Q4 2024 Distribution Solutions Group Inc Earnings Call

March 6, 2025

We are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to your host Steven Hooser.

You may begin.

Yeah.

Good morning, everyone and welcome to the distribution solution groups fourth quarter and full year 2024 earnings call. Joining me on the call are Dst's, Chairman and Chief Executive Officer, Bryan King and Executive Vice President and Chief Financial Officer, Ron can do them.

In conjunction with today's call. We have provided a financial results slide deck posted on the company's IR website at Investor <unk> distribution solutions group Dotcom.

Please note that statements made on this call and in today's press release contain forward looking statements concerning goals beliefs expectations strategies plans future operating results and underlying assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those described in addition statements made during this call are based on the company's views as of today.

The company anticipates that future developments may cause those views to change we may elect to update the forward looking statements made today, but disclaim any obligation to do so management will also refer to non-GAAP measures and reconciliations to the nearest GAAP measures can be found at the end of the earnings release. The earnings release issued earlier today was posted on the Investor Relations section of our website.

A copy of the release has also been included in a current report on form 8-K filed with the SEC. Lastly, this call is being webcast on the Internet via the distribution solutions group Investor page on the company website, a replay of the teleconference will be available through March 20th of 2025.

Speaker Change: With that I would now like to turn the call over to Bryan King Brian.

Bryan King: Thanks, Steven and good morning, everyone. Thank you all for joining us.

Bryan King: Let's start on slide four with a brief review of fiscal 2024, we ended the year with reported revenue of $1 8 billion up almost 15% primarily driven by a highly strategic acquisitions completed over the past 24 months Dsg's trailing 12 months total revenues, including pre acquisition revenues for <unk>.

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All periods during 2024, where approximately $195 billion.

Bryan King: Adjusted free cash flow defined as adjusted Reg G EBITDA less capex less working capital investments, including pre acquisition trailing 12 months results grew to $175 million.

See ya next time!

Bryan King: Head of the 2022 strategic merger, we disclose comparative DSG results for the combined fiscal 2021 pre merger results of adjusted revenue totaling $938 million and adjusted EBITDA of $75 million, which included 12 months of financial results for Lawson, Jess Pro services and test equity.

Bryan King: Comparing fiscal 2020 for the 2021 pre merger results for consolidated DSG, we have doubled dst's revenues and generated an incremental $100 million of adjusted EBITDA in three fiscal years unlocking some additional earnings leverage while making key strategic acquisitions for continuing to do.

Bryan King: Drive the value of our offering to our customers and our equity value for our shareholders, all while keeping leverage ratios flat.

Bryan King: Keep in mind that this expansion was made despite persistent macro headwinds throughout 2024 and much of 2023 across our business units and still in early innings of our internal initiatives to unlock is structurally more profitable and valuable platform from which we can use our accelerating cash flows.

Bryan King: To drive even more valuable growth well into the future.

Bryan King: Last year was challenging for our entire industry as evidenced by the manufacturing PMI remaining in contraction territory for all but one month during 2024 following market challenges that started across many of our end markets in 2023.

Speaker Change: The company anticipates that future developments may cause those views to change we may elect to update the forward looking statements made today, but disclaim any obligation to do so management will also refer to non-GAAP measures and reconciliations to the nearest GAAP measures can be found at the end of the earnings release. The earnings release issued earlier today was posted on the Investor Relations section of our website.

Bryan King: Notwithstanding these macro challenges we successfully expanded revenue during the year, both organically and by closing on five highly strategic acquisitions to selectively broaden our scale geographic footprint and customer base.

Speaker Change: A copy of the release has also been included in a current report on form 8-K filed with the SEC. Lastly, this call is being webcast on the Internet via the distribution solutions group Investor page on the company website, a replay of the teleconference will be available through March 20th of 2025.

Bryan King: We added valuable offerings by targeting key capability areas, where we strategically wanted more customer engagement and service capability and our product depth to drive our market position and financial return opportunities longer term, but by doing it in an accretive way through leveraging our well defined M&A resources and playbook.

Speaker Change: With that I would now like to turn the call over to Bryan King Brian.

Bryan King: Thanks, Steven and good morning, everyone. Thank you all for joining US let's start on slide four with a brief review of fiscal 2024. We ended the year with reported revenue of $1 8 billion up almost 15% primarily driven by a highly strategic acquisitions completed over the past 24 months DST is true.

Bryan King: As well as our collective resources lens on how our strategic objectives should be prioritized relative to the expansive actionable opportunity set we are constantly evaluating.

This past year, we acted on priorities through opportunities that allowed us to triple our safety product offering it Lawson by acquiring ESF expanded our test and measurement calibration services through the most recent <unk> acquisition balanced out our geographic footprint and expanded dramatically our customer engagements in Canada to leverage our.

Bryan King: Ailing 12 month total revenues, including pre acquisition revenues for all periods during 2024, where approximately $195 billion.

Bryan King: Adjusted free cash flow defined as adjusted Reg G EBITDA less capex less working capital investments, including pre acquisition trailing 12 months result grew to $175 million.

Bryan King: Large investment and Lawson and Kent <unk> sellers, there expanded our product and service offerings for our Kent BMI automotive customers and expanded the type of customers. We were best geared to serve with the SNS acquisition, and lastly address the high priority to drive high growth opportunities in southeast Asia being presented at <unk> service.

Bryan King: Head of the 2022 strategic merger, we disclose comparative DST results for the combined fiscal 2021 pre merger results of adjusted revenue totaling 938 million and adjusted EBITDA of $75 million, which included 12 months of financial results for Lawson, Jess Pro services and test equity.

Bryan King: Says by buying a small platform that we are now aggressively adding capabilities and geographic presence around in southeast Asia to address specific customer organic growth opportunities as we deploy the resources to develop the relationship with the sellers and accomplished closing in managing these acquisitions. We were also prioritized.

Bryan King: Comparing fiscal 2020 for the 2021 pre merger results for consolidated D. S. G. We have double D. S cheese revenues and generated an incremental $100 million of adjusted EBITDA in three fiscal years unlocking some additional earnings leverage while making key strategic acquisitions for continuing to drop.

Bryan King: <unk> recruiting internal and external talent and consultative resources to thoughtfully integrate or not while tackling a litany of key value accelerating internal initiatives.

Right the value of our offering to our customers and our equity value for our shareholders, all while keeping leverage ratios flat.

Bryan King: Some of which are so intense and transformative that they require margin contracting investments on the income statement similar to the capital outlay of an acquisition, but where those land on the balance sheet.

Bryan King: And we will take multiple years to really have the desired impact but at that point. We expect we will have a compounding effect to profitability and long term position in the marketplace and importantly to us as shareholders will be engine to drive our return on invested capital to structurally much higher levels.

Bryan King: To drive even more valuable growth well into the future.

Bryan King: Making acquisitions on the balance sheet and on the income statement require me to process. The noisiest creates to near term earnings ROIC and EBITDA margins, but as we pour analysis and emotions over and over on evaluating these projects and then commit to executing on them. We have tremendous confidence that each has an extremely <unk>.

Bryan King: Large net present economic value for us as shareholders as well as a real benefit to our customers and colleagues.

Bryan King: A big Thank you to all our teams that we're pushing hard on all of these initiatives while juggling all that they are doing to build the DSG of the future. They still demonstrated strong forward progress across those disciplined set of critical initiatives in each of our verticals, while collaborating with each other debated in allocated capital.

Bryan King: Engagement and service capability indoor product depth to drive our market position.

Bryan King: Actual return opportunities longer term, but by doing it in an accretive way through leveraging our well defined M&A resources and playbook as well as our collective resources lens on how our strategic objectives should be prioritized relative to the expansive actionable opportunity set we are constantly evaluating.

Bryan King: To buy key engines to drive long term free cash flow all while driving very strong current financial outcomes and a less forgiving backdrop around many of their end markets.

Bryan King: Like for many other ambitious and success driven leaders and the recent industrial marketplace. It was quite the fatiguing year for much of our team.

