX develops. we our

now to turn over I'll the call back Bryan.

Bryan King

you, Thank Ron.

Slide now Turning to XX.

in outperform, to our combination in with pleased business XXXX strong we what a and remains was Our performance complex environment. built operating are

efforts to enhancing combined margins All Our last at of of fourth organic operating above in companies XX%. growth adjusted resulted performed year's margin or and in three our last quarter inorganic over compared year. expectations have efforts and quarter XX% EBITDA resulted our

platform teams and Our channels unique solutions. our has performing to diverse market, on and capitalizing products collaborative high combined proven and scalable our

support Since each or management last over no the shareholders pulling provider us senior consistently pay efforts. to through transaction LKCM last performance continue decades in trusted operating used in distribution resources in to other for relationships partner XXXX. major large selling accounts. initiative and industrial two sales strategic that operating for teams management year, also cross resources ambitious and help plans with goals link with aligned the plans we professionals we've Headwater our comp company additional have fee, These fully service compensation to with

aligned two, four, add operational long that In accretive analytical one; to operating performance, and long strategic investors talented back capital teams, in free organic assessing to market to by best selectively investment cash term our platform. opportunities buying highly the and and three, value. stock down operational by with acquisitions shareholder commercial cash and investing drive strategy our allocation accelerated improve with economic core are analyzing term generate in against capture resources and This share, in the value, businesses; create executing with prudently durability and flow; is our support our we collaboration fully growth financial with XXXX, shareholder debt returns paying collective our ways

will growth deliver exceptional returns We disciplined strengthen opportunities prioritizing continue for shareholders. and investments, highest capital our be that the our businesses with our to

a solutions as offer and and as MRO, a $XX added businesses light well providing addressable billion value distribution products. industrial of Finally, dollars, market the DSG markets. technologies company, solutions high OEM distribution combined parts is industrial leading asset With replenishable multi-platform specialized specialty These customers for products touch

and also with we we advantaged, In We outsource to chain to that would like competitively have customers, now your oriented manufacturers today. time companies questions. addition, compelling labor approaches offer supply Operator? unique management. investor are secure believe open and solutions for to supplies decided managed for that our and the solutions And colleagues, alike. you Thank up for resiliently line

Operator

Instructions] [Operator Certainly. is today question coming KeyBanc. Ken Your from Newman at for first

Ken Newman

morning, guys. good Hey,

Bryan King

Ken. morning, Good

Ron Knutson

Good morning, Ken.

Ken Newman

Good morning.

my in both for you missed sorry this first basis quantify and So how a trended and the across demand January question, but if consolidated Ron, February, segments? has did I just on

Ron Knutson

three say, the excited numbers to of year. No, But say companies, the internal the I QX a January first and good of I to over indicating eight not terms did really year jump than here in the that February, plans. in outperforming we're across of Ken, weeks prior strong other about I in the into we just year growth a start the not would first that feel continued the identified couple specifically start here for our we really in that really and off months. had saw we that will we've give specific all the think just it's percentage but we've increase

Ken Newman

three customer kind little are what of piggyback across question guess I of it. is a just the off maybe are that of I'm businesses. bit conversations like curious, the Got Lawson color on color you within higher would inventory or needs coming are destocking two they be the with there you customers Any customer across helpful. are seeing business to where other backlogs growing the businesses? next

Ron Knutson

-- can I Sure Yes.

Bryan King

can you Ron that. start on

Ron Knutson

Yes. Sure.

Cesar that. into jump Bob Russ into may commenting me pull as we well. Let and and And

again, year. necessarily perspective, generally say customer all larger conversations very pushback probably customers. the say a perspective, feel we would still say say I would three some I overall we're place. an would I overall, within well. perspective, going we've of seen feeling a from three about not good from pricing the the start businesses, destocking speaking, of that DSG would I little So from bit across taking those of our that on a But a generally, companies, are

in continue are All increases XXXX very vendor three come early been, here and XXXX. would to companies through I some successful being able say, through manage cost seeing we've both in in and to that

relative levels, don't them. I customer if or Bob Cesar open in So it up or to but Russ I'll around jump feedback any to want stocking know to

Bryan King

our of our between guys One and a long little cycle different it. you business. jumping short It's on cycle bit

talk about long Bob So, don't Russ you talk for Cesar, why then minute about short a cycle cycle. and can or

