DSGR - Earnings call 4 2023 | Distribution Solutions Group, Inc.

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Operator

Greetings. Welcome to the Distribution Solutions Group Fourth 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.

You may begin.

Steven Hooser

Good morning, everyone, and welcome to the Distribution Solutions Group fiscal year 2023 and fourth quarter earnings conference call.

call and Chairman Chief Executive Ron today's Officer; Chief Financial on Knutson. King; Bryan Vice me are and DSG's Executive Officer, Joining President and results have with Relations Investor investor.distributionsolutionsgroup.com. a call, conjunction at posted we In XXXX the today's website financial slide company's deck on provided could Please statements that and operating of future results call today. call underlying assumptions on actual company's and release the risks today's press cause plans, note forward-looking expectations, views statements differ based are addition, that those strategies, subject to that are uncertainties to or contain as on expressed this concerning statements this materially in goals, results beliefs, and during made from implied.In we but may made to forward-looking anticipates statements no the disclaim elect company future cause that those and The update today, to may developments do obligation so. views change to non-GAAP to end at also and earnings will nearest Management the found of measures to be measures the GAAP refer can reconciliations the release. earlier was on The earnings our today posted Relations press the section website. of issued release Investor of copy report been the included with filed has the also current X-K Form SEC. on in a release A

website. March this replay will turn being webcast on company's Solutions Group to this the of Lastly, the XX, through Bryan Investor XXXX.I Relations over call will be on call the via available the teleconference page Bryan? Internet is Distribution A now King.

John King

to XXXX annual our joining and review and results. Steven, us Thanks, quarter you all for thank fourth

financial top review Let's Slide level results. to begin X with

few despite QX. collectively, our markets, comparable the some choppier our the destocking notably a renewables. annual optimize efforts important increased contributed decline XXXX year sales Our a totaled mirroring and XX% a up customers X% channel most environment to XX% working for organic own capital $X.X sales in did of inventory to ending see end in technology by sales within which sales than billion, by almost more and with We

XX% X-year While increased organic expectation this year. our term, the in almost stack for our backdrop the meet sales near did full not

traction specialty marketplace million around EBITDA, XX% offers and expanded nearly XX%. XXXX market us of we in capabilities that complementary confidence enjoy capabilities ended value-added sustained EBITDA that of platform margin $XXX up growth.We Our will with adjusted assembled a an share

generation. from translating strong During flow successful in $XXX we job critical in year choppy cash XXXX, a towards congratulate long-term operations value a leadership XXXX to Distribution of key in confidence more depth to well environment with I mindfulness what to and initiatives a invested cash was current a marketplace with free while long-term year, teams. conversion. tremendous our million drive significant on the generated for cash Solutions Throughout our with became and Group balanced adding team we done profitability September. work a talent

achieving revenue making and Our cross-selling in sustainably few value-added business the fostered from verticals to efforts EBITDA to resources, with elevate September for margin collaborative profitability, of EBITDA by the our a goal being streamlining employees customer have teens within $XXX operate the XX% support margin ensuring all objectives total strategic improvements Day years. years. over into with a consolidated Investor next next increasing to above and align stakeholders. X driving are million all the accountability, which growth shared and optimizing traction marketplace.By essential processes in through This and enhanced gaining the engagements, is team higher is a culture realized These the

linear to XX our how outlined the was to have attaining partners shareholder and As the future driving coming we of months expected levers current though be over I eager strong our not on performance, demonstrate to as even line am progress beyond are objectives. sight

three, Hisco until eclipsed result that our in to delivered knew improvements.We DSG integration plan importantly profitability with cash would November. together around initial returns; some created revenue two, patience further and retooling improved through foreseeable this, earnout we XXXX, additional exercised and reached significant start DSG, strategy in TestEquity-Hisco long-term profitability optimized value shareholder allow free creating window were Despite one, improvement value. to Most in demonstrated we shifted, environment pulling flow our foundation profitability disciplined growth; the a we years our which for execution significant by that margin the us sustain future. As and process and unable the will lot collectively of the high created

in divisions such DSG activating combined are expanded the geographic all Hisco initiatives. creation to others.Lawson like services added TestEquity tightly to well spend offering strategic goals and through sales added and the a tool that to strategically additions and done, leverage as among which Gexpro annualized architect acquisition expanded revenue value-added these the for that Hisco DSG capabilities Group capabilities of we included our more that better the and into Mexico Lawson. be that accomplished through opportunities integration total not and XXXX. a opportunities lift VMI sorters still than our unlocking alliance the more significant footprint their binds of producing TestEquity-Hisco of Hisco value least synergies adhesives in verticals important I I'll printing created internal also to Since as us billion and in work of leadership with much expansion growth for with of with the the capability of Hisco are future into which benefits. chemicals, review vertical base and across Services already sight providing and $XXX combining of has While also major Hisco categories their sales million we business revenue efficiencies DSG in through purchase, some for swelled an an TestEquity shareholder set important cost across and Hisco XX%. first.We coverage DSG leaves DSG. acquisition over $X.X and will precision our discuss Gexpro line confidence of well into gives To The review, as significant is converting portfolio,

the in plan acquisition integration to this when due seller's closed the XXXX; initial our expired. not earnout, we earnout was until November launched June Although

expected Hisco that the the plan significant second TestEquity the from a by spending technologies and the also Group, integration enjoyed began out by of improvements during the includes already even XXXX Group Our in those DSG rate brought industrial vertical from quarter facility some capabilities rate includes and XXXX. which is $XX until actions additional Technology to XXXX, realization run informed realize half will take to of also plan, amount don't costs cost but to expect an we operating Recall Industrial announced by optimization, of optimizing or capabilities capability have between and enjoy be that the Group the XXXX and were fourth Hisco.Our for which TestEquity cost million run and the we XXXX. much equal

