Distribution Solutions Group (DSGR) Jefferies Global Industrial Conference summary

Strategic Overview and Business Model

• Combined three leading organizations two and a half years ago, now generating $1.8B in revenue, recently expanded with a $200M acquisition in Canada.

• Operates three verticals: MRO (Lawson Products), OEM (Gexpro Services), and industrial technology (TestEquity Group), each maintaining unique customer relationships and high-touch service models, serving over 180,000 customers in 40+ countries.

• Services over 180,000 customers across more than 10 end markets, with a highly diversified supplier base and no single supplier exceeding 6% of purchase volume.

• Customer retention rates exceed 92%, with Gexpro Services near 98% and Lawson above 90%, supporting long-term stability.

• Focuses on both organic growth and M&A, completing nine acquisitions in the past 2.5 years, including three in 2024 under the Lawson vertical, and targeting further expansion in North America and Europe.

Financial Performance and Growth Strategy

• EBITDA margins improved from 8% pre-merger to 10.3% in Q2, with trailing 12-month margin at 9.3%; Q2 EBITDA was $45M (10.3% of sales), up $9M from Q1, with margin expansion across all verticals.

• Q2 2024 revenue reached $439.5M, up 16.3% year-over-year, driven by recent acquisitions.

• Organic sales declined 5.7% year-over-year but grew 3.8% sequentially from Q1 2024, with margin expansion in all segments: Lawson (13.5%), TestEquity (7.8%), Gexpro (11.9%).

• Leverage reduced from 3.6x to 3.2x; credit facility expanded to $1.1B, with $270M available for further acquisitions and total liquidity at $235.8M.

• Targeting $3.3B in revenue and $450M EBITDA (13.5% margin) within four years, with half of growth from organic initiatives and half from M&A.

Market Trends and Operational Highlights

• Diverse end markets and customer base mitigate risk and support resilience during sector fluctuations.

• Recent end market weakness in tech and test/measurement is recovering, with sequential improvements in 2024 and growth in Renewables and Technology.

• Macro trends such as labor shortages, onshoring, infrastructure investment, and digitalization are driving demand for outsourced solutions and vendor-managed inventory.

• TestEquity margins are expected to recover to 10% by mid-2025 as integration with Hisco progresses.

• Free cash flow conversion is strong, supporting both organic growth and acquisition funding.