Cesar Lanuza

Bryan. speaking. little Sure, about different the across a you that we Ken bit know, we and Hi, Cesar different as market manage serve, When customers, segments go size, we this different is do segments. over XX,XXX

and see the within need keep parts said, not a and Bryan Like business short we're weeks lights cycle this year. to the to fill inventories so of the around. is continue up their eight far and beans moving the the We their and first to cabinets

see growing that continue the customer we're business cautiously and new the from about investments same capturing base the quarter. our doing customers. We also fourth And current to we optimistic and both to that we a be momentum saw within continue

I like cycle products. we customers said, requiring continue to within the our short of see So

of And this We're basically, revenue, as customers of become over you for chunk know them extension in day. this tight big market. is through our which there manage an the our every inventory, we vendor our labor

Bryan King

you don't you? the OEM we can and another front. Russ volume we're long still way, cycle? on there the between of two seeing at get some all volume, is in saying the growth cycle. Bob, not feeling the said destocking hear in short Bob longest So why the

Bob Connors

go Sorry guys. -- back I Ron can to Yes.

Bryan King

Thank the He's is Club. [indiscernible] Admiral's from Bob guy us. in bit you, who's Bob, one away a little though.

Bob Connors

double digit saw growing with of lagging acquisitions double then growing five five renewables five would say digits. that we in and I six or verticals So XXXX,

looking that for they're renewables. are renewables, very growth to to still AMD have and support build better instance, and to we're and continuing more and expand say I coming for over it's product rationalizations, capabilities starting the would into tailwinds has XXXX. line supply grow. seeing a pickup been us in for with we the see in We're looking and to backlog strong So more customers

And power for then industrial is us. back strong

So a renewables verticals and to headwinds tailwinds navigate industrial some slowdown through with and transportation earlier. that and our communicated largest are power in come show starting any promising we'll CNI technology, Bryan as

Bryan King

Russ, [indiscernible].

Russ Frazee

can This I briefly. comment is with Russ TestEquity.

business our perform we The little did cycle there. budgets business. this from is short as VMI that see continues getting still approved growth customers, those still capital a it in see expenditures but the still to longer cycle year, bit cycle there. last year. Those Our We business our longer are

Ken Newman

bottom mean That everybody. Perfect. the the I That's macro see M&A materially I comments M&A talked color capital and highest is sizes multiples on allocation? whether terms just deals is the maybe those for heightened still we at close targeted that I rates pipeline deal want you're ability higher more this of about how to in should if just your net And allocation provide you that. your disciplined appreciate uncertainty. mean some take capital today color a impacting year? I so, to priority and really on. prudent range. Maybe clarify, across Bryan, good the said, before to one of pass it leverage you still and active

Bryan King

on know everybody's probably mind. that Yes, I and I question, it's appreciate

organic M&A in highest amplified our creation. opportunities But doubt impact as The selective. capital. returns are at we're opportunities, got the got allocate at that, objectives shareholder that I we're opportunities. we've team investing having end look when very target how that no up say to capital I'd We said it, It's working lower our the value allocation that and incremental got on we range. on priority. view and it, we frame being growth when looking we've our top most the of got our there's It's about we the invested at

We each have of And we might we're robust to for the the some we the end and they sure the able pipeline they're didn't the financial side with like accretion of pull buying the compete or to to accretion it expect paying we're right But we on other back would working has we down or allocation me, to, organic capital financial do year now a end strong but fits. the very working have significant through that's one push trying right team to of by both not that that logic. on strong leads three get that the within commercial our done that we frameworks and management team our to hard only things opportunities make through shares really have thought And have with table M&A be year. the on of last also debt, still verticals.

business, opportunity constructive to to for see be a this that's it Cesar to and accretive Services we want use we If see Russ. instance. an Bob's they're around his is to growth organic bringing rate want for lens drive do And be something to want we also But Gexpro to super the to what going table, higher. there

that is on that value areas creation accelerate to focused certainly the think that that are so to most for the rate shareholder right found long organic, now are the on larger what have the we ones going largely ones end significantly ability term And we enhance and we're is organic what growth the platforms.

it the of the the is we of the brought to real very working value and the in we've that demonstrating there we actively of some that able to confidence first with have gives And selectively announce some before initiatives the real businesses going on excited. platform. success that are to some accretive more platform half moves that teams we're year for are that I that The together. and being things to long we're add to so here expect the would ability we're targeted value things unlock that in us had got our narrative even And

to the rope of roped. that were to there the consummate were now years interestingly, out several several that be that some ago we on able would them ours right things able that if getting assets to And key very there we're So, we're close be objectives would platform, working of DSG we in.