XXXX accomplishments sales Some launched business in force a We XX transformation sales include productive an reps to year. size. XXX de key additional inside field our segment MRO-focused minimis team by standout our from sales and important people Lawson highly a business had engaging about Products expanding

value the to working the merger in plan change customers the productivity in increasingly to of on We of realized network and having and to to Our value-added drive consistent force on fortify those was how which and leaning quarter. sales force XXXX are in process. minimize And and our and opportunity sales more sales to sales to the to that this more optimize data significantly invest our in good is we customers. we disruption Lawson's rollout focus in force and stages the with capabilities This the expertise through with effort.Most resources the optimized refine them. product, We and salespeople for this well DSG infrastructure in us earn where the force having as for front of rep we focusing in critical fourth improved continue are in is add improvement importantly, and getting more will early customers, most in committed can critical allowing approach more the XXXX tools productivity started better those third to engage capabilities earnest is our a both XXXX. which to at get quarter be

multiyear committed to capability-wise. project, acquisition execute disciplined double-digit both we close. are accretive solid that inorganic said, is lifts a with the model an longer expect through have some return expected growth this productivity we That the longer-term to financially and Although trajectory for tuck-ins on ahead.Across are we than and a early indicate DSG, taken

extensions were excited limited as categories well and categories of improve Supply and the label early we will XXXX markets a strategic product to scale and in in line products grow, risk. allow units tool key as continuing business margins geographies and with expand to collectively safety in So private our announce power Lawson new in offerings Emergent to into of as category. purchase and the Brand Safety for the safety extension acquisition

and and of exposure which commercial broadened message renewables capabilities of Gexpro engagements offering to of including assume in our our and Services our made, selling more home engaging synergies, continues expect maximize range the championing engagement.Downstream robust the capabilities. bringing efforts and and value-added existing the leadership each and value initial successful We now we of credibility of with our wins translated technology some existing proposition category. to dollars evolve Gexpro as as upstreaming more to Services to more DSG and customers a our with broadly acquisitions in Gexpro Services improve enjoyed and to XXXX of wave DSG the industrial well million the expands we the from from for more defense of customers opportunities.Our full thoughtful customers product this significantly approach XXXX, cohesive customers aerospace synergistic suite more into products most gain and cross-sell DSG customers vertical, into to up demonstrates our In customers the more our opened categories TestEquity-Hisco. cross-selling customers value-added This how expanded for on market. products customers. several Gexpro can saw cross-selling successes customers, in a capabilities industrial and role to the our Services first first

Services to of half acquisitions and XXXX. to a now further to allowed of suppliers much convert Gexpro up set as offer Gexpro Services in perspective a has well. SIS XXXX significantly differentiated reinforced a up XXXX, anticipate are Resolux by them Frontier, and although renewables former will marketplace integration coming Our in to book-to-bill, the positive. XXXX addressing competitors is margin is end key broader back us the an improvement the of those down opportunity markets all sluggish are together extremely renewables These the of below end set from this for in in margins customers This prior acquisitions These Services EBITDA Gexpro acquisitions still up year channel core acquisitions and as during and set dragged the us partners the those comprehensive markets. at now take where more our costout trending coming of opportunity that opportunities.We we offering much drive of front last which from open

that a customers' the drag delayed for the over are of with on XXXX end revenue EBITDA choppy benefit for DSG, technology established Despite million Services the created million our started several capturing that improvements. to into we and margin accounts in from environment from fourth of are defense aerospace e-commerce million and in building benefit $X.X incremental market revenue originating quarter, projects backlogs and e-commerce year in orders $X.X of Gexpro adding dollars large the Finally, and the seeing over several markets.

And our TestEquity with mentioned resources rate have the the TestEquity committing we over Examples its over the be we its take rationalized business American facilities, of in facilities $XX e-commerce including including early, setting with that Hisco supply combination and on leadership optimize worked previously But spend.There's unlocked EBITDA leverage happen impactful has more efforts getting were collaboration even since tackling about Services added changes and is it customers technology in margins to up actions. couple We've they the more and Hisco. Today, started November the capabilities Mexico.In optimization and with some imminent marketing is the engine able the expired the and these to in I to lot vertical significant DSG up rationalization Ron streamlined most capabilities to Group like Group the capabilities at it I a initiatives. together rapid years, to informed turn commercial scale as affecting Gexpro of a double-digit margin our November run of yet to I'd won't start walk industrial marketplace; importantly, with to to the and consistent include understand to and to and opportunity the November.With of spend earnout after of opportunity following the cost cost that, optimized and search next people, to brought North am made The for improvement opportunity Ron? we headcount Hisco. the progress in together healthy products, year financials. mentioned, process commercial position and by spend initiatives team by acquisition XXXX to indicated operations, XXXX rationalized here of overnight. pleased allow restructured for of agreements, Hisco; call go-to-market While initiatives book-to-bill. with and the we the opportunity the to unprofitable reductions, in sourcing start taken million window from through over out out

Ronald Knutson

Thank good you, Bryan, and everyone. morning,

segments include we slides few quarter information. information following expanded year-to-date You'll fourth information to the as see on the X the on well as that

will pro for XX represents represents basis forma on which acquisitions our Slide Gexpro full to months Lawson revenue, an the X. Turning all revenue; includes adjusted a DSG revenue total I and of the of Services XX% business XXXX. of first on TestEquity XX% Group represents basis, XX% for XXXX. summarize

now rate over serve billion SKUs. we approximately run and revenue customers more than XXX,XXX adjusted Our across is $X.XX XXX,XXX

year summarize companies, for accounted I'll of million This the X, acquired Slide million Lawson by of X of merger for quarter segment. quarter of DSG increase. year first $XXX.X XX.X%.Post revenue an to for turning was in fourth the and $XXX.X XXXX. results the represents Now approximately activity which for reported or inclusive pre-merger Consolidated billion increase the $X.XX for the the

organic acquisitions, XXXX a sales on these by or XX.X% for Excluding stacked basis. grew X.X% X-year

million, XX.X% were the acquisition. For the to million quarter, of due primarily or GAAP sales $XXX.X an increase $XX.X

spending not Excluding weaker the continued quarter. declined On approximately measurement and by ago, acquisitions organic Services. capital year test and driven a business within stacked market X-year TestEquity delay X.X% in sales of the up solely sales were the the QX the Gexpro organic technology a end for at QX basis, at in XX% sales

XXXX, approximately million for pre-merger the Excluding dollars. increased XXXX, X% XXXX increased in adjusted versus of year-ago.Full a XXXX XX% margin the net of loss million year of to these X in headwinds, quarter. in sales favorable organic represents $XXX results EBITDA XXXX growth $XXX X.X% all a strong in sales reflected Inclusive outcome. from for

