Earnings call transcript Q1 2023

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Operator

Greetings, and welcome to the Distribution Solutions Group's First Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to your host, Steven Hooser, Investor Relations.

You may begin.

Steven Hooser

Good morning, and welcome to the Distribution Solutions Group First Quarter 2023 Earnings Call. call, been provided IR posted investor.distributionsolutionsgroup.com. today's presentation QX website with has that on conjunction we a have earnings at In the company's

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

are based In the made addition, this call statements as views today. on of during company's

company may found to will The Management elect cause views nearest the the to no statements anticipates at the made disclaim can the of end reconciliations so. update do also may GAAP measures we refer earnings those obligation that future to release. but today, to developments change non-GAAP be to forward-looking and and measures

XX, press SEC. The the Distribution Relations This website. the of our release webcast the be audio on call today the also teleconference A on included earlier through of has being Investor earnings Form of is via will was available X-K section report release on May the Relations been copy the Group issued A posted the current internet replay Investor Solutions with page. XXXX. filed in

the I King, DSG's to turn over will Chairman now Bryan? Bryan call and Executive Officer.

Bryan King

review quarter results. first joining our and Steven to Thanks, you all for thank

slide Chief President in deck quarter the me in Officer. Ron of for Vice expansion profitability. performance DSG's Solutions and prepared financial with with our using and we're both Steven Financial Joining Group today's is remarks. conjunction another outstanding call Distribution that Executive revenue delivered mentioned record Knutson,

XX% on of strong delivered included basis, we X, Slide growth. organic which sales a XX% of comparable on Starting almost

and of industrial the quarter addition, scale adjusted $XX distribution quarter believe of representing continue to advantages generated into we first in products specialty our competitive EBITDA provide that services margin the fourth our We breadth and consecutive EBITDA expanded double-digits. million In of industry.

increases teams and of operational cross-selling we're initiative of identification as together cost each good wins DSG and an across synergies encouraging working are well continued and seeing verticals. volume validating of as capture to evidence Our growth, share wallet our well

leadership team of took financial only The first collegiality and a now and logic our year results leadership place increasingly accelerating verticals. combined distribution of confirm combination a distinct value-added improved business but specialty we that our further is ago, best-in-class market across performance the the across commercial expertise coordinated enjoy. strong building depth company strength, the with enhancing several an quarter's strong model and The

continue As team opportunities. myriad shareholders, to creation identifies on and together will we our benefit value as executes

As call, we continued our in the strong quarter. during we quarter first fourth momentum sales highlighted

market successfully of first in new a so speak, share, and Our working to increasingly period captured first culminated strong cash expansion year generated fiscal delivered and together. additional our flow incremental year, business has margin full this season well X

existing customer hyper-attentive engaging We efficient in goal remain our are markets. our proposition value even and with actively customers as more of simple we reinforcing providing customized value-added and to a to a experience and

each and believe cross-selling through We growth overall expanding continue customer leveraging We our customer-centric that our the for to value-added monitor organic increasingly, adds relationships products environment capabilities demand to further our strong historic our in channels. solutions. of

thought sales. million applications, this in most XX leading a to previously annual quarter serving me, across This and with high close anecdotally of although locations how of plan curiously verticals, building out our Lawson binds overall America more during Hisco year. understanding each growth well distribution how over surprise TestEquity's industrial to on fit tightly announcement more technology TestEquity, closely $XXX able it get we and X, Hisco's up is announced vision Hisco fits distributor and Moving of that of Gexpro aligns platform, specialty products it with business scaled verticals. solutions the and North to each different with to capabilities closely congratulate specialty capabilities the to to enthusiastically a second were to to Hisco on I'm the of best-in-class investment friends banking to several join that acquire distribution the Slide called comment pleased expected our

strengthens saw are We so proposition strongly that through X value they excited it how our stakes. table DSG

enjoyed further similar our in electronic opportunities Hisco breadth its and TestEquity's solutions. to engagement expand cross-selling share and and and of how production with OEM and we more and see inaugural wallet successes to and to of verticals engaging are expand leadership historic value-added extension customers our and expansion opportunities broadly this in efforts existing supply expansion First, of embracing customers the area, MRO deeply around around we've

brings across Hisco value-added the new Second, distinct platform. capabilities

the are offerings. our DSG specialty currently example, business For adds and products materials that in included not

cold offers In Hisco logistics storage. addition, and programs specialized vendor-managed warehousing RFID management, inventory services with for chemical and

knowledge, Next, investment will Hisco's and close operating leading capabilities, to distinctive accelerated a leverage market into platform's and meaningful spans and addition further pull-through America South our create their of growth relationships, we and footprint we're that customer the for believe with leadership, and returns. geographic sustained deeper projecting that revenue profitability collaborative Mexico resource

structural verticals, from accelerate the returns on grow to the accruing cross-selling to generate mention DSG's free to to which generated line And at Hisco time associated has our capital other return DSG we Not profile growth revenue to TestEquity ability critically, flow. working higher finally, our margin future and cash overall investment meaningful profitability, expect vertical. on incremental and the accelerating a Hisco state collectively a on of effect

customer, Hisco scale we and years distribution the to accelerate should our embedded significantly more us that opportunities tilted engagements OEM offering them to on we X bringing more flywheel production electronic and to needs. the consistent ago closer with durability value on TestEquity's is desired identified that be total addition, total leading this remixing provides their creation test we and collaborate where created. specialty DSG daily MRO the stronger, more And revenue towards value-added reinforce connectivity of more an exciting platform focused supplies vertical, solutions to and measurement value for ballast including to while a total

are While what like, although the toward approvals, is about are in half regulatory the this subject quarter. as closing a look we certain closing of to enthusiastic second planned the will progressing future we still