Bryan King: This past year, we acted on priorities through opportunities that allowed us to triple our safety product offering it Lawson by acquiring E. S. S expanded our test and measurement calibration services through the most recent Congress acquisition balanced out our geographic footprint and expanded dramatically our customer engagements in Canada to leverage our large.

Bryan King: <unk>.

Bryan King: We still have much to do but we're pleased with the progress toward our strategic goals and financial targets for 2024, we enjoyed 2020 for cash flows from operations of over $100 million before the <unk> retention payment and acquisition costs with market conditions, improving sequentially across most of our end markets during the second.

Bryan King: Investment in Lawson, and Kent, BMI sellers, there expanded our product and service offerings for our can't be M. I automotive customers and expanded the type of customers. We were best geared to serve with the SNS acquisition, and lastly addressed a high priority to drive high growth opportunities in South East Asia being presented ejects Pro services.

Bryan King: Half of 2024 and early in 2025, particularly within our OEM vertical we remain confident that DSG is very well positioned for record performance in 2025 has some of the most recent headwinds subside.

Bryan King: By buying a small platform that we are now aggressively adding capabilities and geographic presence around in southeast Asia to address specific customer organic growth opportunities as we deploy the resources to develop the relationship with the sellers and accomplished closing in managing these acquisitions. We are also prioritizing.

Speaker Change: As Ron will discuss in a moment, we continued to show excellent operational traction on initiatives within each of our operating units for the year that should improve earnings leverage for this year.

Speaker Change: Turning to slide five I will provide updates on some of our initiatives and outlook across our three business platforms.

Bryan King: Recruiting internal and external talent and consultative resources to thoughtfully integrate or not while tackling a litany of key value accelerating internal initiatives some of which are so intense and transformative that they require margin contracting investments on the income statement similar to the capital our outlay.

Speaker Change: Lawson products, we continue to focus on building a world class sales force and it's required a large investment of dollars as well as some commitment to choppiness in our earnings engine as we compressed our sales force during the overhaul of our sales tools and disciplines and now are back focused on growing the team with Likeminded additional sales resources.

Speaker Change: We are still in the early innings of this transformation, which is changing the 73 year history of that company. This.

Bryan King: Of an acquisition, but where those land on the balance sheet.

Bryan King: It will take multiple years to really have the desired impact but at that point. We expect we will have a compounding effect of profitability and long term position in the marketplace and importantly to us as shareholders will be engine to drive our return on invested capital to structurally much higher levels.

Speaker Change: This includes cultivating a strong culture that embraces tools and technology and providing more attractive incentives, mostly aligned around customer connectivity and sales growth for our employees.

Speaker Change: These initiatives in time will take loss into the next level of customer engagement growth and profitability.

Bryan King: Making acquisitions on the balance sheet and on the income statement require me to process. The noisiest of creates to near term earnings ROIC and EBITDA margins, but as we pour analysis and emotions over and over on evaluating these projects and then commit to executing on them, we have tremendous confidence that each has an extremely low.

Speaker Change: We fully implemented our Salesforce CRM last year and plan to go live with our completely rebuilt digital platform in the first quarter of this year.

Speaker Change: As discussed in Investor calls over the last 18 months, Washington, Salesforce initiative required EBITDA compression for 2024, as we invested in additional capabilities and selling tools and compensation as well as began the journey to fill well over 100, new territories as well as open territories.

Bryan King: Large net present economic value for us as shareholders as well as a real benefit to our customers and colleagues.

Bryan King: A big Thank you to all our teams that we're pushing hard on all these initiatives while juggling all that they are doing to build the DSG of the future. They still demonstrated strong forward progress across those discipline sets of critical initiatives in each of our verticals, while collaborating with each other debated in allocated capital.

Speaker Change: By prioritizing hiring new sales reps with a refined and improving lens on what capability sets will offer them. The greatest success with these new tools and capabilities and putting them in the right markets.

Speaker Change: This is vital to our long term growth plans as we position the right people to drive the right book of business with the right technology to produce long term strength and value in the marketplace.

Bryan King: To buy key engines to drive long term free cash flow all while driving very strong current financial outcomes in a less forgiving backdrop around many of their end markets like for many other ambitious and success driven leaders and the recent industrial marketplace. It was quite the fatiguing year for much of our team.

Speaker Change: From the 2022 announcement and through the compression needed to rework our tools in territories, we reduced our sales force team from about a 1020 to approximately 830 by mid 2024, which we've now grown back to approximately 920.

Thank you.

Speaker Change: We saw the increase rep retirement and turnover that took place as we announced the rolling out of a significant set of new tools, CRM and selling resources to support our field sales reps efforts to improve customer connectivity and coverage that initially took place in 2023 and the first half of 2024 subside.

Bryan King: 2024, and early in 2025, particularly within our OEM vertical we remain confident that DSG is very well positioned for a record performance in 2025 has some of the most recent headwinds subside.

Speaker Change: <unk> over the last five months.

Speaker Change: We are targeting to build up to 1000 sales reps by the second half of 2025, and an informed lands a better and more territories than we had defined prior to tackling this very transformative set of initiatives. We enjoy some exceptional loss in field sales representatives, but we knew we needed to build a more consistent experience to.

Bryan King: As Ron will discuss in a moment, we continued to show excellent operational traction on initiatives within each of our operating units for the year that should improve earnings leverage for this year.

Bryan King: Turning to slide five I will provide updates on some of our initiatives and outlook across our three business platforms.

Speaker Change: A recruit more to join them and its critically make sure that we enhanced all those loss and sellers ability to drive a better customer experience and for us to create better salesforce opportunities for future generation of top selling candidates, we hope to recruit and retain all of which should drive a high return on the significant investment.

Bryan King: Lawson products, we continue to focus on building a world class sales force and it's required a large investment of dollars as well as some commitment to choppiness in our earnings engine as we compressed our sales force during the overhaul of our sales tools and disciplines and now are back focused on growing the team with Likeminded additional sales resources.

Speaker Change: As sales productivity benefits and a larger sales force are in place as 2025 plays out.

Bryan King: We are still in the early innings of this transformation, which is changing the 73 year history of that company.

Speaker Change: But we made this investment that we believe has an exceptionally high net present value, but required near term pain that we're largely through where we all along we're not expecting the real benefits to more likely be fully realized not until 2026 and beyond.

Bryan King: This includes cultivating a strong culture that embraces tools and technology and providing more attractive incentives, mostly aligned around customer connectivity and sales growth for our employees.

Bryan King: These initiatives in time will take loss into the next level of customer engagement growth and profitability we fully.

Speaker Change: Other elements of the investments are we've enhanced our sales reps onboarding by improving recruitment training and leveraging collaborative technologies between sellers and continue to build and drive our predictive analytics tools out to the sales force and our customers to enhance everyone in the value channels efficiency.

Bryan King: Implemented our Salesforce CRM last year and plan to go live with our completely rebuilt digital platform in the first quarter of this year as discussed in Investor calls over the last 18 months loss in sales Force initiative required EBITA compression for 2024, as we invested in additional capabilities and selling tools.

Speaker Change: The Omnichannel platform of tools includes.

Speaker Change: And is centered around a large outside sales team, but now includes a nimble and resourceful inside team and expanded set of technical sales specialists and account service field sales support resources and now a robust digital customer interface platform that was expanded and enhancements.

Bryan King: And compensation as well as began the journey to fill well over 100, new territories as well as open territories by prioritizing hiring new sales reps with a refined and improving lands on what capability sets will offer them. The greatest success with these new tools and capabilities and putting them in the right markets.

Speaker Change: And is currently being rolled out that will further support our new and existing customers in whatever manner they prefer to engage.

Speaker Change: Additionally, we've invested and expanded customer acquisition and retention teams to enhance sales productivity and growth.

Bryan King: This is vital to our long term growth plans as we position the right people to drive the right book of business with the right technology to produce long term strength and value in the marketplace.