Hisco. were of from margins XXXX approximately the by XX anticipated, As bps acquisition reduced the

items. earnings a per entities higher noncash inclusive It valuation benefited compared diluted share higher be for share million acquired share, when and tax the of costs to million amortization should $X.XX per selling deferred per a the $X.XX amortization and Lawson certain $X.XX in million For mentioned. the basis that of on expense allowance level fourth stock-based ago. to adjusted expenses, of the quarter, the GAAP began XXXX on sales was this the intangible year or income in year diluted comp, outstanding severance year computing dollars costs sales EPS depreciation headwinds to reported acquisition-related $XX.X we other inclusive we related $XX.X a We generated for acquisition adjusted merger days acquisition, for the the and million.We shares. and tax amortization $XX these of EBITDA of EPS aggregate million related and X.X% back full net earnings $XX.X all and operating of by from million added noted nonrecurring Adjusted $X.XX QX and of for retention segment Full adjusted increased in I'll of of fewer assets seasonally total and including reported operating $XX.X of on in loss year $XX.X minute. income previously expand QX, further at which quarter. on of starting full on effective

within a Lawson, comment to and for $XXX each were Turning up increase year-ago strong core increased categories and business. the was Lawson of Lawson's Automotive both year strategic existing growth customers million Kent government softening through Kent military year. to with strategic with quarter Slide was and sales me X.X% X, accounts these our briefly the million, achieved sales the quarter compared for in full our wallet offset continued were on customers. Automotive performance million quarter.The $XXX.X let new by now full driven share by within business, price, as segments. the the $XXX.X customers and Starting full Fourth year sales

early As really longer-term more of for Bryan sales strong team in We're continuing become highlighted, to the position strategically still the had a initiatives XXXX, in while business productive. help to itself Lawson all implementing to invest innings success. our

quarter XX% in to to with sales rep on EBITDA year very gross offset a sales the adjusted and a $XX.X compensation this investments compared $XX.X improved by on in million for pleased was However, basis. levels This sales results as longer-term us an QX.Lawson's improvement achieved to driven channel a by initial margin full primarily top lift improvements of million ago. productivity increased partially XX% of the improvement we're position better year higher on significantly and

flat EBITDA realized in quarters a versus quarter, to compared other XX.X% the the $XX.X a year-ago quarter, For in adjusted other Lawson net Lawson to of QX compared year. $XX.X QX selling sales in fewer days as quarters costs on fairly sales margin million operating X.X% reduced on million improvement. of or Lower

sales Turning for to million. the Gexpro Services $XXX.X Slide on X.X% year to Total X. increased

were strength For by renewables now markets.XXXX vertical, markets. million, the semiconductor industrial supply end continued by project-related the electronics fourth production with and expected consumer the the business for softness renewables $XX.X Services' have largest Gexpro from primarily secular automobile strength and followed businesses semiconductor in drove down in continued delays remainder as and and adjusted. the are quarters technology decline X.X% global The which power roughly XX% Gexpro next to X.X% within quarter power several saw is chains solely renewables, years. and sales end customer of base the including vertical Services increased industrial spending

are grew continuing issues. to $XX.X invest about are macroeconomic certain Services weaker more EBITDA to $XX.X million to adjusted full cautious million Gexpro year of We in and markets business, ago. sensitive or versus a the current those however, XX.X% sales year

$X.X pressure margin quarter, half million Services was as the X.X% of the on to a margin The related $X which EBITDA on lower flat margins for sales of on primarily return of EBITDA or quarter in vertical, Gexpro sales. the was sales higher anticipate the XXXX percent sales For million put adjusted higher technology a of cost to double-digit the in first quarter.We structure. fixed net over low relatively decline will

Lastly, I million, $XXX.X XXXX will or primarily XX. XXXX. the Slide turn million in sales $XXX.X TestEquity to Hisco an other year to completed Full acquisition acquisitions increase on grew driven XX.X% in of Group by and

acquisitions, $XX million sales measurement down for the within X% these primarily the and TestEquity Excluding or business. were test year

the a EBITDA made the QX. $XX.X TestEquity's XXXX decline decline taken in the adjusted was primarily or As organic this to million $XX.X added X.X% sales discussed is X.X%.TestEquity's levels the million $XXX.X sales previous XX.X%. EBITDA. to The million in in calls, approximately year in volume $XX.X a with and in normalization adding test measurement organic were spending. related full up TestEquity of we've a in $XX.X Acquisitions of in base sales capital and Hisco customers' business of by approximately On up to offset X.X% to delays were million piece million lower business on for EBITDA $XX.X decline compared primarily sales project XXXX our was stacked cost or quarter basis, and year related adjusted in ago. Fourth adjusted sales X-year million

related The health quarter net lower quarter, days claims capital sales margin operating X.X% primarily related on For for and and selling insurance related lower seasonal was million TestEquity's $XX.X to employee sales. expenses was or higher fewer margin projects, the additional the of to compensation.

remain sales, synergies charges. for of integrate and to the spending TestEquity, we margin to on the Hisco to profile and the focus the higher of TestEquity profile. stronger sequentially our nature XXXX we as combined on a improving QX the company As a for continue continue margin us pickup double-digit of develops committed of XXXX realized TestEquity.We think of toward about will and to some Hisco as drive through XXXX we second anticipate be We capital to some on nonrecurring in half integration allowing

XX. our and liquidity equivalents million ended of Slide of including existing to with million $XX.X cash Moving $XXX We under year and million $XXX.X the cash credit nearly facility.