Before Ron covers the results, talk financial I and consolidated value operational to operating business of and like our for would progress company each units. about drivers

vendor-managed leader is inventory Products Lawson distribution C-Parts a First, services. of offering MRO the in

been Lawson first pleased I managed how XXXX last was waiting. the realizing team During of within investors in with the the quarter that and who been expectantly well have expense margin control customer have for expansion our plan, exceeded pricing, us significant many Lawson of its initial growth XXXX, decade base.

portion with of customers, growth will of in within bit which long, lines attracting is from their but some verticals. are a deeper, Ron automotive the well-established from a or strategic larger coordinated other new Kent Lawson's introductions relationships along large coming accounts dig and

unique example, For Kent quarter. grew within both the year this X% ship-to and a locations over ago businesses, Lawson approximately strategic quarter

and expansion experiencing and the the and While network as many the sales vertical. opportunities initiatives in internal see good quarter effect force, expanding accelerating more a current team we with leadership

goal more additional money. engagement field enhancements sales as conversion balanced with Lawson and of the but managers, positioning is and high-touch the higher equipped in more long-term greater our capabilities in driving more for including sales the support across sales, with to as be half year, to a our customers serve investing which sales better also in inside make customers, generation productive, will with all of on become that aggressive lead cross-sell representatives value. strategic all well better channels our and focused of and better channels second web help investments tools, team are opportunities customers. CRM out growth to sales to strategic create to drive We're our making our We approach them account rolled customers helping

supply of in defense, Secondly, by Gexpro OEM quarter strong diversified largely leader chain specializing the is Services power, results, in for end operating and delivered C-Parts, Europe customers. growth of recent driven high-spec many our first as solutions and our such in industrial programs in markets aerospace We acquisitions. VMI a

and combine mechanical value In our chain supply addition, year-over-year see domestic starting the capabilities. renewables electrical, improvements offerings and in to and Customers hardware kitting product to interested renewables services in U.S. Europe. both manufacturing with we're proposition expanded strong for are

partner We channel cycle leading have helping them a on won recent installed the in across some the for marketplace, that and as for mandates upgrade that value-added the accelerate OEM but our the base. accelerating should not retrofit solutions leadership only demand around side, OEMs with

Specifically, regarding what we are has defense in sustained this aerospace continue. double-digit markets, and our to currently and seeing growth expect end we

synergies the e-commerce Gexpro with and the power, remained platform. strong, of oil creation cross-sell industrial kitting due securing services this initiatives in acquisitions demand well expanding gas. as are dynamics in both to and year launching leveraging as Additionally, changing services value project our Lawson TestEquity, wins and primarily

Additionally, closed increased years the opportunity like secured Services the in renewable the the capabilities vertical, to X the I expansive X Gexpro space. we have alluded the cross-selling acquisitions retrofit opportunities last over that within

way. opportunities can our a additional and customers also lead time We capabilities you're expanded are around long with OEM pipeline a us offer partners a in where service embedded customer-centric as affair. and Winning customer are working product an thoughtful through of engaging where tediously programs be initial to solutions

embracing customers increased a we we surprising of our gained expanded with, number have that with celebrated and acquisitions and the tuck-in However, number found combinations expertise. collective of our collaborative year's strategic verticals, geographies our approach set expanding resources, of last them and -- benefits the through and now have work have

demand moving Third, pent-up early that XXXX. started strong in TestEquity. with landed to January

We in sector, also VMI capital tech saw offset spend. growth meaningful sector in by the declines somewhat

expect record in sites. of chains First a stabilize begin growth sales first highs off were with a XX% TestEquity e-commerce supply quarter new up primarily chamber backlog Overall, profitability from working production priced after to as to and to new period in continues significantly different and quarter, the and TEquipment grow market. we digital hit the improve

are to continue be cost our centers lower by in costs. resulting our times We to will moving synergies distribution into what production that closer delivery shipping and customers, capture efficiencies products improved and

as capital channel of their by of lead reduction not are capital Measurement our customers' XXXX new behavior of and challenges some Test Equipment, delay time key overhang the of supply have helped our we seen continued some cost spend partners. chain in or and with impacting Higher a in some on

We expect and focus product, influence customers the their a which margins. more growth are we environment on opportunity us our around and challenges of with in current for it cloudy equipment, refurbishing time us the be some offers rental higher seeing where lead for to this renewing new economic area

a have we of with profile TestEquity higher margin effect earlier our overall and time line cash other generation the we engagement verticals, DSG. which structural the And expect will cross-selling flow a to for accelerate transaction, finally, expanded meaningful as initiatives discussed Hisco in around on and profitability to

As our and can you to beyond. by tell, our expand internal XXXX for X likely very verticals encouraged all improve prospects and team operating initiatives and is

like Ron? to the I'd Ron over Now walk turn financials. through the call to to

Ron Knutson

you, Thank good everyone. Bryan, and morning,

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

the Products remind you me treatment, quarter Let year prior not XXXX. the first given reverse was Lawson merger results in in accounting that

first included However, of the all for X results. XXXX of the GAAP the businesses are quarter

comparing ease For results. this let slides results But first first the utilizing adjust results, include that of financial and quarter morning the me for quarter summarize the XXXX. Lawson's we're

reported On bottom top line a we and line combined results. basis, strong

expansion. through both growth XX.X% mentioned, XX%, sales price total reported of sales Bryan we with As volume growing and organic

first our The combined through finishing of I'll some on results this presentation. margin now reflect numbers the of above of walk and specific QX of improvement X of is a quarter XX% basis most revenue. Page X quarters sequential on with