Ken Newman

That's appreciate help. I solid that color.

Bryan King

have for more rope at to about them DSG. not them one of well, been have would We fired been are valuable to the sure, they able combination far up we if Headwater we of but would

Operator

from Your at next question today Kevin Instructions] for is coming Research. [Operator Barrington Steinke

Kevin Steinke

everyone. morning, Good

Bryan King

Good morning, Kevin.

Ron Knutson

Kevin. morning. Good

Kevin Steinke

and I particularly saw, margin want asking you about in to the EBITDA adjusted strength Lawson in TestEquity by off start the sequential businesses. that

selling as on You Any for you achieve had there one days businesses attribute overall anything or what you kind of of that the expansion? nice margin sequential in enabled businesses sequential maybe to? nice those in would increases time called there, those thoughts Was in company kind what to fewer margin that out. or despite

Ron Knutson

this Kevin, Ron. Yes, is

So in real jump that. no on would onetime say I I'll items.

a XXXX We're really in closely. saw well throughout lifts margin we was it as and think I expenses just on product the then and companies all as that keen commercial of year margin, made seeing continuation margin. operating managing also were focus XXXX earlier three some that the and acquisitions are the certainly growth from a certainly percentage;

that there I say wouldn't not any we the in the quarter, a items with one I posted really were fourth we no, were So, XX.X% but very for time pleased mean benefit. that really

Kevin Steinke

sounds It great. then. just Okay, solid operating performance like really

long drivers also for I about term. the to wanted your organic ask Okay. growth

those really just share cross more you're you coming] You expansion cross where give us a from any selling wallet initiatives on mentioned that increases share metrics sell little from working or coming around Maybe increasing ramp leads. see the color growth up in wallet continued bit drivers? to or and

Bryan King

off both working a was each of a I rest first in as last and our forum operations quarterly were of call, it sales to the touch initiatives in synergies But quarterly to that when call we we the well of savings. we'll synergies team. as that Kevin, August let leadership cost got alluded pass think number consolidated team just and through of of where me maybe businesses then the on kind and Chicago had on the a the commercial fact kind it the we'd we of

the we've the continued Russ, talk to we've all of and engagement as open to Bob XXX all people, Sales in and and engagement folks there. those forum are went could of kind accelerate lead their to to how level people opportunities and is to uncovering the Gexpro businesses Cesar Bob's that of you they amongst collaboratively inside exciting [indiscernible] and together we're Leadership energy services unfold rewarding between between kind expanded joined it to sellers organic for momentum and today businesses accelerate expand and where continuing and that's and the of all seemed myself organization ways way XXX I to and colleagues for an the the for And as three feel enthusiasm work

right the we're The have leads when ago this now twice on had that call. working is months three time that at we number were that specific last of we number we the

more. or they're to expanded. we real, lead it's Significantly platforms continue. longer So where could XX when we that companies to selling longer that we other bigger that's alluded XXX but time thought dollars. so one or doubled we through, the leads or different cycles And are that had pull The expect of

capabilities it, So, Lawson of customer. on are services in about and their for Gexpro customers like, relationships a often or the they're of you longer. those but lead TestEquity, eager think some customers if the large are times embedded where Those

efforts. that has added effort are a across We're getting of I know Russ's SKUs that of digital whole more our team lot our we stocking. into SKU digital product congruence, certainly

looking way growth of lot legs. so that that ways like tuck stool. and three different are each have looking enjoying a a tighten together customers And believe the first we're acquisitions the continuing brace to serving to, these any in they're the of we we're at elements we between currently. legs that what accretive, we think I the businesses the some businesses in between without the continue up used we're And engagements energy of their of and is the And have that to driving more analogy way the compromising then organic legs the that to and when try stool and an that's of ways individually about enjoying, or momentum put historically the

their to volume. distract to to sales do So want want them, we we add don't but

that? add Anybody else to color to want

Bob Connors

would a Bryan. is say Yes I couple of things. What

business Services, expand see opportunities. on we we want further receptiveness they and between they us Gexpro at Gexpro into The add and that's supply resources it's need well we product pipeline to into the to to Services, close basis do development we Lawson the First, to the MRO, the want starting track hear chain cross collaboration line. management of customers, and selling gain the momentum. help when TNM in very really of a terms customers expand but expanding to us evolving has TestEquity, And impressive. weekly to where and been solutions, adding most support

rather individually. easier to just it and than to play plug build It's

us beyond just been the I'm for renewable but impressed receptiveness the order we've supply providing our that acquisitions. diversified well as really that injects manufacturing the having hardware. very not capabilities good. project of four chain had a recently our with with a OEM success platform pipeline allowed with win to building and the businesses We large with had So electrical, won an customers together domestic has we services, from mechanicals, because as DSG,

So that with seeing we're excited our the with we're momentum really businesses.