$XXX you rate progress we the sheet know, up in XXXX facility support credit acquisition businesses levels, at of are pleased strengthening our X.Xx, in We're Hisco and and free to as a liquidity the of made balance managing amended accounts flow all As by million generate continue with to for to really X support our our cash receivable $XXX investment, from acquisitions. leverage working to other to million the for since and ending XXXX a forming acquiring we ability from DSG.Although evidenced we capital while million significant operations accounts inventory payable robust of carefully year. $XXX

capital conversion over cash Net in change working less in rental divided $XX.X were adjusted expenditures, XXXX. XXXX. by less and as was the EBITDA, for including million adjusted defined ratio, XXX% EBITDA equipment, CapEx capital Our

cash full revenue have flow XXXX. to range similar year and expect approximately $XX conversion or a to X% million $XX for in of goal of in the XXXX We million be CapEx

turn it developing. Before see how some make back to comments like I on we XXXX Bryan, I'd to

QX the in we that of quarter against, quarter fourth ago will QX the down year as a up QX having XXXX with range experienced similar quarters, results As to we've versus what past XXXX quarter. and discussed our be comp into we in we sales organic with expect a been first the we're were against up having XXXX comps continue up nearly and tough XXXX been XX%.Given over up fourth that X XX.X%

end our starting some make many we prior various comps spending. to against capital year related XXXX initiatives and project markets as positive internal as of need the would the sales recovery our of traction organic we expect will soften, on we customer normalization turn To and sales half. some achieve As develops of growth plans, in second

quarter While margins seasonally quarter weakest our and down from than are us were slow the we recognize will our originally strategy. not anticipated, QX X softer overall

margin We Bryan. the the strengthen pressure will DSG the first now to entire call upward to continuing while into drive some to committed this feel we turn but platform.I'll quarter, to margins of continuing are back likely

John King

Ron. you, Thank

XXXX our excited We will even initiatives during about and with are performance. how drive successful more and pleased are XXXX tackled XXXX XXXX our

focus in on resulted significant flow prioritized flow Our cash generation in cash free XXXX.

to XX. Slide Turning

We capital efficiencies, continue to We cash while a strategy ended $XX.X focus that improves enjoying where X reducing with the which drives intensity deployment revolver working million in and capital around operate borrowings. million under liquidity disciplined capital. our investment possible, $XXX capital a net increasing our working reduces of borrowed year and net on have

We end alongside can current will in enhance of backdrop passionate both thought discipline improvements the a business that of position committed on profile structurally a our we drive from and and short-term acquisitions the markets additionally of those with marketplace.While business operational are are continuing our return line through distribution the we have sight increase innovative this experience. the focused for profile benefiting leadership return and deepening process on long-term clear key with bench strong to create challenged of couple where a to our improvements distraction,

With vision investing.Our from shared confident appropriately this at on increased large in by to during repurchased we with opportunity shares fourth are organic this aligned and stock. and that as at XXXX Board are and are repurchase to disciplined To a along capitalize we excellent on to program an average DSG. X.Xx value-added best-in-class We vision priorities, we share own by to and shareholders acquisition leadership are the that and our this to shared quarter. use and drive and to the a distributor. managing our prioritize approach further financial at million share operational year specialty end during we executing, growth $XX.XX $XX of be to invest committed build collectively informed We we capitalize cost periodic need intensity of strategy well acquisitions are accretive inorganic other leverage end, positioned to our a XXX,XXX per priorities capital better the our decisions leverage build

oversubscribed we a and X-for-X rights stakeholders. prudently stock in a Finally, for offering objectives best can we liquidity executed structure balance and capital in order XXXX successful our as all to our split

offering spooling similar the increased range our be choppiness and verticals X-plus said and in global continually year are the certain up expect that that dynamics reacceleration provide. are expected affect a to dynamics with quoting in XXXX. in first be XXXX, the These forecasts the revenue macro of months engagement DSG this compression the we can sales and our our through softer for quarter, are back encouraging our last welcoming the of XXXX likely continuation to of robust seeing end that fourth of significantly indications quarter could similar from we As into will also markets.We We're XXXX that given end we different organic and each macroeconomic shifts invitation tailwinds quarter expanded may even of the those activity more book-to-bill in pockets. than the and customers now monitor our

deliberately finding Slide past well XX% margins business quarters a our from customers. across plan between to synergy our still EBITDA more M&A are and We reinforce the TestEquity demonstrated scale years up and to Turning natural and industrial X setting distribution of next our as and as act course actions on each through expanded high and acquisitions, across as DSG acquisitions margins in incrementally capabilities to cross-selling the fourth our value, high initiatives beyond. make our we aperture quarter a improve objective. are different our continue our cross-selling business DSG sales they Chairman investors believe vertical Headwater that best up, margin.Our taken opportunities of improved touch is the specialty can over of to business wrap very other across DSG's DSG, technology to create and acquired are accretive and initiatives generate better that we pleased in to the the next XXXX large plan and critically Hisco criteria achieve ability return progress around with value and We're diverse the profitability, made interest our decisions Full our prudent units, cash. markets and intrinsic year exciting committed XXXX teams the capabilities.The Officer and to good the LKCM benefit the several Executive in successful aligned acquisitions X long-standing of that years. important increase ways early we to initiatives becoming in DSG's profile and of where fit with and results continue and enjoy value, We relationships we are as to and exceptionally Managing innings. XX. long-term improve Still, for bolt-on Partner well as To over end the Chief very of

have You LKCM my sustained we and for investors. that we long-term remain relentlessly and like and together operator, with steep to Headwater focused shareholders.With analysts would from DSG the that, commitment questions teams creation driving around take along value our

Operator

[Operator for Stephens, Instructions] first today question with from Inc. is Kane Your Max

Maxwell Kane

change or of versus DSGR So basis, positive how XQ? sequential on revenue trajectory remainder factors a any might the that has consolidated going are there And that forward? noteworthy March, negative trended for XQ

Ronald Knutson

this is I'll Ron. take that. Max,

quarters. kind us, certainly then QX for QX the our couple months, terms weakest in in quarter. that first our generally of exited where and and where strongest the it probably fourth call keep are followed of is Sequentially the versus business; of mind overall would So we today I within flat QX QX we the we typically are quarter by seasonality experience

selling of March, a terms XX-day In year. for it this month us is

forth month process coming shorter bit commented and this in. ordering XX-day of I only selling So so first the on so is a quarter But a month us, the for little know generally has some March XX Bryan days.