QX growth $XX $XXX.X approximately of or First, revenue comparative by for million, from million organic on XX% driven $XX.X was the million the consolidated Lawson XXXX, acquisitions. first coming of revenue increased over a inclusion with basis, quarter plus

of revenue. GAAP was adjusted per severance adjusted the On improved loss items, $X.XX to a share X $X.XX million compared EBITDA compared XX.X% for for quarter we $XX.X year On operating an GAAP diluted earnings to the million quarter. costs, first reported ago reported of compensation, And nonrecurring or million third, year year Second, and to a basis, ago acquisition $XX.X adjusted million $X.XX a by EPS versus quarter a diluted basis, quarter. of quarter. income other an was stock-based $XX.X excluding ago $X costs, merger-related

as Now of Slide X run of presented. XXXX, moving as owned the for acquisitions all full includes X. each on XX, Slide quarter they were closed to rate March if

not For Hisco, since closed it clarity, this reflected page. have we is yet on not on

sequential nice run each operating full companies. has you our charts, strong inclusive seen As see of of the acquisitions expansion from these performance margin can reflecting rate from of X quarter-to-quarter,

given slowest other is QX days fewer selling quarters. notice historically than our the quarter You'll

X. Turning to Slide

briefly Let not that since GAAP businesses. the on numbers me the acquiree, recall XXXX. accounting Lawson, it is QX comment Lawson now Starting of each with for the is reported in

of purposes the note Please premerger Sales include quarter. in other slides, now the for they does However, these included all not for reporting results. Bolt Supply were as we've that million $XXX.X -- are the segment. this included

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

versus approximately ago, flat sequentially over During essentially fourth quarter the volume X% was year the a of increased quarter, however, unit XXXX.

ago. was an strategic in Kent wallet existing both continues increased approximately our new X% margin pieces in accounts to unique improvement of realize through customer with large In of business, a within during quarter its year to Lawson share particular, percentage. shipped customers Lawson's of locations quarter gross more growth we in those and this the than Automotive steady or achieved businesses. our relationships,

While pressure expansion we margin continue gross costs a putting our net larger within higher on leveraging costs overall our customers and over the percentage, to is margin given base. lower see realization, sales price freight growth strategic

the ago X.X% million $X quarter, a Lawson's year driven compensation margin EBITDA a $XX.X increased adjusted improvements, partially sales a of quarter. Lawson's million percent to ago XX.X% to of sales the by year on in adjusted EBITDA gross EBITDA quarter primarily offset by and higher adjusted improved sales. versus as compared was

Turning organic at $X XXXX, and XXXX, year quarter $XXX $XX.X the acquired million for Total XX. QX Frontier first of to of Services Gexpro of Gexpro was million XXXX. for of which $XX.X were over Gexpro Resolux the In the XXXX, Services Services from driven an increase end on sales million in million QX acquisitions of early by Slide and growth.

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

to acquisitions. And million grew lastly, turn by to million, Slide I'll on primarily XX. for recent Sales TestEquity the quarter $XX or $XXX.X over driven XX%

TEquipment Measurement with was acquisitions. National During a million XXXX, ago Of Organic in the in QX. the $XX essentially XXXX on sales. acquisitions, the increase QX TestEquity were from quarter, closed increase $XX.X an X generated versus offset for Test in supply by electronic year Test the in Instrumex approximately million flat a sales decrease Equipment and sales production and and sales,

representing sales $X.X an ended quarter, first the of which year acquisitions adjusted from lumpy we expected, delayed slowed the XXXX were and million business projects XXXX increase sales On face have of continue EBITDA at challenges. Measurement basis, of and an throughout chain communicated, as quarter supply quarter approximately expansion over mentioned. or of previously $X.X in X.X% the XXXX first Test customers and came previously a As the million $X.X ago to million, in as

million to of on our capital, facility. million access Moving approximately Slide available under an $XX existing XX. available we to have From and credit $XX.X cash

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

continued quarter into XXXX in of XXXX. started the that deleveraging first Our

the XXXX, progress was the of our merger of $X.X Net inclusive net equipment quarter. leverage the of our This businesses, consistent Xx leverage prudently and X X.Xx. to X debt at levels April the intention range. X, to expenditures, is for our debt time was with the manage reference, For rental million our capital in

Bryan which exceeding reiterate for call with the we exit to that pleased performance. turn wanted margins closing I did. financial I we XX%, we with We the remarks, company's XXXX are are to Before going back how some to said

double-digit within delevered maintained XX have XXXX, we the first have substantially into months. EBITDA We company adjusted the margins and

we mentioned, long-term our continue outlook. Bryan As with pleased to be

up against of XXXX. into are second tougher comps we half However, sales going the

execute businesses company planned make stronger the a continue us for of initiatives going XXXX, to All their will on which forward.

these for We balance will results continue Thank deliver prudently their drive to to our manage financial you Lawson operating sheet and Services the position. and to TestEquity quarter. first the and at Gexpro in Products, great teams commitment

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

Bryan King

you, Ron. Thank

comments XX additional Slide few to into a Q&A. turn Let's the before get we for

are capital to capital and deployment investments approach unique. working not Our

asset-light Our discipline projects the customers. trade we investment positioned capital the the highest as underlying long-term philosophy and our growth areas best in for investments people our building around primarily value-added leadership in to are of widest through allocate well and our deepest smoke return organic focus business, Since with the an great working in while distributor M&A. a comes inorganic is as form possible capital anchored to specialty of

of We've investments the XXX% returns to the have cycle doubt, basis. on returns over to be a in capital observed with working our been a and or pretax support invested in higher, significantly of approximate we've last over significantly on continue X They The year. a best-in-class made organic highest growth often returns the long specialty or incremental without our XX% peers to distributors. what all consistent

profitable that competitive. verticals, strategically this and enhance rate. and should enhancing point most our to is more best accretive individually second buying but more identifying at ability holistically Our organically acquisitions acquisitions specialty make a investment These both return on the at faster, grow our

we returns will certainly currently cheapen and years others will that capital, sustaining price. significantly of believe others last do the are and done back purchase dialoguing with, over we turn, We which Hisco In the like working that. have on all driving higher

of of not accretive. below cash and our $XXX leverage are the our Hisco comfortably the those X we especially that have we only and capital approach, support debt lines, expect this closing that pro we our given acquisition, close, take somewhere rate we alongside will working to buy hurry While leverage environment. the of committed Along accelerating between remains million currently, to X.Xx. approximately After important any an And to something in focus, which are flow debt. ahead is the to to forma us down pay Xx net rising is

program our share a unexpectedly and We earnings our opportunistic value weaken also to unlock accelerate take have of repurchase with shareholder advantage Board-approved inconsistent buybacks trajectory should stock current to creation.