Speaker Change: For Lawson's core acquisitions completed in 2024, we are well underway and in most cases complete with integrating products from emergent safety supply into lawson's offerings, and combining SNS automotive with the Kent Automotive Division.

Bryan King: From the 2022 announcement and through the compression needed to rework our tools in territories, we reduced our sales force team from about 1020 to approximately 830 by mid 2024, which we've now grown back to approximately 920.

Speaker Change: Under our MRO focus for the Canada Branch Division.

Speaker Change: We are executing initiatives to integrate source Atlantic with our bolt supply house business across eastern and Western Canada.

Bryan King: We saw the increase rep retirement and turnover that took place as we announced the rolling out of a significant set of new tools, CRM and selling resources to support our field sales reps efforts to improve customer connectivity and coverage that initially took place in 2023 and the first half of 2024 subside APA.

Speaker Change: Notably, we recently hired Jared Janky as the Canada Division President Jarrett has a proven track record of transformational leadership implementing business strategies and building organizational capabilities through positive winning cultures Jarrod joined DSG. After 14 years of progressively larger leadership roles at applied industrial technologies.

Bryan King: <unk> over the last five months.

Bryan King: We are targeting to build up to 1000 sales reps by the second half of 2025, and an informed lands a better and more territories than we had defined prior to tackling this very transformative set of initiatives. We enjoy some exceptional loss in field sales representatives, but we knew we needed to build a more consistent experience to.

Speaker Change: <unk>. Most recently he was vice president of distribution responsible for $280 million of revenue by leading the sales and operations teams of 26 distribution facilities throughout Western Canada, as our New Canada Division President <unk> immediate priority is to align the leadership teams of source Atlantic and bolt.

Bryan King: Recruit more to join them and its critically make sure that we enhanced all those loss and sellers ability to drive a better customer experience and for us to create better salesforce opportunities for future generation of top selling candidates, we hope to recruit and retain all of which should drive a high return on the significant investment.

Speaker Change: To ensure collaboration and success of Dsg's growth strategy in Canada.

Speaker Change: Our Canadian branch division positions us as the leading wholesale distributor of MRO supplies safety products fasteners and services to the large and diverse Canadian markets.

Speaker Change: As we discussed last quarter, we signaled our expectation that this acquisition would compress our overall DSG margins at the same time, we continue to work to realize defined synergy opportunities. So this segment's fourth quarter EBITDA margins are no surprise.

Bryan King: As sales productivity benefits and a larger sales force are in place as 2025 plays out.

Bryan King: But we made this investment that we believe has an exceptionally high net present value, but required near term pain that we're largely through where we all along we're not expecting the real benefits to more likely be fully realized not until 2026 and beyond.

Speaker Change: We know that source Atlantic had a 50 basis point impact on <unk> consolidated margin profile in the fourth quarter.

Speaker Change: We are marching toward margin enhancements to return to double digit margins for the Canada branch business as we remember when we bought bolt supply house and it was a below 10% margin business. Also we are actively working on ERP integrations for the Canadian branch business and the consolidation of four separate branches will be completed by this summer.

Bryan King: Other elements of the investments are we've enhanced our sales reps onboarding by improving recruitment training and leveraging collaborative technologies between sellers and continue to build and drive our predictive analytics tools out to the sales force and our customers to enhance everyone in the value channels efficiency.

Speaker Change: We have excellent employees in Canada and are excited about some of the additional resources. We've recruited to join their team. We are excited about each of loss and three acquisitions in 2024, and how they address real strategic objectives, and together with Lawson and dsv's existing and improved capabilities together, we offer them a <unk>.

Bryan King: The Omnichannel platform of tools includes.

Bryan King: And is centered around a large outside sales team, but now includes a nimble and resourceful inside team and expanded set of technical sales specialists and account service field sales support resources and now a robust digital customer interface platform that with expanded enhancements.

Speaker Change: Stronger ability to drive enhanced profitability and revenue growth as we go into 2025 and through 2026.

Bryan King: And is currently being rolled out that will further support our new and existing customers in whatever manner they prefer to engage.

Speaker Change: One area of particular headwind for loss in during 2024 with our military business.

Bryan King: Additionally, we've invested and expanded customer acquisition and retention teams to enhance sales productivity and growth.

Speaker Change: For the full year of 2024 results military sales were down over 50%, placing significant pressure on loss since total sales and not explained at all by our deliberate compression initiatives or the weaker CPI. We all thought through as we've mentioned in previous calls a change in the military ordering and approval process drove the vast majority.

Bryan King: For Lawson's core acquisitions completed in 2024, we are well underway and in most cases complete with integrating products for me emergent safety supply into lawson's offerings, and combining SNS automotive with the Kent Automotive Division.

Bryan King: Under our MRO focus for the Canada Branch Division.

Speaker Change: Alrighty of this decline and it was decline that our customers are telling us did not largely get redirected elsewhere.

Bryan King: We are executing initiatives to integrate source Atlantic with our bolt supply house business across eastern and Western Canada.

Speaker Change: We do have open orders that have been carried over from 2024 and are beginning to be released and until the last six weeks. We were confident there will be an additional tailwind for the first half of 2025 for Lawson, but over the last six weeks, we are more subdued in our expectations about the pace of the military releasing these orders government has been half.

Bryan King: Notably, we recently hired Jared Janky as the Canada Division President Jared has a proven track record of transformational leadership implementing business strategies and building organizational capabilities through positive winning cultures Jarrod joined D. S. G. After 14 years of progressively larger leadership roles at applied industrial technologies.

Speaker Change: The drag on Lawson's revenue contraction for 2024.

Speaker Change: <unk>. Most recently he was vice president of distribution responsible for $280 million of revenue by leading the sales and operations teams of 26 distribution facilities throughout Western Canada, as our New Canada Division President Gerry <unk> immediate priority is to align the leadership teams of source Atlantic and bolt.

Speaker Change: <unk> Pro services, we drove sequentially higher quarterly sales for aerospace and defense technology and renewables in markets in the fourth quarter. As these end markets continue to rebound. These end markets also continued to grow sequentially from Q3 to Q4 and our activity in book to Bill continues to be strong in the first quarter.

Speaker Change: To ensure collaboration and success of <unk> growth strategy in Canada.

Speaker Change: As I look across our end markets at both sales and book to Bill <unk>.

Speaker Change: The C&I at about 11% of current average daily sales volume is the only area, where we're seeing more consistent cautionary book to bills and revenue trends.

Speaker Change: Our Canadian branch division positions us as the leading wholesale distributor of MRO supplies safety products fasteners and services to the large and diverse Canadian markets.

Speaker Change: In the aerospace and defense technology, and renewables verticals that collectively represent over half of our current daily sales volume continued to lead the momentum that <unk> services continues to enjoy.

Speaker Change: As we discussed last quarter, we signaled our expectation that this acquisition would compress our overall D. S. G margins at the same time, we continue to work to realize defined synergy opportunities. So this segment's fourth quarter EBITDA margins are no surprise.

Speaker Change: During the fourth quarter, we announced the acquisition of Tech component resources, providing us a platform to grow and expanding southeast Asia market.

Speaker Change: We know that source Atlantic had a 50 basis point impact on DST is consolidated margin profile in the fourth quarter.

Speaker Change: That acquisition, our Jets Pro services team has only become more encouraged by the growth available to us in those southeast Asian markets and are rapidly hiring talent and locking down our relationships with customers, who are enquiring about our ability to serve them as we concurrently add supporting locations.

Speaker Change: We are marching towards margin enhancements to returned to double digit margins for the Canada branch business as we remember when we bought bolt supply house and it was at or below 10% margin business. Also we are actively working on ERP integrations for the Canadian branch business and the consolidation of four separate branches will be completed by the summer.

Speaker Change: We are very pleased with the full year EBITDA margin expansion projects Pro services of 160 basis points in the fourth quarter expansion of 380 basis points, which was primarily driven by leveraging our fixed cost structure across growing in market our initiatives from 2023, and our acquisition from 2022.

Speaker Change: Yes.