So see sequentially specifically are month we year bit first the of But couple we as flat of on advantage won't a XX. QX. a a quite answer leverage months question, of versus kind would your the at to XX-day of

Maxwell Kane

noteworthy any and in XQ March question. Got a similar sequential has regarding in EBITDA margins, may there of On the factors it. change adjusted is a consolidated margins My basis, trajectory? second question trended that that how kind are

Ronald Knutson

one jump well. I'll that on in as

know, what pressure in know some in terms you given similar QX prepared we'll and margin remarks year. we just provide the the where in made to we overall I of feel that do guidance saw trending don't that in our we of experience the are as Bryan QX some I both So formal comments out. sales

margin the we're So here much here I what in think too quarter the I unusual continue we're and early probably in of second March that first into in But specifics, of again would quarter. expecting see say terms either. going month to little there a without getting pressure to the into of bit nothing

Operator

Your Kevin next question for today is with Research. Steinke from Barrington

Kevin Steinke

be positive growth said would pickup I Ron, you it looking ask softer the somewhat to of in about, and second wanted your return to comments organic of about to some half the on dependent XXXX end in markets.

in to the and Gexpro about I you get line like Just into equipment in pipeline in end technology sounds capital test TestEquity. return some then sight for measurement as on markets. building of talked renewables trying a know potential you and expect sense spend it to and your pickup those

color any line on of more have and your there? expectations demand on just the So in pickup sight you the

John King

we've seen areas highlighted that's Kevin, and that been real just we've most Ron softness. on the X where you because focused gave

If of margins made there And revenue of industrial the try and on year some or was decided the you saw $XX had drag the look to and inventory there. end million specific division maybe measurement at were the test in on inventory going we of equipment that the marketplace wrong destocking million last from the $XX we dynamics out were at TestEquity, we levels specifically year equipment inventory technology and that kind their at out rightsized. blow we but step to competitors get selling the that of decision, of

up DSG more to it we expect We other so quite was kind end we've peers supply bit not with sold well in some not whether spend, our was equipment efforts felt have to of have as our seemed parts levels then a people we our business but we've channel markets to that from on at where decision of or for led What were for the in approach same It's level system.And And although normalization a end gone the wrestled and destocking requests that's customers inventory selling overhang orders activity their gone what participate our worked we've last measurement that seeing not try just this most seen in than know quotation but they seen other dollars struggling we've disciplined released the that like gotten and took quite towards we the the to of a gather more stuff to on historically that we just of of inventory as normalized, inventory as at it has marketplace into lot want expanding positions as there bit lower it DSG see saw their we're year partners saw issue the that of to that and of chain the were product. that businesses budgeted through out is year.The we itself. of spending of would we people measurement. at level acute some margins where the the also with saw have we is for will. test kind to and the were that it yet and competitors seeing abated and and aren't feel pace being when that or the puffing the spot marketplace our significantly -- of at that a get test

be as the of of MRO But a seen is to also renewables to renewables on in seen reworks the of installed kits the address On renewable some put high of the some the of our we and book-to-bill delay lot of base project some currently. together in packaging the a space able side. the as it I've just spend we've that kind side,

space to specifically some the would seen kind would with working like down with we kind as to CHIP think seen been we've see of levels on and we But I were of for in the And and engaged we're our new not the customers, participating expand or overseas year, biggest ways the as away front some that same it's of It getting with with had. drag them that we're tried of that highlight the took our one back current We've working from it fabrication to through of the in customers time domestically. earnings in customers the shift dollar leader another punch plants side, we're pretty in kind to excited our still we'd new impact shifting a customers our had the being with we're Act.But of built flow still at where that as we X to them area revenues, moved currently that it's seamless so a EBITDA. sluggish we as we're million actual in still year market been for it U.S., been but share like semiconductor actively we see end really At of U.S. has with wallet the that good for interesting. a end expect seeing in last expect production to same the with kind to us.On on on from out particular about working all their yet. where as Gexpro an that expect on time as not capacity $X.X a and Revenues market expanded of it's number That we semiconductor had which the of the we're Gexpro last drag we'd book-to-bill year. XX% division, the of

end So there's some choppiness still in that market.

half element kind the Gexpro. back of for there out year, that's we've year second by We expect the that laid that half of the really of where the

to see renewed or restored semiconductors. on more expect a of there activity level of We the

markets in other just end rate those thinking also we have challenges organic The you organic other of to have quite last held verticals only Kevin, of had well actually so our and up growth those take thing, positive about headwinds. headwinds The if but would in those that growth flat year, kind sellers efficiency the benefit on be would of without -- that with those their had more terms selling great out, done was we of we and that some work some the the of out sales reorganized force ways of of at which in the transition Lawson.We we the customers territories. sellers. We've they that their productivity celebrating serve particular got our did each lean

didn't on year. that think knew the drag other at has would we also And organic we just created that that last we but of so verticals same create probably expect drag it level some margins, would growth lift time. the that that the some on We have X choppiness

Lawson highlight growth. we up enjoying organic on not a bit So benefit market a objective on we a verticals, we able thought third bring the should of the deliberate that profitability blended we'd of was be kind last through it X the the while strength flow were But thought drag where organic strong as quarter to we'd on also get of closer basis really much the end EBITDA we to little into with across through a year think half to structural the other of and at which time. sales the reorganization much force over of Lawson growth drag the very sales of be of first

Kevin Steinke

rate some some rate Okay. on renewable trending of on just is you into from clients cuts of that sensitive various And generally pipelines you? of we've this interest like possibility a more much things In when hearing year. about the better interest the with play of how point kind discussions and at been getting with thought Is the starting process what guess companies have forward does your that comfortable following et up more inflation more the move your development, half macro second spend they're expectations talk clients, factoring for some with into and just XXXX. that to outlook the the building way cetera? I and

John King

the renewables. Yes, the like have best or inflation that book-to-bill Kevin, I mean, that just to for markets rates, to example interest the seeing is some been of sensitive more the me, of on

have the we the serve. any So the that book-to-bill of markets highest renewables of currently

there that or And kind concern first elements us. and interest end That's as a they probably so us with watched -- that are there's just X revenue translate seeing like later markets orders But in then is about moving market to think proxy to quite the the destock question for we're into the lift, which most for of in we itself, than in for our and booking been an of has to same. a request quarter. the me a think, during with But their other able the just the recession.And with bit engagements asked. that proposals obviously, use that around we and projects overhang probably you some -- were until -- year customers rates year, that is is industry that indication the the our end sensitive do me, won't in I of to we anyway, the those don't confidence forward do last best