We specialty is are for the exists long-term and constantly size of distributors not as benefit as time firms. large equity in to DSG about compounding well private around the business informed XX our last surprising revenue the much that I for as with those continue the of leading our is growth engines, exceptional by and years. by why scarcity I have be as suitors with private which of interest strategic of specialty the a line and It as distributors value sight earnings loved have tremendous space

on price much how prematurely compound. shareholders of to strong the to stock earnings, to about the If continue the so this should improve line we offers And for unnatural believe with and sight want marketplace value Board us be cash have to on to business have partners and that I this with want such ways journey. that flexibility that think I to don't so buy the us we generating the an sell tremendous back

had coming capital so first the alluded of $XXX Hisco. to, in working million or just another at we with our I the As with $XXX quarter, invested end million

many that for last to working year drive Our continue our growth reflected how shareholders. profitability the accelerating in expectation to around drive our investment and is capital ways organic over

follow-on with it our year, aggressively indicated inflationary with and We investment it. and made with dramatically last invested more year, This the the more and add supply we opportunities capital increase pressures, especially optimize sense. expect to working business chain some provided than combination of to that we that acquisitions

headwinds capital meaningful and working should understands Our prudent the return that leveraging of on the and operating ways most best protect timely economic opportunities capital one also but liquidity in calmer should managing it for get best -- intent with belief invested be tested, to to is cost drive flexibility environment. along up prudently is way growth the the team free to my that

prudent focus that shareholders. last heavy operating long-term mentioned financial want quarter, to a managing providing to for by our strategies intensity liquidity execute working growth on a XXXX. I value maximize our our for I to maintain balance strong have teams capital As and continue ample all position on sheet

DSG is to at scale significant goal with improve generation. profile build return principal business specialty profitable our continue Our cash free distribution a and overall as to

our capital our the seeing We merger have XXXX working units. across April our business our collaboration acquisitions cycled in benefit are X now transaction and completed investments, and the of

spend embedded We Hisco are ways our primary more finding leverage with customers. alignment both many of and to objectives. drive to will cross-selling enhance significantly through our closest

strategic Aside we on fit and rates. hurdle lens, work Hisco, an our from criteria continue opportunities our pipeline, active acquisition that acquisition evaluate to analyzing

with action summary, pleased our the results quarter we are quarters excited years higher sequential to and we profitability appreciate commit current to although EBITDA collaborative take return and we to each margins margin XX.X% teams first coming our across metrics growth plans have deliver are improvements. report X sales of partners that significantly leadership In the And internal of to our levels. efforts over and verticals from our adjusted and of

the X the want to will and last operating discrete not very working financial on, initiatives be we are are performance linear, manage quarters. that focused also meaningful are the while not all results to that absolutely we planning we will improvements slope to on expectations the metrics for track We yield

some quarters goalpost them trying and now a few the are the the delivered teams leadership all move clip. facing to on faster what having with forward in appreciate at me exceptionally can We of last

this it we as enjoyed to linear want will will be mine likely We quarters be steep the just later or margin get will as to we our as but comping and next temper expectations, soon, tougher that not all year. included, threshold I milestone

DSG channels is market where rely their provide solutions $XX of a high-touch, distribution industrial in specialty key leadership value-added needs several solutions customers with billion. a company, supporting vertical technology to us distribution MRO, a addressable position combined OEM and on for

offer Our specialized products. as parts vertical channels customers products to the replenishable marketplace well and industrial as

offer that managed rely for addition, outsourced solutions and companies labor, management. we on expertise, secure chain supplies capabilities In with specialty supply

unique products daily reaffirmed and our advantages businesses the are a manufacturers, compelling customers in OEMs specialized important for industrial compelling distinct makes us. that and is our It acquisition to are Hisco their use products that competitive and and to commercial industries. expanding And investment solutions

your now And the for would open you we Thank to today. Operator? time investor for questions. like line up

Operator

Barrington today Our from Instructions] [Operator Research. question Steinke from coming is first Kevin

Kevin Steinke

your you've when get of improvement going about in is layered profile. kind Ron, particular the when hit number? and structural you're that commit discussed. now accelerate the been, in, forward improvement should margin too you I given EBITDA we about won't could to the next had as that margin Hisco to thought be has margin? XX% as exceeded maybe terms appreciate that there in of you expect you to that And what kind any a Or your goal that early it adjusted fact about Have of think target be obviously, you but that it comments near-term

Ron Knutson

that take make then I'll as Ron. is This of comments well. a maybe couple Bryan will and

the set year Bryan's initially in that mean, bps had no, what for I that would a both first and XXX really well and also XX.X%, our over QX. we plan we up first as exceed is we We indicated ago QX the So in to specific out But -- that, big were say quarter, we've benefit I we improvement items say, remarks onetime quarter. not would of as a seeing over million a prepared QX bps I nice XXX of the us publicly did got ended as put mine, any percentages. $XX.X kind there at gave

the lot benefit took think the the of XXXX. to of Bryan's point, getting So businesses X structurally, a we all actions are that I in of

my those that spillover up probably to again, indicate into enter we're into So to did effect half made year. latter we're did that a actions percentage, we in premature comps commit of the as but I 'XX the in of I tougher remarks, that we 'XX. some against seeing prepared

And be to X as as and all we're linear, I certainly think Bryan's the making point, won't of within companies well. investments

feel really gross only good really, and margin but as -- the about but first quarter net also the the not expansion, margin we expansion well. So