Speaker Change: We have excellent employees in Canada and are excited about some of the additional resources. We've recruited to join their team. We're excited about each of loss and three acquisitions in 2024, and how they address real strategic objectives, and together with Lawson and dst's existing and improved capabilities together, we offer them a stronger ability to draw.

Speaker Change: <unk> significantly to the momentum in margin increase checks pro services is enjoying.

Speaker Change: Strategic initiatives not the least of which are our southeast Asia investment and a focus on investing in our commercial sales pipeline were implemented in 2024 to make investments and to recruit additional leadership talent to grow and scale as the leading global supply chain services and see parts provider to Oems. We also current.

Speaker Change: <unk> enhanced profitability and revenue growth as we go into 2025 and through 2026.

Speaker Change: One area of particular headwind for loss in during 2024 with our military business.

Speaker Change: We enjoy a strong winds around several additional accretive acquisition objectives, we hope to successfully addressed during 2025.

Speaker Change: At test equity group, our test and measurement business continues to show strong sequential momentum and across all nine of the vertical slices on the business. After two years of challenging end market backdrops, we're seeing indications through sales and bookings that all but our small European business appears to have stabilized.

Speaker Change: You already have this decline and it was decline that our customers are telling us did not largely get redirected elsewhere.

Speaker Change: We do have open orders that have been carried over from 2024 and are beginning to be released and until the last six weeks. We were confident there would be an additional tailwind for the first half of 2025 for Lawson, but over the last six weeks, we are more subdued in our expectations about the pace of the military releasing these orders government has been half.

Speaker Change: <unk> are improving.

Speaker Change: Core test <unk> measurement sales chambers, and rentals and refurb are experiencing positive growth rental utilization rates also grew by double digits in the fourth quarter of 2024.

Speaker Change: And market expansion aligns with improving aerospace and defense technology, and R&D results, which we believe tracks with our customers' 2025 budgets.

Speaker Change: The drag on Lawson's revenue contraction for 2024.

Speaker Change: His scope continues to face weaker sales in key supplier categories and while our order volumes remained steady the average order size has declined over the last two years during this contraction.

Speaker Change: As I look across our end markets in both sales and book to Bill the.

Speaker Change: The C&I at about 11% of current average daily sales volume is the only area, where we are seeing more consistent cautionary book to bills and revenue trends in the aerospace and defense technology and renewables verticals that collectively represent over half of our current daily sales volume continued to lead the momentum that Jack's pro services continues to enjoy.

Speaker Change: As we discussed late in 2024 bookings have continued to grow and this momentum continues into 2025, we expect increased bookings to translate to sales and the production supplies business, which includes Cisco having reworked our go to market strategy and sales force, bringing both sets of resources together on our production.

Sure.

Speaker Change: During the fourth quarter, we announced the acquisition of Tech component resources, providing us a platform to grow and expanding southeast Asia market since that acquisition. Our Jets Pro services team has only become more encouraged by the growth available to us in those southeast Asian markets and are rapidly hiring talent and locking down our relationships with customers who are enquiring.

Speaker Change: Apply effort the test equity and his teams and separating our technical resources around test and measurement sales and services has led to better accountability and customer coverage models. We are hearing confirmation from our key vendors that support this approach is being well received by customers and vendors alike, leading to confirm to market share.

Speaker Change: About our ability to serve them as we can currently add supporting locations we.

Speaker Change: <unk> and better channel partnerships.

Speaker Change: These efforts were disruptive over the last 18 months, but are now, allowing us to better our spending leverage better sales and technical coverage and have allowed for us to unlock key growth opportunities and renewed sales growth pipeline.

Speaker Change: We are very pleased with the full year EBITDA margin expansion projects Pro services of 160 basis points in the fourth quarter expansion of 380 basis points, which was primarily driven by leveraging our fixed cost structure across growing and markets are initiatives from 2023, and our acquisition from 2022.

Speaker Change: Customers appreciate test equities total value proposition, which provides a unique set of capabilities created by combining the products and services from each of the platforms. We brought together in this vertical test equity to equip and hits go as well as the key tuck in acquisitions, we've completed and several we are chasing where we can bring in structure.

Speaker Change: <unk> significantly to the momentum in margin increase Jets pro services is enjoying.

Speaker Change: Truly higher margin capabilities to leverage the total network. This vertical allows them.

Speaker Change: Finally, although we've taken out more cost and we identified when underwriting our acquisitions. We continue to look for additional optimization opportunities for the platform and have hired a vice president of integration to add additional leadership to test equity groups full integration efforts. This business intelligence is essential as we make strategic decisions about making.

Speaker Change: We enjoy a strong lands around several additional accretive acquisition objectives, we hope to successfully addressed during 2025.

Speaker Change: Significant improvements in our business moving forward and underwrite the next several tuck ins around how they will inform the total profitability acceleration and stabilization of the revenue in this vertical.

Speaker Change: At test equity or strategic direction will continue to revolve around expanding wallet share with customers driving repeatable business on the consumables and services side and optimizing digital selling capabilities to supplement and leverage our technical and field sales talent investment, we believe supply chain have mostly normalize for our key vendors and are.

Speaker Change: Or are improving.

Speaker Change: In market expansion aligns with improving aerospace and defense technology, and R&D results, which we believe tracks with our customers' 2025 budgets.

Speaker Change: <unk> by many of them wanting to expand collaboration with us to expand and grow our relationships. Although business remains choppy in some areas still we believe we are benefiting from our disciplined approach and improved platform across several strategic imperatives, we tackled over the last two years, we are optimistic that we will see sales and margin.

Speaker Change: We've seen some competition in the marketplace around customers as distributors and salespeople have predictably competed and shuffled less committed customers to keep volumes up during weaker backdrops as we discuss late in 2024 bookings have continued to grow and this momentum continues into 2025, we expect increase.

Speaker Change: Bill quickly as end markets return with that I'll turn it over to Ron to give a broader review of our financials Ron.

Ron: Thank you, Brian and good morning, everyone turning to slide six Dsg's consolidated revenue for the fourth quarter was $485 million.

Speaker Change: <unk> bookings to translate to sales and the production supplies business, which includes Cisco having reworked our go to market strategy and sales force, bringing both sets of resources together on our production supply effort. The test equity and his go teams and separating our technical resources around test and measurement sales and services has led to better account.

This represents an increase of $75 2 million or 18, 6%.

Ron: Primarily driven by 61 million from five acquisitions in 2024, along with organic sales growth of three 5% over the same quarter a year ago.

Speaker Change: Ability and customer coverage models, we are hearing confirmation from our key vendors that support this approach is being well received by customers and vendors alike, leading to confirm to market share gains and better channel partnerships. These.

Ron: I will provide average daily sales by operating segment in a few moments.

Ron: Fourth quarter sales grew sequentially compared to third quarter by two 7%. Despite three fewer selling days fueled by a full quarter of source Atlantic and two small acquisitions completed in the fourth quarter.

Ron: For the quarter, we generated adjusted EBITDA of $44 9 million or nine 3% of sales of 90 bps compared to last year's quarter.

Speaker Change: Customers appreciate test equities total value proposition, which provides a unique set of capabilities created by combining the products and services from each of the platforms. We've brought together in this vertical test equity to equip and his go as well as the key tuck in acquisitions, we've completed and several were chasing where we can bring in stroke.

Ron: The sequential compression from Q3 and consolidated margins of 120 bps was expected primarily due to margin pressure related to the sales force transition fewer selling days and the impact of source Atlantic and the Canadian branch for the quarter.

Speaker Change: <unk> higher margin capabilities to leverage the total network. This vertical allows them.

Ron: Excluding the impact of source Atlantic in the fourth quarter net margins were nine 9%.

Speaker Change: Finally, although we've taken out more cost than we identified when underwriting our acquisitions. We continue to look for additional optimization opportunities for the platform and have hired a vice president of integration to add additional leadership to test equity groups full integration efforts.