Kevin Steinke

want to the Ron, quarter All that. a percentage organic helpful, very I you basis? Well, growth ask the did contribution the all out don't right, I to appreciate know, color. in that's I consolidated great. price? On call from did

Ron Knutson

Yes.

increased companies; the XX.X% three Gexpro about Kevin, to you an for Services, Lawson across on look were, the close X%, about we if So organic the growth price, basis, in And our X%. and X%, quarter. TestEquity all was

price and remaining call XX related, being the of the mix. XX volume five was about with So at

Kevin Steinke

a last right, down but saw early not great. from in XXXX. same volume as assume some bit more price like quarters, contribution at I the that maybe some XXXX, I in implemented All be level sounded that It the that's increase I think, growth. mean implying of couple increases price we from is, in maybe may actually, you

Ron Knutson

Yes.

we're gets year but within as 'XX comment. different still the little organizations, bit taken action of we 'XX. did 'XX. an a I lift well. of that's actions at Lawson, the a from fair would also A actions bit three in Certainly in think And I here beginning upon have the benefit some specifically little carryover the from based within say getting the then the

Kevin Steinke

where Is increases a bit any in of factoring we Okay. headwind the outlook? lap, into and price that it really terms that of larger a point? your growth we started should in as Is there is specific XXXX think thinking not that you're something or being about

Bryan King

of specific say throughout date that up relapse. were hard the we're time Yes, taken were entire year. that terms come any specific that I a actions just throughout wouldn't in there's a against to going The really XXXX

up line just a drawn be we're in to said, hey, not we've sand is QX harder actions. some a other these of and the because going lot So against

companies and I those overall all think managing three margins. proactive were very XXXX throughout

really not And that a really that terms hard certainly managing well. that date tough numbers. close as we're 'XX So factoring some still in be up here we'll against we're of very in

and So 'XX managing we've overall proactively those side as we're through and XXXX in something the to that it's margins got not we're putting well.

Bob Connors

there's I ongoing just real inflation. just would pricing that still that Yes. efforts add are beyond discipline

organization. which contracts engagements we make sure And in which in get that were we're we trying maybe strategy where that offering up that we discipline was the the dynamically we're priced, appropriate levels had with around so any product what opportunities the in not and increase legacy the either but of But own more just our also where service inflationary marketplace. to some capturing that acquisitions congruence, there's the of were we're just on not feeling there's costs on dynamic, customers, lens across kept but with and pricing pricing in or acquired some

continuing constructive the And are reflective efforts some operating creep cost can separate. seen of additional that the we we say and in peers -- price through some think We've structure capture is with there got we coming value so largely And margin. internal where increases. either wouldn't continue to we've costs is any our chain I Those relative our around to our and to inflation. very increases marketplace expense price that supply have

and them together absolutely us of making discipline, we've, have thought Headwater, and opportunity then that we've has knew least the with lifting when margins issue that And we a had of which expanding working got you've front in pricing just got hallmark started second an under of hood a how as got the LKCM about at time. been at sure was strong kind we that over we on businesses

has verticals talk the mean, them through engagements big customers conversations word. imagine, can of, good. lot the marketplace they're of maybe the been of because is have leverage about strength as really all of lots for when efforts. particularly and or large Not even around I and a customer the the been work contracts your A to long they're you're leverage, some has receptivity very cycle and pricing to lot wrong of the where you that the conversations, different savvy there's proud trying customer I'm of constructive customers, easy So in of are but trying and exceptionally

Kevin Steinke

I'll all questions. over. taking had. the to back I Thanks that's for Okay, hear. it turn great That's

Bryan King

Kevin. Thanks,

Operator

Newman. line today Ken for follow is a from Your next coming question is question your Ken, up live.