I'll if add So pause as comments Brian there maybe some to well. and wants

Bryan King

on said it in when total did time. them and lower Hisco to margins similar said structural from margin. to TestEquity to we've I both to a to that company together, structural it's see think to I accelerates think question margins, what is What the this or that our business generate up and what we marketplace, over Kevin's you continuing but just -- we coming able about it would to to alluding well, comments of ourselves demonstrated elements go is add up it over Ron. and continuum together, There's going the I to of pull getting the year, a now hopefully, that XX% We be level.

we to hunt has together more is grow And revenue some share. new about customers growing for Lawson Cesar are pulling to we've customers growth up salespeople opportunity free customers his our then continuing and that for wallet with. serve they're some to go or to exciting and enjoy years contribution the had on been to growth is -- initiatives super continue that team Lawson enjoys that and talking for really access And margin Lawson where some new to when have really to working struggled opportunities the unlocking been that there got they've the and that businesses an

going first So was to that the DSG had higher -- that year been and more getting traction, the out in XX.X% continue been of those on strategy but loss we're few seeing would significantly march which are to as this margin, of that this quarter, expect last efforts forward. real structural part that the we've pulling are together. part at year, in than years, rolling we we here what -- this we working that had

whole I -- public. was that are gone the So distributors obviously, that's their is it's XX The the continuums in more have we there and that sure we was quarter. what XXX points think measured slope linear. dramatic, going pulled to don't Especially a be between over through make up. get out basis trying last measure back are I studied going quarter years. to them to perspective. that a We've And and think this over last

-- would And line objective, but where more can is basis hundred like where to us get want where years take get to our to up that X, X, this to points it's business. to X going to we and think we to several get we be, we

So helpful. hopefully, that's

Kevin Steinke

helpful absolutely. Very Yes, commentary.

we did was lap then that? those I where perhaps to price Ron, tougher the move your to of guess that So starting growth in mention from are I journey don't forward of of year as terms play in of And increases? some would you this comps price? pricing? you with kind into And what XX.X% the contribution if organic terms know, not, overall the

Ron Knutson

all taken the three call price into kind of the And of indicate we're to a XXXX actions spillover basis. XXXX. number, effect again, pricing volume consolidated related. take about businesses XX.X%, not taking continuing the was X.X% And in and the points actions XX other, the from of did it, that -- to I of out X% on the Yes, was but consolidated

are through, say It comps yes, into bit cost the bit year. you're keenly managing see vendor necessary that initiatives of does from the profit a the in we're where actions not gross moderated and but later were in portion other costs play a tougher to around all up we freight, right. although expanding some continuing margin still a percentage, XXXX. they've X businesses only come we pricing increases gross I well. would So their from of But in rebates, our as the put

a just lift increase higher sales So getting in some sales base. the we're points on basis on there

related price the about of quarter. gross So percentage that over well. all the and certainly was to margin XX% for I fronts on expand Short answer think time good progress is as driving XX.X%

Kevin Steinke

Got That's it. No, helpful. great.

and in get start that's Just strong what's and to to build mentioned those Any expansion commentary sense could some contributing like really there momentum continue out You to more channels and channels. wanted the to some new of too building sales the discussed you have touch just X% perhaps build to sales as momentum you And out there. you trying CRM that? locations. the tools it on on ship-to and seems what and your of just growth Lawson roll a to

Ron Knutson

Sure.

have So can then in Bryan I well. and as start jump maybe

leveraging pleased very results the the very, would Lawson really And from yes, -- gross the getting about improvement. we growth primarily we flow XX% for that Bryan sales publicly quarter, get. I structure on the it's that our quoted expansion as that to XX% well XX.X% cost and through really on nice coming knew So as business. is margin talked say We've could Lawson

you I think saw in of the XXXX. quarter that first And of the power here

long-term we're of on XXXX, that not rebate but area, in the has even locations metric a locations, just back going all develop the and really where some their ship-to segments unique that, we Lawson in increase a pricing in made to the customers and X% the strategy. I to servicing that's business XXXX large this the investments as made and many strategic measuring account previous strategy entire think we've relationships that investments across significant for about -- relative with with a pretty So

of as specifically as support have business. and So the piece invested automotive strategic individuals the that well account we customer managers in support business to Kent

look business are the customers gross trajectory they've X last the really developing only with very larger those sticky the our been years, pieces we strongest. core slightly think relationships As margins. not And I X over those less it's been that at of of the

So we're basis. but up against perspective, seeing that gross from a headwind still a consolidated expansion on margin we're

-- new it really we're customers yes, us. certainly, a our So unique both is as existing customers. overall well And the those piece locations of growth from business ship-to as for driving big

Kevin Steinke

moderation meaningful I wanted ask here you've terms And related the sound point, mentioned about like that's few what to it growth doesn't sales just guess. lastly markets to I headwind perhaps economy, you this a of in at in seen April Okay. Great. some but a in trends.

costs trend the So on the economy. and just and April any

Ron Knutson

in sales results. business. and would We would little end with yes, I exited I I of seen within versus being couple of a Kevin, Test down T&M the quarter. pretty TestEquity putting that the exited to both kind verticals side running of of see moderation the say I consolidated Bryan markets most of up, So would a part, say, markets. April, up we've where for some the basis first positive commented we up say the continued we've and of on a bit on being little our quarter Measurement -- first being April a kind a we But couple aside, losses for with being the in are our bit. where line

feel And we would the services, some a were up say year where bit flags red side, see there, any April perspective, the are but and now for a numbers a ago. mix that here major we on sit weaker injection about growth little a against pretty I overall, with good But seeing is month. sales some renewable of from which out we of finished don't there