Ron: We reported operating income of $20 1 million for the quarter, including $12 6 million in acquisition related intangible amortization expenses and $4 7 million from acquisition related costs noncash stock compensation nonrecurring charges and other onetime.

Speaker Change: This business intelligence is essential as we make strategic decisions about making significant improvements in our business moving forward and underwrite. The next several tuck ins around how they will inform the total profitability acceleration and stabilization of the revenue in this vertical.

Ron: Items.

Ron: Adjusted operating income improved to $37 3 million or seven 8% of sales compared to $28 million or six 9% of sales in the prior year ago quarter.

Speaker Change: At test equity or strategic direction will continue to revolve around expanding wallet share with customers driving repeatable business on the consumables and services side and optimizing digital selling capabilities to supplement and leverage our technical and field sales talent investment, we believe supply chains have mostly normalize for our key vendors and are.

Ron: During the quarter, we generated cash flows from operations of approximately 46 million as compared to $28 million in the year ago quarter.

Ron: We reported a GAAP loss per diluted share of <unk> 55 for the quarter versus a GAAP loss per share of <unk> 35, a year ago.

Ron: Adjusted earnings per share of <unk> 42 cents for the quarter compares favorably to EPS of <unk> 37 cents in the third quarter and 22 cents in the year ago quarter.

Speaker Change: And as Bill quickly as end markets return with that I'll turn it over to Ron to give a broader review of our financials Ron.

Ron: Turning to slide seven I plan to discuss Q4 results and will not call out the full year highlights, but they are available on the slides for your reference.

Ron: Thank you, Brian and good morning, everyone turning to slide six ESG consolidated revenue for the fourth quarter was $485 million.

Ron: Starting with loss in Q4 sales were $111 8 million and average daily sales were up one 8% on acquired revenue.

Ron: This represents an increase of $75 2 million or 18, 6%.

Ron: Primarily driven by 61 million from five acquisitions in 2024, along with organic sales growth of three 5% over the same quarter a year ago.

Ron: Organic sales were down 10, 9% on a soft December lower rep counts and a decline in military sales.

Ron: I will provide average daily sales by operating segment in a few moments.

Ron: Rep count rebuilding efforts are well underway and progressing nicely as Brian highlighted net rep counts increase between Q3, and Q4, and we ended the quarter and year with approximately 900 field sales reps compared to a low point of approximately 830 at the end of the.

Ron: Fourth quarter sales grew sequentially compared to third quarter by two 7% despite three fewer selling days.

Ron: By a full quarter of source Atlantic and two small acquisitions completed in the fourth quarter.

Ron: Second quarter and 860 at the end of Q3.

Ron: For the quarter, we generated adjusted EBITDA of $44 9 million or nine 3% of sales.

Ron: As we've communicated on past calls new outside sales reps require a couple of years to ramp up but we continue to optimize the onboarding and the use of technology to advance the efforts in the short term.

Ron: 90 bps compared to last year's quarter.

Ron: For the quarter loss in reported adjusted EBITDA of $11 million or nine 8% of sales down from 11, 3% a year ago and 13, 1% in Q3.

Ron: Excluding the impact of source Atlantic in the fourth quarter net margins were nine 9%.

Ron: As expected fewer selling days slower military business and rep investments compressed our fourth quarter margins.

Ron: 2025 has started strong as we've realized sequential sales growth over Q4 levels and were back to double digit EBITDA margins for the month of January.

Ron: Turning to slide eight as mentioned last quarter, we added a new reporting segment that Canada Branch Division.

Ron: Items.

Ron: Adjusted operating income improved to $37 3 million or seven 8% of sales compared to $28 million or six 9% of sales in the prior year ago quarter.

Ron: Which combines the bolt supply house that was previously included in our other segment with source Atlantic as a separate segment.

Ron: Fourth quarter sales for this new candidates segments in U S dollars were 59 million, including $45 6 million from the source Atlantic acquisition that was closed during the third quarter.

Ron: During the quarter, we generated cash flows from operations of approximately 46 million as compared to $28 million in the year ago quarter.

Excluding the acquired revenue organic sales increased one 4% from the year ago quarter at bolt supply.

Ron: We reported a GAAP loss per diluted share of <unk> 55 for the quarter versus a GAAP loss per share of <unk> 35, a year ago.

Ron: Key operational initiatives are focused on acquisition integration, including pricing disciplines sales force optimization branch consolidation and cost management.

Ron: Adjusted earnings per share of <unk> 42 cents for the quarter compares favorably to an EPS of <unk> 37 cents in the third quarter and 22 cents in the year ago quarter.

Ron: Q4, adjusted EBITDA for the Canada branch segment in USD was $4 2 million or seven 2% of sales.

Ron: Turning to slide seven I plan to discuss Q4 results and will not call out the full year highlights, but they are available on the slides for your reference.

Ron: Excluding source Atlantic Q4, adjusted EBITDA for this segment would have been 14, 8% being bolt supply as compared to 12, 9% a year ago.

Ron: Starting with loss in Q4 sales were $111 8 million and average daily sales were up one 8% on acquired revenue.

Ron: Although we are in the early stages of integrating bolt supply and source Atlantic we continue to target double digit EBITDA margins for sources Atlantic driven by expected growth and the realization of planned synergies.

Ron: Organic sales were down 10, 9% on a soft December lower rep counts and a decline in military sales.

Ron: Rep count rebuilding efforts are well underway and progressing nicely as Brian highlighted.

Ron: Turning to <unk> services on slide nine fourth quarter revenue grew by 27, 4% from $93 2 million a year ago to $118 8 million, primarily from organic expansion with a nominal amount of acquired revenue.

Ron: Net rep counts increase between Q3, and Q4, and we ended the quarter and year with approximately 900 field sales reps compared to a low point of approximately 830 at the end of the second quarter and 860 at the end of Q3.

Ron: Total organic sales for the quarter were up $24 9 million or 26, 8% from the year ago quarter and up one 7% sequentially over Q3.

Ron: This growth came primarily from expanding our existing customer relationships and the strengthening of many of their end markets, including technology Aerospace and defense and renewables.

Ron: For the quarter loss in reported adjusted EBITDA of $11 million or nine 8% of sales down from 11, 3% a year ago and 13, 1% in Q3.

Ron: <unk> Services' adjusted EBITDA was $15 8 million or 13, 3% of sales up from nine 5% a year ago and compared to 14, 1% in the third quarter.

Ron: As expected fewer selling days slower military business and rep investments compress our fourth quarter margins.

Ron: <unk> 2025 has started strong as we've realized sequential sales growth over Q4 levels and were back to double digit EBITDA margins for the month of January.

Ron: Operating leverage continues to be strong and <unk> services continues to cross sell realized acquisition synergies with a growing book to bill as end markets strengthened compared to a year ago period.

Ron: Turning to slide eight as mentioned last quarter, we added a new reporting segment that Canada branch Division, which combines the bolt supply house that was previously included in our other segment with source Atlantic as a separate segment.

Speaker Change: Lastly, I will turn to test equity group on slide 10.

Speaker Change: Third quarter sales were $191 3 million with daily organic sales essentially flat compared to a year ago due to headwinds in the electronics assembly market or our consumables, causing softness in the electronic production supplies and market offset by.

Ron: Fourth quarter sales for this new candidates segments in U S dollars were 59 million, including $45 6 million from the source Atlantic acquisition that was closed during the third quarter.

Ron: Excluding the acquired revenue organic sales increased one 4% from the year ago quarter at bolt supply.

Speaker Change: <unk> and our test and measurement chambers and rental businesses.

Speaker Change: Test equities adjusted EBITDA for the quarter was $14 8 million or seven 8% of sales up from six 2% as a percent of sales in the prior year quarter, and also up 40 basis points compared to the third quarter.

Ron: Key operational initiatives are focused on acquisition integration, including pricing disciplines sales force optimization branch consolidation and cost management.

Ron: Q4, adjusted EBITDA for the Canada branch segment in USD was $4 2 million or seven 2% of sales.