Ken Newman

ago me given we I Hey, talked in year you XX% the getting for squeezing environment? a did just obviously volatility too which pieces tough lower operating XX% the at the been year? That's all macro. also it just XX% mean Curious, obviously still EBITDA this one that the above we Bryan, is think given Or year, combined up. targeting EBITDA that talked in operating for end you thanks run leverage here quick margin businesses. the back through I on bit rate, you just But target for a get follow of about about flow to XXXX. the can think this moving do to

Bryan King

flow you ultimately was it's we're or I going it's on for do we're headed. the but where operating say we where margin. all great I the would EBITDA where leverage thought And were that's question each businesses. of that through, and know I different heading only a Well, not think

we of As right we've now. unlocking still through accretive working a see lot going initiatives right on value can we're now, many got so and different

business opportunities not to top wallet some today. real as but see we share, initiatives only share, that require investing in initiatives of grow absolutely those line market of lot a the And

I of noisiness. unlocking revenue little opportunity a some lift it initiatives, create to might it's think the this noisiness it expected committed wasn't bit the term and if we're platforms. margin have while year then while static definitely of to operating about additional going if think And some and because lift down lot some you of for in get through, terms these I on creates a structural confidence across it So some doing in our that in margin, that is going the we're our I leverage environment what longer flow way a drags contribution to wouldn't revenue we

right The for instance, Lawson, is just very now. different

all, First of Lawson where we're is a investing lot.

in So largest clear, leverage platform. to to the got highest we've has the amount contributor Lawson the that been operating be of

vertical acquisition got of what Lawson that's And what so going might at he's much of position the we that a a every to use all vertical vertical? on position, is to almost improve looking growth and does marketplace. our Bob that an make competitive or a his get lens in we contribution Lawson that or the organic even the We're do to drop leverage also might in conversations, does how when way that okay, operating, do operating to asking, really rate

knew, growth a And a largest knew for so a framework of get moving. Lawson gem been that, inorganic but having Lawson and decade was, we and even Lawson on challenge Lawson knew had organic what a customer or also I before been shareholder now to growth and using historic been all the a or what we longer

for look of off even in operating Cesar's what force that invest they'll to them that, but that helped two only verticals. much focused getting leadership not by bandwidth the sales today more us and can tools great get able continuing to to we're term we're and given them momentum ways go our more that We're at is is now be so of in other to the some even And money. longer with some giving ways getting news drive we leverage or give more really so more on And more in opportunities growth make to that. real it's

expenses. And margin think contribution things, Lawson exciting so particularly it's operating and that on out of think I back going of have relates into as really we're do in I to the of Lawson this that there's it think to noisy operating lot leverage side, I some but year. a some we'll put

into So quite there was the going leverage an times be when not rate XX% is organic to trying operating there what the we back investment at going growth drive enjoyed that to the higher.

Ron Knutson

consolidated would quarter, look add the almost And from at we at saw as and XX% from think flow $X.X Bryan, ago the year XX%. I about I organic Ken of operating $XX about growth between that, of growth. and guided a on Yes, sales, kind still, of XX%. we acquisitions was versus when out leverage it through of the mean, the the I call sales EBITDA just that to million a you growth the on adjusted incremental And million organic carve we've basis,

of that middle the So where with consolidated of Bryan on in to we companies operating felt that of right guided the that be referenced investments we kind even we've all are still some making, leverage three a basis.

Ken Newman

Got guys. Thanks, it. Very helpful.

Bryan King

Yes.

Ron Knutson

Absolutely. Thanks for questions. the

Operator

now session over closing turn will the We have remarks. call reached I of question-and-answer and end the the Bryan for to

Bryan King

enjoyed bringing enthusiasm in for our value. that try we that the and are our appreciate the us shareholder offer to platform and give opportunities the in of now also tackle these but field. interest see the of and of months lot in businesses more to the of it's our nine colleagues Appreciate the and management and strengths it's We've to our growth enhance around not leadership months We continues great you. appreciate together Thank enhance confidence a us a questions in a think first and today. momentum and able us DSG. we front only out to all together team eleven going marketplace, and discreetly Absolutely stronger existing

We're our look look but down absolutely to we're you out very engage, shareholders reach eager Thank and or all forward we So to and as to with with calls. out and we along your to aligned or Please you. us. thank that, you much heads got partner. for any to be forward reach continuing followup all conversations

Operator

at conference disconnect today's and for concludes you this This your time. may Thank participation. your lines you

Steven Hooser	Investor Relations
Bryan King	Chairman & CEO
Ron Knutson	EVP and CFO
Cesar Lanuza	President and CEO, Lawson Products
Bob Connors	President and CEO, Gexpro Services
Russ Frazee	CEO, TestEquity LLC
Brad Wallace	LKCM-Headwater Partner and DSG Advisor
Ken Newman	KeyBanc Capital Markets
Kevin Steinke	Barrington Research

Distribution Solutions (DSGR) 9 Mar 232022 Q4 Earnings call transcript