Bryan King

some for continue that -- Kevin, OEM, -- them a we're spend all we us. collective we to would of how our markets lot and MRO understand that trying add at end things time Cisco add deliberate to so serving I we're looking to which to very just balance that and of does between

of so different to And terms but encouraged of at we my longer to kind term as the fall I'm into economic industries talk, trying backdrops. of coefficients we what kind about some build the look correlation CFA and of in we're of -- different are

renewables things -- of we multiples the acquisition we down how acquisitions brought ago, And at well, so -- that reported we're EBITDA like XX Services made actually we've months. we're the was seeing quarter, on made where that had now Gexpro one course over year a last that right when we exceptionally

was team the very was our had good there. some starting to was And us outlier The we average to though the even tough really we negative, that is knew the that leadership have that a pulling much order in and place is up. open in to that by one together more challenges. backdrop to that taking some And in given backdrop fact that Bob renewable a his put hold. had renewables the that market robust offering And strategy firm our for up market pieces

getting comps of And year peak ago. levels, is easier being we the against benefit comping so while yet that much the back at a acceleration market there aren't

now. is services for We're space strong a defense enjoying Gexpro aerospace right and

that where great, little they even it their but it's semiconductor are from the though yet, quarter, a it their on quarter is year first some bit. verticals into so weighed that We And it's and a year ended where stronger. went have started we firmed and anxious end was than year a market, about the first softer ago, little impacted bit And up it last we year. and

So the look there's end cloudiness our there, we out seem well. -- performing at as kind even to of that's markets be

all where just our of across The of public people that all call this in cautious to is tried companies. about of spending our it. spending is is us -- really DSG we've are one all companies, on not capital portfolio and we're investments Capital emphasize area that

making at we're in that to saw that bit the so end little quarter and seeing And capital there. the of can year. delay and of somebody first felt sluggishness a Measurement the decision the Test extent some Equipment We a have it

the year it has And our business, expecting sluggish been our we part challenging -- so most year. that, of far this this part so and into could went of that be

was that vendors with customers. of our challenges product times to lead our getting to and -- Some from

which call And have impact margins but some on top what about are at level, does more line. customers we I large is those emphasize who that higher asking the well-capitalized are customers used, did we in seeing it are rental and

place. have -- we they that were have about and one their programs it lines And doesn't Test Hisco the rolling some doing Equipment But how that doesn't with had up Measurement we revenue. here, Hisco in we're identified think that's it off. what as and that So do that have exposure

get new and when picked quarter, real weakness their about not we're end to up some mandates we talking markets. it So next they've in seeing

have would you like other a Services, kit, instance. have relationships But OEM COVID testing any just we Gexpro programs for like at end-of-life with can like

And well picking so that -- than revenue. on along up new the but way backfill more you're as programs

Operator

coming And Far next the is Brad View. from from Hathaway question

Brad Hathaway

the well you think though, to also, about from Lawson, TestEquity And before on little in about a more between themselves. with Gexpro, mentioned to think I some and done a bit incremental quarter cross-selling, ask talked incredible really quickly, and it. love with within Thanks impressed margins. kind the in within of think see both the this the you on little to -- verticals, mentioned so detail double-click I on understand something think growth I Gexpro of and job I'd that. we'd I you between opportunities I bit both for there wanted both also XX% an section, see the but within which a verticals, maybe didn't the just you've Gexpro you organic and quickly,

Bryan King

accelerated on, which his at vertical addition that, he's Gexpro really I'm opportunity. of these how I of to show and used on to on examples force and Brad, is what with tightness pulling example way But probably help three, sales I me what then renewables power -- the a the some firing on to then this, the I'll some Bob want you get early services of we've to pulling has is out best saying. Ron, been got inside that their go in lead together embedded the it's of the acquisitions engage one relationships. coined that

little -- the there's of the a to hearing feedback. of the so some renewables And we needed piece, bit land

them. needed we OEMs We major the -- had some land of renewable in some were space. we We of all to have of those But didn't them.

that deep coupled product our had are acquisitions so that we with. if could we that set broaden with of a we offering customers that And solutions broader them engagements we with bringing themselves out tightly get that engagement knew could the we certain could

of the And did one our as was of or with our OEM have wind through so the with, on renewable we acquisitions for we solutions the solution acquisitions were OEMs out were several then to deliberately that not engagement on the not only OEMs our that that And relationship an one that -- with. the brought in ability provide major we working that relationship much landed of an to of with but there Gexpro made side, we the solutions mapped expand acquisition. significantly space

of base Bob his able being robust that connecting that pulled brought -- those And had to help had towers much and the of not ability given offerings inside We've those together to turbine the to retrofits we a the with have has not together. And solve acquisitions and take of the for them. elements more their guts overhauls. all we set would to all and led on team an their

into way one that's elements about does dialogue. MRO what of we're what is But think or putting to also putting we're that Lawson that So it. that does pieces

SKUs that And an Lawson production that some so supply of and engagement there the the had. is electronic pulling on MRO the there's of products TestEquity side

had relationships lens. trying And we're very pull the in services with a relationships, pieces on their way needs about being to had basically we're we're unseat deep OEMs jet inside working with able and engaged collaborative that pull And already really take a -- those MRO I then folks and think facility, it very in that to on to that how were micro to what a micro collaboration we're some of some on we the where -- work the there to before. very specifically on trying and of are. level, extent and able key I to and And then traction it's think are were level really that a getting customers in DMI good capability, and loss we

of improve that's been the not successful. and office while our we're -- of automation, working And and our that some a these back lot lens to try not as in it's we're automation customers. taking experience warehouse of And to

lot on we with XX,XXX be So are scratching are to picking The larger. It's but are we're narrow, still up and is continue wins We're that Hisco. performance. the more it the the wins surface the financial think The dialogues a of more just just to will expansive. some candidly. the material cross-selling funnel successful. customers

Ron Knutson

XXX active I would add, excess there's leads. just Brad, of an

about the the we QX on sales talked are organizations. our bring that other to we teams of where companies these into referenced think leads the all across I incentivizing call, Bryan this

it working actively And leads. through. of been XXX excess in we're multimillion realized has sales coming already So

in into Now some we happened say I XXXX. XXXX. of scale would that steeper it's But enter as on a

on So perspective, not that X-figure I we've from mean, yet number an few been it's top a dollars a million realize sales able to growth. it's but line

Operator

And the next question is KeyBanc Fleischer coming Katie from from Capital.

