Distribution Solutions Group (DSGR) Baird 2024 Global Industrials Conference summary

Business Overview and Strategy

• Operates a $2 billion revenue specialty distribution platform with three verticals: MRO, OEM, and Industrial Technologies/electronic & specialty production supplies, each contributing significantly to sales and serving over 190,000 customers in 40+ countries.

• Completed 11 acquisitions in 2.5 years, adding $900 million in revenue, with a dual-pronged growth strategy focused on organic initiatives and 10 strategic acquisitions since 2022.

• Focuses on acquiring assets that accelerate returns on invested capital and EBITDA, with targeted cost takeouts and a disciplined capital allocation framework prioritizing reinvestment, deleveraging, and opportunistic buybacks.

• Maintains a strong balance sheet with $1.1 billion in credit facilities, $76M in cash, and $252M available under the revolving credit facility.

• Long-term, shareholder-aligned management with significant insider ownership, supported by an experienced board and LKCM Headwater's strategic backing.

Financial Performance and Targets

• Q3 2024 revenue reached $468.0M, up 6.6% year-over-year, with adjusted EBITDA of $49.1M (10.5% margin), and margin compression from recent acquisitions.

• Leverage remains stable at 3.7x, within the target range of 3–4x, with TTM free cash flow conversion at ~90% and TTM ROIC at ~10%.

• Five-year targets include growing revenue from $2 billion to $3.3 billion and increasing EBITDA margin to 13.5%, aiming for $450 million EBITDA.

• On track or ahead of the five-year plan, with operating leverage and margin expansion initiatives progressing.

• Recent acquisitions are expected to reach double-digit EBITDA margins by the end of 2025.

Sales Force Transformation and Productivity

• Overhauled sales force structure, reorganized territories, and implemented new technology tools, including CRM.

• Reduced time to profitability for new sales hires and improved productivity, with inside sales now serving smaller accounts more efficiently.

• Strategic accounts now represent 60% of revenue, with better coverage and less neglect of smaller accounts.

• Investments in sales support, business development, and field technical specialists have driven higher average daily sales with fewer resources.

• Service capabilities are being piloted to free up salespeople for broader account coverage.