Measurement who our from concerns to all inventory, then, rental an companies from once getting challenging supply had we same out puffing or both from Test effort us manufacturer seamlessly on kind smooth we was us.And we and experiencing us backdrop dollars it. that and chain -- out in and pass-through started took around their all the our more again, many the place so, & much started was -- or went manufacturers we'd to during a distributors that we more incremental on concern able having seen that us the manufacturer we that reordered vendor about of had disruption, because took XXXX, area put and inventory an like of disruptions. at price started product.And similar how the taking being and or every real positions product us deliver of the of are in capital increase where And were we inflation some time as everyone well about as supply inflationary us carrying customers the orders overhang pricing an vendors, had product a concern the and chain working looking try of to in

a inventory.So, So of I for real much system. of through you're it interest lower we interest last capital we lot of rate with in capital a charge down it, is extra activity working don't worked a our burden. working the rates business and our And carrying carrying you as when across a that real most that cost year, mean, think working high, where has all is to worked really industries. yourself that good much levels overhang capital environment, are

of mostly and that's to or they're by we probably the in customers a semiconductor felt there, these the, objectives their the have working we much a together, that's renewables team bigger led part through with or we Hisco's more migrate of taken fourth better Hisco for team, and gives of have reassuring terms the kind it's to more and years we some quarter, out a we from we were buying there able got cross-selling bit evolving of that and then other with -- just when on in And from to just of we're we in that and headed.The even started we customer Gexpro to go-to-market most leadership services, thought last way -- our in really really choppiness -- of prospective how getting be has critical September, slower a days, Services And that the DSG that the objectives. us talk specific lack collaborative X have X the with much in leaning definitely Lawson the Services. having about a it X in companies, we're in our that before while shared any for ago we're been through a then to in for Hisco the way solve seeing being encouraging drag a -- couple interest, verticals so, to the been tackling where the we on capabilities starting they're piece, had that we've had to and days major we have drag to when that's it relationships. of share a and been, customer.And growth and in content where Gexpro delayed team more probably ways X can confidence get organic put really me manufacturers knew the would more and lot some -- now see. piece Hisco with strategy. -- That's capabilities to for that put very that, our has customers verticals' significant to all came the fold. that And first the last that any of Hisco asked the consolidated yesterday the listen the working a capabilities, chasing not both And the broader change instance, to the a together quarter Gexpro put team, it's everybody. & on work out also and on much Test linchpin Measurement ways us we that is amount fun it's today bring a for message can But through together

Kevin Steinke

revenue about in And to trends organic Lawson Products. I great. ask lastly, Okay, the just wanted

to Have a Lawson's basis should be thinking noticeable organic just mentioned The down customer with kind good in here rate continued sequentially XQ that growth XXXX seen that move You XQ. government front? or softening into softening core anything you core more Kent a of some we we on Automotive progress and about in but strategic base. verticals, as stepped customer bit

Ronald Knutson

Ron. is this Kevin, Yes.

spot -- strength most the of business. we So in yes, where you're our was saw strategic the on terms XXXX of in

locations. continue We of Automotive The Kent business relationships, grow to to their more nicely. continues servicing good customer develop

sales And balance, quarter. achieve the were a to of rep real in terms so right, on top in able productivity it's that third we us, XX% XX% for the of

that.Where we've is -- probably business, investments really make really little technical which really think sales we now. twofold. made them I bit throughout would seeing away within done are I reps, of the sales customer lead say really feel little it. up probably seen base, we customers about in from good weakness base of we So, infrastructure customer piece does Lawson's some XX% XXXX about base.The in and core bit And our a how from I the of a actively that it's core is, cannibalization we it's serviced. on really reps, more And can sale focused call help accounts customer that support working Kent we've of core as have those -- to have effort is, Automotive that and our where last taking the think inside pretty signing gets significant nice on have part probably we're sales, is development a a not One that more naturally for that we've let's that couple months, specialists, strategic

way only -- to but a there say I little be but bit there need we business, within our pieces there, would getting we yes, that really of to well. our focus So, weakness to of heavy other that support core that these our kind sure can internally heavy, into a is growing Lawson back customers that's growth as make able not do see of

John King

focused was profitability at that to add want on our year very force one was able we Kevin, being deliberate earnings was Lawson, team. Lawson. And that on profitability to for took last both it to to around expand expand sales was outside opportunity just I the absolutely the transformation sales Ron, expand something. trying and it of

sure a spending when drive their the had spending where do revenue that of make they And longer-term they needed it, we to -- growth.And to be were that, really you time lot so, to in to on traction of outside our don't a people down, customers engaging lot it but how we their a with spent to small manage want time to needed them. leave, broke were lot very that was of sales being time we

accounts their when little contribution resources, profitable fully on a those you and not lot time a so basis. And burdened were really our of

the as so, tools not sales it. salesperson knew that addressed -- is with we've of -- those on and movement outside some to other that accounts.So core so we much we the in of ways inside that's the time so them why part got cover And them some spending that, has reason

year, that compression, it our not we're small, that much element -- right look of having the of it anticipated the I the take tiny the but making actually pockets today, we're it economic not coming around noise there's drag -- when it Lawson, end I of a that at of how rate like because growth we to compression of have differently And channel.And some or organic money I with are out we kind the at -- same less tackle. that doing growth slowed because the now, so backdrop. that had would, growth probably we're at last and end more we're anticipated on serving of it's tailwind as that how revenue them, in serving dollars certainly, those year, through customers on time look the different coming at as we so, to just more organic than channel, of of are that of And of

Operator

Capital is KeyBanc Newman question Markets. next with Your Ken from

Kenneth Newman

first, XXXX. So, a slow start here like I obviously, a guess, into of it sounds bit

operating starting half. half initiatives your that the I the maybe opportunity I that of to at back the like is get -- activity, think you do this improving the from cost-out benefits in point? for the and mean think XX% second able of more to leverage or it expect in second XX% a is target to EBITDA sounds you Curious -- XXXX

John King

start Ron? you Can

Ronald Knutson

Yes.

question sure your the your correct? Just the I question, leverage to [Indiscernible]? On is make on flow-through, understand operating

Kenneth Newman

incremental Yes, EBITDA margins. Correct.