Speaker Change: Moving to slide 11, our balance sheet remains strong we ended the quarter with approximately $473 million in networking capital and $335 million of liquidity, which includes $82 million of cash and cash equivalents and approximately $253 million under our.

Ron: Excluding source Atlantic Q4, adjusted EBITDA for this segment would have been 14, 8% being bolt supply as compared to 12, 9% a year ago.

Ron: Although we are in the early stages of integrating bolt supply and source Atlantic we continue to target double digit EBITDA margins for sources <unk> driven by expected growth and the realization of planned synergies.

Speaker Change: Existing credit facility.

Speaker Change: Debt leverage at the end of Q4 was three five times compared to three seven times at the end of Q3.

Speaker Change: Our targeted debt leverage remains in the range of three to four times.

Ron: Turning to Jackson services on slide nine.

Speaker Change: Net capital expenditures, including rental equipment were $3 4 million for the fourth quarter and $14 4 million for the full year.

Ron: Fourth quarter revenue grew by 27, 4% from $93 2 million a year ago to $118 8 million, primarily from organic expansion with a nominal amount of acquired revenue.

Speaker Change: We expect our 2025 net capex to be in the range of 20% to $25 million or approximately 1% of our revenues.

Ron: Total organic sales for the quarter were up $24 9 million or 26, 8% from the year ago quarter and up one 7% sequentially over Q3.

Speaker Change: We also realized a trailing 12 month cash flow conversion of approximately 100% defined as adjusted EBITDA less working capital investments less capex.

Speaker Change: <unk> and a ROIC.

Ron: This growth came primarily from expanding our existing customer relationships and the strengthening of many of their end markets, including technology Aerospace and defense and renewables.

Speaker Change: Of roughly 11% inclusive of our acquisitions.

Speaker Change: We expect that more mature distribution assets can generate ROIC levels in a range of 20% plus and.

Ron: <unk> Services' adjusted EBITDA was $15 8 million or 13, 3% of sales.

Speaker Change: And we remain focused on driving incrementally in that direction as we scale the assets that we currently own.

Ron: From nine 5% a year ago and compared to 14, 1% in the third quarter.

Speaker Change: Finally, as part of our capital allocation strategy, we opportunistically repurchased $2 6 million of stock.

Speaker Change: At an average price of $30 13 says during fiscal 2024.

Brian: I'll now turn the call back over to Brian.

Brian: Thank you Ron moving to slide 12, we've summarized progress on our 2024 initiatives, which Ron and I discussed in greater detail today, our management teams with strong collaboration from the Elk ACM headwater team continuously work to improve our customer intimacy and value proposition, our strategic direction objectives, but also straw.

Lastly, I will turn to test equity group on slide 10.

Ron: Third quarter sales were 191 3 million with daily organic sales essentially flat compared to a year ago due to headwinds in the electronics assembly market or our consumables.

Brian: I have to make our specialty distribution platform less complex for our investors to understand we manage the business embracing the tension around near term performance without sacrificing the more powerful opportunities that drive the longer term compounding objectives, we are committed to but it all comes back to driving profitability and return metrics higher and to drive sustain.

Ron: <unk> softness in the electronic production supplies and market.

Ron: All said by improvements in our test and measurement chambers and rental businesses.

Ron: Cash equities adjusted EBITDA for the quarter was $14 8 million or seven 8% of sales.

Brian: And accountability across a diverse set of complementary capabilities in each vertical and the collaboration and commitment of each leadership team around continuously working to help improve operational performance with a daily focus on driving profitability and capability enhancements that ultimately will compound our cash flow engine.

Ron: From six 2% as a percent of sales in the prior year quarter, and also up 40 basis points compared to the third quarter.

Ron: Moving to slide 11, our balance sheet remains strong we ended the quarter with approximately $473 million in networking capital and $335 million of liquidity, which includes $82 million of cash and cash equivalents and approximately $253 million under.

Brian: Our M&A playbook is vital to our long term growth strategy profitability enhancement objectives, and the real compounding engine. We are building in this framework set high goals for management's allocation of capital and the performance expected from that capital and capability allocation to enhance the compounding engine.

Ron: For our existing credit facility.

Ron: Debt leverage at the end of Q4 was three five times compared to three seven times at the end of Q3, our targeted debt leverage remains in the range of three to four times.

Brian: We and they are measured against our ability to convert that capital and defined opportunity into reality.

Brian: Our verticals compete for capital, but also collaborate on how to best maximize shareholder value and we deploy capital by ranking of the best and highest return on initiatives and acquisitions to accomplish those long term goals. All working on this business are enthusiastic about the reality of the opportunity as they are highly aligned with the shareholders and <unk>.

Ron: Net capital expenditures, including rental equipment were $3 4 million for the fourth quarter and $14 4 million for the full year.

Ron: We expect our 2025 net capex to be in the range of $20 million to $25 million or approximately 1% of our revenues.

Brian: Confident we have a clear path to generating a significant long term shareholder value creating engine.

Ron: We also realized a trailing 12 month cash flow conversion of approximately 100% defined as adjusted EBITDA less working capital investments less capex.

Brian: We are lapping 2024 organic sales softness and are comparing against easier sales comparisons over the next several quarters, so relative momentum feels good but on an absolute basis, we need to get back to a mid 2023 growth and earnings trajectory, which we are confident with a recovery in our end markets, we will be better positioned to earn more.

Resulting in a ROI see of roughly 11% inclusive of our acquisitions.

Ron: We expect a more mature distribution assets can generate rois sea levels in a range of 20% plus.

Brian: Sure Darrin.

Brian: The last months have not been without some uncertainty as to how our end markets and our own model should adjust to the new mandates from Washington.

Ron: And we remain focused on driving incrementally in that direction as we scale the assets that we currently own.

Brian: We are well positioned to enjoy a renaissance in domestic manufacturing concerning tariffs and the new administrations directives, including dose we are controlling the areas of our business that we can control and we will stay alert to necessary changes as things progress in 2025.

Ron: Finally, as part of our capital allocation strategy, we opportunistically repurchased two 6 million of stock at an average.

<unk> price of $30 13 says during fiscal 2024.

Brian: As the narrative and negotiations around tariffs with a handful of countries threatens to impact a very modest amount of our total direct and indirect procurement we reflect on history, where indicates that we've been able to work closely with our customers to offset these potential costs.

Brian: I'll now turn the call back over to Brian.

Brian: Thank you Ron moving to slide 12, we've summarized progress on our 'twenty 'twenty, four initiatives, which Ron and I discussed in greater detail today, our management teams with strong collaboration from the L. Casey headwater team continuously work to improve our customer intimacy and value proposition, our strategic direction objectives, but.

Brian: The U S. PMI numbers. This year in 2025 are turning over 50 for the first couple of months, which signals better expansion than we have seen in many quarters, given this and potentially lower regulatory and Doj deal interference. We believe companies will be spending more as they settle in with the new administration in 2024 pent up.

Brian: Also strive to make our specialty distribution platform less complex for our investors to understand we manage the business embracing the tension around near term performance without sacrificing the more powerful opportunities that drive the longer term compounding objectives, we are committed to but it all comes back to driving profitability and return metrics higher and the dry.

Brian: Demand will continue to create sales momentum for our platform in 2025.

Brian: Positive comparisons are demonstrated in <unk> services, and our test and measurement chambers and other equipment categories for test equity. We are seeing some end market improvement in loss and as well. This is a good start DSG enjoys a tremendous portfolio of end market diversification as well as diversification of where in that end market, we engaged with our.

Brian: Ive sustained accountability across a diverse set of complementary capabilities in each vertical and the collaboration and commitment of each leadership team around continuously working to help improve operational performance with a daily focus on driving profitability and capability enhancements that ultimately will compound our cash flow engine.

Brian: <unk> with value added services and products. So we're always preparing for choppiness in the demand environment for certain end markets. We are encouraged and know that other end markets will recover further if global tensions ease as expected this year in.

Our M&A playbook is vital to our long term growth strategy profitability enhancement objectives, and the real compounding engine. We are building in this framework set high goals for management's allocation of capital and the performance expected from that capital and capability allocation to enhance the compounding engine.