Katie Fleischer

today. price -- wanted on the or up Can was for if clarify Ken on to rest cost the follow to On what's pricing the your for pricing the expectation earlier. I margin? positive you And question from of year?

Ron Knutson

yes. So

So Katie, I yes, so on. XX% the that commented the pricing -- you're to Yes. back referencing

quarter, would we we the of first more lapping say, some of through are increases price put I seen we've that So the here in during that. given XXXX.

latter we a year for that for to increase into at basis expect on of a half quarterly go-forward combined of the stay as pricing every on basis. our the So we XX% wouldn't enter quarter

later were think probably QX. in in did actions say I'd we even of as about year versus those they terms of the some we in XXXX, timing in

the up more So here headwinds quarter, probably from latter so against second the in in standpoint we're half I but of think less probably a pricing the year.

out we've an from mean kind with we pricing I your perspective. that to be I if not. question what overall So know don't will answered or relative not any think guidance formal of come

still, But vendor we're increases seeing will still say as increased some XXXX earlier, across We're cost I businesses. I mentioned through. coming actions in the taking what is pricing

on not certainly those absorbing we're and so those internally. And sitting

-- along. to We are pass continue passing -- effect those that

actions. with generally So XXXX. generally Certainly, and XXXX bit those I have a customers say the about up to increases far would certainly and supportive conversations But are in speaking, speaking, customers here that those so been the some in willing in understanding tightening take on and understanding that. -- some customers

Bryan King

specialty pressure are people capabilities able also services inflationary absolutely. to we periods the the answer only the on of this, so the in other straightforward there's actions and and side, us from margin The or distributors is short mean, our and we're value distributors make the I with our other think, question, that giving the was like between we the we're we're your been capture that sold that broad-line sure And is more longer goods protecting then flexibility even product are cost are price bringing more to to. than capabilities have are on difference continuing than distribution pretty that and eclipsing our yes, vendors. customers supporting is commodity And our not answer I with and to it. our but -- that feeling margin that -- we're

rewarded continuing the absolutely of at to besides we and actual selling through. just total product for the sure more we're being look that the than so And capabilities that make we're are cost

has EBITDA it margin-enhancing at the gross been both margin so And the and level level. margin

Katie Fleischer

just And clarify Ron, to one point you made that there.

those the starting You mentioned correct? before that to vendor are increases, cost moderate,

Ron Knutson

Yes.

Katie Fleischer

Another question here.

that times you decisions wondering the easing inventory you that's faster lead monetization some impacting level? if of about I businesses. think could to So talked backlog in lead customer at was at And if individual the all.

Bryan King

our on went ago did that. that our So hand take working a we're year going -- see different that working up we're as verticals into or we the investment and working inventory even investment. focus get one tightening on increase make think are we our things to point. we for seen and definitely and easier that chains our capital position. easing. year And real year, on had we supply the actions of we a the That's This have sure to before And our customers some capital that did product

I we because and go to in that updraft capital the but of better. inflationary on on stocking making maybe or there's But been And even for had into some good buying had is think investment. leaning aggressively the that product by customers increase they hand vendors we've part sure we our think, abating. deeper our anxiety, pressures more of go from can EBITDA The -- working just have along with incremental returns really the of

us more a with confidence inventory that position. with operate so to leaner And allows

buying it your us, anxious. their is not way think bends, Ron, or really but you don't to seeing as of it at -- their and be Ron, giving we are me a Gexpro whether would changing the extent line correct that about their it from and behavior customers about were oftentimes it it on forecast not -- is -- as around team stocking we're our or us putting inventory what more their are customers site as managing part this Katie, also on production I the they're -- the they are we're talk this, and solutions. I question needs our And they around And think until know that for to maybe, holding purchasing we're going because loading that into are be. we're it that can

have placing -- might we their we And our balance production be have about so that less has sheet need might influenced on more and informed or us to at facilities. about what what

So on the for padded -- it is certainly, some the -- to our I that allowing have reflected we numbers fact us have customers think, those us.

than months to hold -- market asked on their last production schedules the their end may have they So XX production us over in looked what their different inventory.

their by that was And hand. key on so that partially driven products had making anxiety sure we

we So production whatever needed them. caught they short were not caught that support were -- not it was be their to as or being we were not to able on they going based output short

they Equipment. created were on up don't we I a where where inventory longer talked only that's necessarily but safety that had place were Test stocking think that we've really of -- stocking already The hand. -- So pull-through times on were about. where and Measurement was amounts or they inventory lead that And much greater place

we're the up some end been That's over think on places, have that X around be sitting or that But where changes that don't -- backlog. with customer but through, necessarily say we little you bit. -- area there's they're our one There's behavior aren't don't there a going We're wouldn't where we last lot a X backlog on months. we hasn't we A sometimes what other backlogs. on waiting inventory. kind sitting pushing a of to visibility of we

caught manufacture several did The a chambers been not asking chambers margin where we to where over customers get business that up place product quarters backlog a but our a because at the year so were ago able pace price mean, compression of and on and went last on that's we our top we've I -- cost some for our is we've the with had where had stayed our cost goods our we sold same. line prices, quoted on the in then had inflation component us,

And get acceleration an ought we we're working further lift to into year. Ron, in as actually through that what that as overhang as else? and margin area well in revenue get this