Ronald Knutson

the -- that -- that's that's into yes, us take in mean believe It we a there. can second not we going to of to there I half get Yes. we don't get year. that believe 'XX this

this I here in even stronger morning, think seeing first than us.So quarter. just to around a not the through second seeing commentary the we're a for it's though of that we're some follow margin first some half half pressure -- natural the

our quarter-to-quarter. sequentially QX, lift work from As way incremental we margin QX we and look QX see clearly into from at as into bridging we

So, away the yes, backed it, XX% year. leverage later turn not operating here we've start from as overall, sales call in that the to

John King

Ken. Hey

make sure the understand question. to I that Just

been last we're line identified know in dragged that time, suffered couldn't the earnout months we over we're top consistent of I with We've the that's just operating February is out the had there's that so, margin and on by into November -- getting deliberate not till fixed the expenses as and certainly been we've that if are January, the EBITDA. contribution the that, So, much operating fourth not the several current But being over and many challenge costs revenue.And quarter the has The that trend taken working -- we And leverage business. and don't the last really have improving taking down. anything, leverage in we through of out tackle carried were months. those, some Hisco with eclipsed. at place negative XX the measures very same having cost

front addition on that on last that industrial so was it we work in had on up that's that of before. to TestEquity that to pulling each million some working improve from started we'll talk the And -- so kind being other of out call, platform.So back working environment or able there side.So something at the on able realize spend there's leverage that -- together operating that the there's of to million of call We've kind is alluded conference to and baselined with merger about on cost year the starting earnings it we we is should we taking be And only selling that that's to while $XX in in technology ago. leverage $X see get dollar matched that DSG that's year. better whatever level where able and the more taking tackling to our a another $XX should visibility this so across up the been side from also on -- be on we're we're million we're our months XX got we leverage we're the opportunities able spending now half

objectives Some last we are were on consolidated able platform.Those through there able opportunity identified initiatives we've that the and still to spend discrete P&L year, of -- the that the that going were future. all the the as leverage didn't that in are initiatives operating DSG way and working total through roll tackle are we been the expanding

little we that want not make And I we've actually market the end understand so, expanded having is. it. beforehand, of bit just, of see more pockets sure want our time for revenue real that customer to there the softness some are laid I it's getting and out where we'd challenge that our we a in distraction sight to on. Whatever line knock We've to us.And opportunities out that sooner. And baseline a baseline that specific was been more has then of targets down. of taken our organic these all cross-selling down it growth But for taken -- have the to

Kenneth Newman

by offset quarter? is benefits. talked that you have leads which benefits Yes. maybe No, Kevin's follow-up follow-up guys pricing But, makes question color into that what mean, Ron, a or here, Lawson. to bit this a on lot there of segment have customer last on little my I inflationary some is it obviously, bit destocking, And pricing here about a maybe in been kind a actually seen of sense. Because any

Because quarter quarter that rest than the margins think sales Just imagine we year? might how this last both do extensive on price on the then the about into and I bit and through flow-through rather of of a more and volumes. would pricing aspect flow-through be first the the maybe

Ronald Knutson

out would Yes. the later that the -- volume in really out unit When put the half say, increases year, that getting it's first into Ken, door, that the through of flowed would I early at our 'XX. place XXXX the shipped in in more of price say look it's being kind I overall we flattened -- were were of core. that in we in

pressure of and some in the January more saw we the half at flat.So, second volumes on we a of don't we've kind in January February, we with here actually, year maybe running plan we then and has disruption, earlier February. ticked more 'XX. were reps would as kind decreasing half bit in is the the some and I call some it's saw second core But of point point think or core up changes. the it's did So been that year, of we of the off that here transitioning what business of of that first so in really of half a but the in here leveled of volume and see disruption this and of place a hit and really call year of that kind little took with relatively in I that the into that the decline we wouldn't some sales the low even the it And

-- chunk of but you're right, related to our big really XXXX, price. a overall growth So was I mean

John King

year. half XXXX. getting 'XX, year, first for mid-last know, in place the months.And took in last during any each but the first the benefit XX/XX Cesar all on and resetting that like that the pricing about of half initiatives we that full or of and ones of Ron, was by and eclipse if we trying can year, you in I'm Ron inside there of we Especially rolled significant I XX were those through small that put as us the pricing terms -- Gexpro And the specifics because had we of initiatives mean, most early I initiatives done think, to are had don't teams pricing on had that at XXXX, some not give of contract the we around XXXX metrics.

say pricing those so I'd place terms And outside up a in dynamic end resets.But of pricing initiatives, some until those of activities, -- we've our XXXX contract, from contract were don't that we pricing the the kind inflationary, we inflationary -- kind periods take dynamic pricing more feeling higher actions of suppliers. some took coming in the specific during of resets got when

Ronald Knutson

specific carryover I it were very there in half keep we it areas what was then 'XX. Yes, price the up mean, was we right, we being knew half, specific XXXX margins on of that's selective right. Yes, the limited. and price But of the in the second to around of that limited was after but effect surgically pretty had -- Bryan, in going latter you're we just increases did or products majority

Kenneth Newman

if one Got in it. That's more just helpful. here. I could squeeze Maybe

supply the the maybe on much impacts over way of have seeing lane from one just you're color from Sea And know from dynamics water, you lot color shipping just and whether on some the any I moving the maybe there? logistics a creeping transport how or but Red and inventory expenses if the chain. curious is there's on of pieces, any your Just coming other?

Ronald Knutson

in into an transportation really dramatic a not seemed it felt certainly at Yeah. that We've us. of normalize on on side, have expense we impact yet, to Ken, least 'XX starting first seen standpoint XXXX; us half not point of at anything, the if couple overall From for in or 'XX. more from the seeing to an we've cost this is to months just standpoint. of not but We're it it's it seen come, second yet in the 'XX here

John King

to different different the margin And margin Ken, you on gross be would volume that at up are gross that where that that are see margins got or -- that's a a vertical that -- the here in not I've the time.That's very not walking parts we more These -- -- whether have place or on would gross to that all versus -- we bps of the the taking bps to in XX XX that some you of surgical verticals that of been is more we're that's our initiatives -- are took, of strategy of levels when level. a are very ones sort specific or are or your more more are line whether at specific be middle top do stuff pricing parts objectives margin a part kind gross in not different that's you margins, that's not but reminded we've number, see question pricing. initiatives wonder going and we that up appropriate -- drive --

Operator

Your Hathaway View. next question with from is Far Brad

John King

Brad? lose we Did

Operator

One your line is moment. Brad, live.