Brian: In closing thank you for your answers interest in DSG, we are fortunate to operate within a large combined addressable market across diverse end markets and the MRO OEM and industrial technologies areas that focus on specialty distribution categories that include products and services and generate significant cash flow through our collective efforts.

Brian: We and they are measured against our ability to convert that capital and defined opportunity and a reality or.

Brian: We also have a trusted proven track record of resiliency through business cycles that benefit from our asset light model and tight working capital management. Our teams leading these businesses and working with me on this business are exceptionally aligned with the shareholders. This business is built to generate significant free cash flow that provides us the flexibility to focus.

Brian: Confident we have a clear path to generating a significant long term shareholder value creating engine.

Brian: We are lapping 2024 organic sales softness in our comparing against easier sales comparisons over the next several quarters, so relative momentum feels good but on an absolute basis, we need to get back to a mid 2023 growth and earnings trajectory, which we are confident with a recovery in our end markets, we will be better positioned to earn more.

Brian: On the very best ways.

Brian: Officially reinvest at high expected returns to drive the compounding engine across this platform for all of us or to more directly explore ways to unlock a return capital to shareholders I want to thank our over 4400 dedicated employees for working hard to serve our over 200000 customers worldwide with excellence.

Speaker Change: Sure Darrin.

Speaker Change: The last months have not been without some uncertainty as to how our end markets and our own model should adjust to the new mandates from Washington.

Brian: Dedication and energy. Thank you I also want to thank our executive team and board for their ongoing support and encouragement my dozen or so LK seem headwater team members that are daily challenged by our executive team and me to dive into value unlocking initiative.

Speaker Change: We are well positioned to enjoy a renaissance in domestic manufacturing concerning tariffs and the new administrations directives, including dose we are controlling the areas of our business that we can control and we will stay alert to necessary changes as things progress in 2025.

Brian: And the confidence in patients of Dst's shareholders and my partners for investing alongside of us to grow and scale, our DST business in 2024, and 2025 and for many years to come with that operator, let's open the line for questions.

Speaker Change: As the narrative and negotiations around tariffs with a handful of countries threatens to impact a very modest amount of our total direct and indirect procurement we reflect on history, where indicates that we've been able to work closely with our customers to offset these potential costs.

Brian: Certainly at this time, we will be conducting a question and answer session.

Brian: If you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: The U S. PMI numbers. This year in 2025 are turning over 50 for the first couple of months, which signals better expansion than we have seen in many quarters, given this and potentially lower regulatory and D. O. G deal interference, we believe companies will be spending more as they settle in with the new administration in 'twenty 'twenty four pent up.

Brian: A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

Brian: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Speaker Change: Demand will continue to create sales momentum for our platform in 2025.

Speaker Change: Your first question for today is from Zack Marietta with Stephens.

Speaker Change: Positive comparisons are demonstrated in <unk> services, and our test and measurement chambers and other equipment categories for test equity. We are seeing some end market improvement in loss and as well. This is a good start DSG enjoys a tremendous portfolio of end market diversification as well as diversification of where in that end market we engaged.

Brian: Okay.

Zack Marietta: Good morning, and thanks wanted to ask my question.

Brian: Good morning.

Speaker Change: Is there any color you can share on quarter to date sales levels across ESG as compared to the end of Q4.

Zack Marietta: Yes, Zach you're asking about the first quarter correct.

Speaker Change: With our customers with value added services and products. So we're always preparing for choppiness in the demand environment for certain end markets. We are encouraged and know that other end markets will recover further if global tensions ease as expected this year and.

Speaker Change: Yes, Sir.

Speaker Change: Yes so.

Speaker Change: Yes, I think I mentioned this in some of them.

Speaker Change: The prepared remarks that Lawson has gotten off to.

Speaker Change: To a stronger start here in the first quarter.

Speaker Change: In closing thank you for your answers interest in D. S. G. We are fortunate to operate within a large combined addressable market across diverse end markets and the MRO OEM and industrial technologies areas that focus on specialty distribution categories that include products and services and generate significant cash flow through our collective efforts.

Speaker Change: If you if you exclude the acquisition certainly that came through in 2024, if you back that out of the out of the conversation here for a minute.

Speaker Change: Up versus I would say a year ago January February up also versus a year ago. All in on a consolidated basis, I'd say kind of a kind of flattish relative to.

Speaker Change: We also have a trusted proven track record of resiliency through business cycles, the benefit from our asset light model and tight working capital management. Our teams leading these businesses and working with me on this business are exceptionally aligned with the shareholders. This business is built to generate significant free cash flow that provides us the flexibility to focus on.

Speaker Change: Q4 trends into Q into the first couple of months of two.

Speaker Change: <unk> 2025.

Speaker Change: Great. Thank you for that and then also on a sequential basis, how have consolidated margins trended in Q1 versus Q4 and any noteworthy factors in March that may change that.

Speaker Change: And the very best ways.

Speaker Change: <unk> reinvest at high expected returns to drive the compounding engine across this platform for all of us or to more directly explore ways to unlock a return capital to shareholders I want to thank our over 4400 dedicated employees for working hard to serve our over 200000 customers worldwide with excellence.

Speaker Change: Yeah.

Speaker Change: Yes, I would say.

Speaker Change: Nothing really noteworthy in March.

Speaker Change: So.

Speaker Change: You know in February we're still working through getting everything finalized and so forth.

Speaker Change: Dedication and energy. Thank you I also want to thank our executive team and board for their ongoing support and encouragement my dozen or so L. KC I'm headwater team members that are daily challenged by our executive team and me to dive into value unlocking initiatives and the confidence in patients of DST shareholders and my partners for investing along.

Speaker Change: January again.

Speaker Change: I would say pretty consistent with what.

Speaker Change: Where we were in the fourth quarter from an overall margin perspective.

Speaker Change: What I would say is that.

Speaker Change: And Brian alluded to this a little bit in his comments as well as 2025 develops.

Speaker Change: Side of us to grow and scale, our DSD business in 2024, and 2025 and for many years to come with that operator, let's open the line for questions.

Speaker Change: Especially as we.

Speaker Change: Work continue to work on a lot of the synergies and opportunities within the acquisitions that we made in 2024. Our expectation is that is that the margin profile will lift as 2025 develop so.

Speaker Change: Certainly at this time, we will be conducting a question and answer session.

Speaker Change: You would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Speaker Change: Especially on the on the source Atlantic acquisition that we've made.

Speaker Change: And then also certainly with the with SNS that we made in 2024 as well so we're still I would say.

Speaker Change: Pretty early innings, especially around the source Atlantic acquisition, given the debt that took place in Q3 of last year and now that we have Jared in place star.

Speaker Change: Your first question for today is from Zack Marietta with Stephens.

Speaker Change: Starting to to just starting to see some realization there, but that will happen more in.

Speaker Change: Okay.

Speaker Change: In the second half of the year than the first half of the year.

Zack Marietta: Good morning, and thanks wanted to ask my question.

Speaker Change: Yes, let me just add a couple of things.

Speaker Change: Good morning.

Speaker Change: Is there any color you can share on quarter to date sales levels across ESG as compared to the end of Q4.

Speaker Change: Zach.

Zach: Thank you Ron.

Speaker Change: <unk> talked about at the beginning on sales momentum and he alluded to Lawson.

Zach: Yes, Zach you're asking about the first quarter correct.

Speaker Change: To kind of add colored tests equities vertical or expert services.

Speaker Change: Yes, Sir.

Speaker Change: Yeah. So.

Speaker Change: I did.

Speaker Change: Yes, I think I mentioned this in some of them.

Speaker Change: Both of US tried in our prepared remarks to indicate that book to bills and.

Speaker Change: The prepared remarks that the Lawson has gotten off to.

Revenue.

Speaker Change: To a stronger start here in the first quarter.

Speaker Change: Certainly on the technical services side and also in most of the categories.