Ron Knutson

Bryan, I think said. well

we some were inventory -- I getting the on from pull-through that -- think level. decreasing we're some because had we've up they they certainly our is on easing customers excessive taking believe seeing don't place at the an stocked product. is seen of What

and EPS volume and certainly services just the not we Lawson, injection in price. saw well, still saw as with we nice So at Test increases business

inventory they from So we're and normalize pullback try as not seeing their significant levels. customers our

Gexpro well product their they've so that on a out source read Gexpro that customers is able great And point, they're a connected is need timely so overall production process production to and well is their customers and -- the to what go future Services into mean, cycle. the basis for Bryan's help I on got to the with

product. the as on our with that the supply pretty of the specific So back for we've that an for orders We terms a get items But which certain customers. well, is part, isolated Lawson to most -- within are be that. seen business, SKUs. back in in order there's us It's to indicator chain track able that is decrease and easy

Katie Fleischer

helpful. then for just question me. one That's last And Okay.

that move So get sequentially we to versus margin trying what cadence earlier. I seasonality? an commentary outsized on expect you're wanted to margin clarify to from at? normal Should the Is

Ron Knutson

Yes.

understand beyond definition an I sure make outside me movement of Let your seasonality.

Katie Fleischer

saying of seasonality, sequential Yes. going in versus than terms in past. it's just was normal to the I the you're the it moves linear guess less be

an In terms expecting years? of sequentially, is outsized that prior difference you're versus

Ron Knutson

Yes.

QX generally the and QX after and platform And speaking, QX nice strongest, first QX QX. quarter. sorry, QX then -- see, saw the being from selling fallen say, seasonality the because We a try that see the -- and here probably we days being did of and but would strongest would lift again, QX weakest I QX QX me and just fewer the let perspective. QX across the are generally in So speaking, we and quarters. address

So think up XXXX gets in that I that quarter we of think that QX the versus around that saw we our in of where second when a commentary XXXX, linear. the over piece about here not may linear it to quarter bps ago year you really the end be XXX improvement

create we margin the certainly, about expansion we and operating believe we sales where growth. think quarter, line that can leverage first on exited the As we still top

on single So we really as nice XX% a as is the to we of sequential every quarter XXXX, Again, but develop what start think sets saying I we're XXX don't growth move exceeding expect XXXX. a baseline improvement throughout bps rest

Bryan King

my are ended when kind like our longer-term X.X% EBITDA we what year milestone margins But this a going we where where we guidance hit margins. of we from comment And -- the we businesses time at we what we should And we've near-term that ago just I that were -- today, basis. sure But and remarks. EBITDA margin be a of aren't a give of that. Katie, run X.X% we made at -- objectives strong together, or rate year are. did try were at expected that say actually over on businesses be. ago, we XX% we end the we So time, and pulling year know conversations that had to slightly pull that make was and these -- year above said at And at on that to we and the EBITDA knew we I expected on the together end we at wanted prepared the to to

But a to something happen. where strong we're a milestone that be what each And we verticals. to to continuing objective where objectives the period going It at specialty got -- XX.X%. picking we've year is different that we don't know again. we're like XX.X%, XX-month much we're had expect of is or march could structural we going to distributor. now But quarter that. up was over for it a of be up think operating to really, points long margin this I we moved And a a XXX couple basis have a to think we've EBITDA happen at significant going

margin And got DSG of DSG scaled-up they of just type I not have would verticals the of it's expect as operated, distributor. the benefit level. to to from XX up a going to you've should we margin there's leveraging what the some there months at in TestEquity going a EBITDA well more And with as And Lawson margin create platform vertical the -- think, rate. the to have going over be and leverage the we going to opportunity forward not -- Hisco. is there blended going their it's got as continue that's movement it's And on to to be margin. to those cost new contribute be across up then this the distributor out linear. next contribution to of, but specialty of specialty where linear. good move consistent We're have to then blended Hisco that's move opportunities going kind going perspective, from significantly for historically We've a rolling And

it better. And so operate should

that kind raise you job their the and can not on Gexpro MRO just it's great Lawson done are a like on of -- side. relationships the MRO could has side way easy activities And the or always transactional could can at their forward OEMs with of and Services prices to like tight on or of on we their you going Hisco Hisco

more sticky. OEM side, the it's On

we're continue pricing partners and of have does and And date flow collaborative. -- favor having with of it been kind of a are on we're through margin because on that it flow to and passing to through Lawson. Gexpro constructive OEM action But some they in versus so conversations more great just well such customers continue on as should more a very there having they've work specifically scale because our getting Services to that like job done that's able through their

Ron Knutson

X for I we Katie, our acquisitions. deck. on gets that Slide to all QX, you QX, I just reflect just ago, certainly the the inclusive In QX to of We EBITDA -- of the of have inclusive point of made, GAAP will that what the margins X.X% acquisitions are well. wanted was made reported but think this acquisitions in percentage pre-acquisition period, there a the to adjusted all as QX numbers the X.X%. points, even be of inclusive all The which year 'XX was our been the

If you look year X.X%. the from were to it's a ago, that at

year think exactly kind I So that's in our a to movement ago. is bps point, that expect a XXX don't of over

QX, not was XX.X% So the percentage of that in X.X% in acquisitions, margin X.X% in inclusive QX, QX.

commentary in in around XXXX comps So of the half that the it a performance and some drive took lot accordingly, the back year. of the second the here helped the year we to tougher kind of comes actions later in

Operator

the turn call now closing to I like for back to remarks. Bryan would King

Bryan King

you and operator, for a thank work call. together for continuing folks you, what that to well operate building. so absolutely, we you those look and have allowing thank quarter prospectively us for Thank us joined great And that all to to the those for DSG today at we're as

So we in you you. your will together and being thank about DSG. with interest on. are for partner business Thank about optimistic your be to we We're you continue that the excited

Ron Knutson

quarter. Have to We next talking day. you to great a look forward

Operator

conference. today's conclude does This

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

Distribution Solutions (DSGR) 4 May 232023 Q1 Earnings call transcript