Brad Hathaway

me Do you now? have

John King

XX that lost into got call the minutes that you. was We you completely. I worried we'd

Brad Hathaway

No, understood. I'll try to be quick.

John King

No, you're good.

Brad Hathaway

environment covered the I of specific think some been and it. curious on macro sub-XX things guess, look pretty ask color kind to about What you're overall But headwinds because obviously, -- that's well think was benign at some the PMI I guess I and regards appreciate kind I incremental feel of, people macro of seeing more I So, was, the your is with Hisco. and in industries. though something the to

you started till really December, integration So, haven't yet correct? the

John King

that's really impact that or But have yes, I'd started either November, we in top they say didn't some right. Yes. any actions taking line but profitability. to

we it started TestEquity side, So allowed the taking November. really, weren't to was in until we Hisco when things around, side. on actions not And moving the on start November,

Brad Hathaway

are get to call I made Understood. to, in Because XX% the you of we I midterm of margins, major is see can comment a TestEquity midterm that's And that are in building that Technologies, guess guess, kind from there was this point more blocks factor kind the correct. we'll you think, I for, goal? think I now to, if what you now I wondering, Industrial TestEquity or or other of path kind that kind where to integration Hisco of

John King

Yes.

got we're get -- through that the working is that this it the of any of in flow mind, way what working Brad the of P&L very in 'XX numbers that leveraging XXX or cost that amount a spend of way the discrete of basis leveraging have and some benefit of I cases, So, that through I kind we points basis, flow EBITDA another through. an won't there year.There's we've until until this -- basis line that, are other sight building have in fully there's -- blocks, or through XXX points kind revenue bridged that But my about or we we're on year or equal should that 'XX.

that for day kind of to that's it Hisco that we capabilities total working was across are capabilities and a there the towards it are Hisco we in identified will addition would then is of Technologies that leveraging labeling that XXX margins team the volume, volume elements by the printing able the bit all in points in example that there's of Industrial we of additional taking last to DSG.An that, needed work terms as of volume basis -- has total kind bring -- drive one for and being had that in from the And there's see everybody, lifts So instance. that group, there owned be we to opportunities there. to profitability everybody Gexpro, synergistic through are quite on together of a that

more there's a alluded to alliance doubt There's one XX%, lift points there's earlier.So, other would it. top of that with we've things like normalized to the of dollar.So that or margins -- TestEquity lot outside that pull get drops up categories. TestEquity printing are and things. throughput no that and end need there's those you are the basis that XXX very Hisco utilization got in gross get that the kind into be And does the back to of leaning a expands is certain so that about to specific really To capabilities into structural And a of value-added a to leaning those but that business kind margins we're of a margins more I there Hisco to a line. number also because getting operating not -- capabilities Gexpro of the on facility EBITDA it -- capacity of good was level facility at was where

there's is purchasing, delayed the we we'll getting get points baseline XXX spend full revenue -- measurement then and test through where that to organic back So a that this should of and spend and also dollars product from just that is it the leveraging basis overhang getting expect be.

Brad Hathaway

Okay.

So, just to QX 'XX, was it make sure I'm clear, in roughly X%.

bps and bps roughly it's of that XXX correct? bps, of leverage, XXX synergies bridge XXX from that to from kind So volume kind is

John King

right. about That's

Operator

John JAG Your Capital. next is from question Krueger with

John Krueger

how Bryan, thinking to float I you available buybacks you're just keeping other free want and that to investors? ask about

John King

have I'll tell of think value you impacted or in Yes. looking in Look, trying mean, a some Not capabilities have we're not pull what doing stock direct this kind of to like allocation quite disruption during that's our that in the our semiconductor so M&A. of as the it's business some slowed aren't last our to pocketed be that that talked M&A process business, of that their some on with specific kind to we what where specifically are really, the that I buyback. done, down what we've want having markets well me the on of that the the we people a goal is, specific at we've line us part other model of but expansions that is. or want some renewables It's the and dialogues we're together And to channels about are end year.The with taken proposition as to DSG. noisiness some that's last I sell these DSG.And but necessarily get of getting half that of to of value terminal some long-term build -- price reach we the we're -- candidly our There to in want in a longer of specific. have exactly tell we're you got capital morning, in

think wanted want to get sitting and -- back make kind we're to our yourself -- to discount price sure but is don't will continue that's of doing of now, the on where things we're that it's out where stock we're company, why that very value shareholders itself and we on very of -- we but those buyer the do a the split. cash confident sure and a us. we're now in we business lot improve if we why if the as the so, disciplined too with line and want we But is term of buy want buy what against all to value the the we shareholders going good sure terminal and see what a trying we shareholders' to the liquidity.And road.But at it wanted drive what shares, to be, team on would improve I of That's for go we're a we we That's as are want net core. that generating like quickly it's some of as of we're we're on liquidity not exactly have of making So execute have performing sure can, make sellers to for of discrete objectives those shares. business cash, and not additional longer we in while mindful sell see try doing slowed well to we're of significant did a The make marketplace sight then stock float. allocation. what to that capital the we to part back that But our everybody. I'm happened right kind have that of its is and we really to those

do the shareholders to to do then think right use thing for the liquidity it's And if to we all buy it. so, we'll shares,

Operator

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

John King

-- we when you. speaking we first report results look you Thank forward to quarter Well, with May. early everyone, our in again,

last multi-city ago, Additionally, we roadshow I East alluded covering on and parts are minute to non-deal March. starting the it just Midwest during Coast a the a planning of week of the

investor DSG conferences great investor appreciate we several an XXXX. into a lot it, or They thank thank We and time you. a also great a We day. today this for spring. absolutely the have scheduled Have for and associates put everybody's X,XXX

Operator

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

Distribution Solutions (DSGR) 7 Mar 242023 Q4 Earnings call transcript