Speaker Change: If you if you exclude the acquisition certainly they came through in 2024, if you back that out of the out of the conversation here for a minute.

Speaker Change: Certainly the capital asset categories of test equity hits.

Speaker Change: Continued to show good strength like we enjoyed in the fourth quarter March is an important month.

Speaker Change: Up versus I would say a year ago January February up also versus a year ago. All in on a consolidated basis, I'd say kind of a kind of flattish relative to <unk>.

Speaker Change: In the first quarter always so even though January and February are feeling.

Speaker Change: Relatively better both from a year ago, and the trend off of fourth quarter feels good.

Speaker Change: Q4 trends into into Q into the first couple of months of two.

Speaker Change: That doesn't mean that we have seen in March yet so.

Speaker Change: We're always respectful that we're not through the quarter yet.

Speaker Change: <unk> 2025.

Speaker Change: Great. Thank you for that and then also on a sequential basis, how have consolidated margins trended in Q1 versus Q4 and any noteworthy factors in March that may change that.

Speaker Change: Margins are critical.

Speaker Change: To us.

March will will influence.

Speaker Change: The final margins for the quarter.

Speaker Change: Regardless of how.

Speaker Change: Yeah, I would say.

Speaker Change: <unk> January and February might have felt.

Speaker Change: Nothing really noteworthy in March.

Speaker Change: Not a lot of areas that we are feeling are directionally softer, which we.

Speaker Change: So.

Speaker Change: You know in February we're still working through getting everything finalized and so forth.

Speaker Change: Called out military.

Speaker Change: There's kind of a big.

Speaker Change: Question Mark there in terms of when that revenue really starts flowing for us again.

Speaker Change: January again.

Speaker Change: I'd say pretty consistent with what.

Speaker Change: But the.

Speaker Change: Where we were in the fourth quarter from an overall margin perspective.

Speaker Change: The rest of the key end market areas other than C&I, which we called out field.

Speaker Change: What I would say is that.

Speaker Change: I feel like they're directionally heading the right direction in Mexico.

Speaker Change: And Brian alluded to this a little bit in his comments as well as 2025 develops.

Speaker Change: Got some choppiness still to it.

Speaker Change: We saw that in the first half of last year and it persisted during last year for his scale and.

Speaker Change: Especially as we.

Speaker Change: But it's not going to Directionally, it's it's stable to improving.

Speaker Change: Since the middle of last year.

Speaker Change: Great. Thanks for the color I'll turn it back.

Speaker Change: Especially on the on the source Atlantic acquisition that we've made.

Speaker Change: Your next question is from Kevin Spanky with.

Speaker Change: And then also certainly with the with FNF that we made in 2024 as well. So we're we're still I would say.

Speaker Change: Barrington research.

Kevin Spanky: Hey, good morning.

Pretty early innings, especially around the source Atlantic acquisition, given the debt that took place in Q3 of last year and now that we have Jared in place star.

Kevin Spanky: I wanted to ask about.

Kevin Spanky: Fourth quarter organic revenue growth.

Kevin Spanky: Of three 5%.

Kevin Spanky: And in your earnings release, you noted that was in line with expectations although.

Speaker Change: Starting to to just starting to see some realization there, but that'll happen more.

Kevin Spanky: Yeah.

Speaker Change: In the second half of the year than the first half of the year.

Kevin Spanky: Your previous conference call you had been talking about kind of a flattish outlook. So.

Speaker Change: Yeah, Let me, let me just add a couple of things.

Speaker Change: I was wondering if you felt like the.

Speaker Change: Zach.

Speaker Change: Thank you Ron.

Kevin Spanky: The organic sales trend was.

Speaker Change: Ron talked about at the beginning on sales momentum he alluded to Lawson.

Kevin Spanky: Bit of a positive surprise for you in the fourth quarter.

Speaker Change: To kind of add colored tests equities, a vertical or expert services I've tried to.

Kevin Spanky: Yes.

Kevin Spanky: Relative to.

Kevin Spanky: To improve.

Speaker Change: Both of US tried in our prepared remarks to indicate the book to bills and.

Kevin Spanky: The improvement in the end markets that you run.

Kevin Spanky: <unk>.

Kevin Spanky: Yes.

Speaker Change: Revenue.

Kevin Spanky: And Ron place some specifics on this but just to.

Speaker Change: Certainly on the services side and also in most of the categories.

Kevin Spanky: Kevin I would say that we we were respectful going into the fourth quarter certainly helped.

Speaker Change: Certainly the capital asset categories of test equity hits.

Speaker Change: Continued to show good strength.

Kevin Spanky: The fourth quarter can taper off we've had some tough December.

Speaker Change: We enjoyed in the fourth quarter March is an important month.

Speaker Change: In the first quarter always so even though January and February are feeling.

Kevin Spanky: Here's path.

Kevin Spanky: Around purchasing purchasing behavior.

Kevin Spanky: And what we ended up with was a it was a bit more firm fourth quarter that reflects kind of the way we feel about the first quarter.

Speaker Change: Relatively better both from a year ago, and the trend off of fourth quarter feels good.

Speaker Change: That doesn't mean that we have seen in March yet so.

Kevin Spanky: And.

Kevin Spanky: It flowed through two of the.

Speaker Change: We're always respectful that we're not through the quarter yet.

Kevin Spanky: The verticals.

Kevin Spanky: Levels that were kind of above.

Speaker Change: Margins are critical.

Kevin Spanky: Maybe where we had confidence to that.

Speaker Change: To us.

Speaker Change: March will will influence.

Kevin Spanky: Forecast.

Kevin Spanky: Or kind of message at the end of the third quarter and that was obviously the extra services vertical sustained.

Speaker Change: The final margins for the quarter.

Speaker Change: Regardless of how.

Speaker Change: Well January and February Merfeld.

Kevin Spanky: Sustained the momentum that.

Speaker Change: There's not a lot of areas that we are feeling are directionally softer, which I think.

Kevin Spanky: Sustaining the momentum thats been enjoying and.

And more of its end markets are cooperating then are not cooperating right now in those end markets are tough.

Speaker Change: We called out military.

Speaker Change: There's kind of a big you know.

Speaker Change: Question Mark there in terms of when that revenue really starts flowing for us again.

Speaker Change: But.

Kevin Spanky: A lot more of our of the revenue there then.

Speaker Change: The rest of the the key year end market areas other than C&I, which we called out.

Kevin Spanky: Ones that are softer.

Kevin Spanky: <unk> power.

Speaker Change: C&I are the two areas that we've got our eyes on I do think that the.

Speaker Change: I feel like they're directionally heading the right direction Mexico.

Speaker Change: Got some choppiness still to it.

Kevin Spanky: We've got a meaningful.

Speaker Change: We saw that in the first half of last year and it persisted during last year for his scale and.

Speaker Change: Sure.

Speaker Change: Exposure there are set of relationships.

Speaker Change: A bowl on electricity or power needs I think many of US are so that super cycle, We think will ultimately help us.

Speaker Change: But it's not going to Directionally, it's it's stable to improving.

Speaker Change: Since the middle of last year.

Speaker Change: And.

Speaker Change: Sure.

Speaker Change: Great. Thanks for the color I'll turn it back.

Speaker Change: And the other.

Speaker Change: Got some renewed.

Speaker Change: Customer.

Speaker Change: Opportunities there.

Speaker Change: Your next question is from Kevin Spanky with Barrington Research.

Speaker Change: Test and measurement side of the business.

Speaker Change: We saw indications we spoke towards book to Bill our order flow being positive I think in the third quarter conference call there, but it started to translate into the dollars.

Kevin Spanky: Hey, good morning.

Kevin Spanky:

Kevin Spanky: I wanted to ask about the <unk>.

Kevin Spanky: Fourth quarter organic revenue growth.

Speaker Change: More during the fourth quarter, we still have a few areas, where we're working through filling orders but.

Kevin Spanky: Of three 5%.

Kevin Spanky: In your earnings release, you noted that was in line with expectations although.

Speaker Change: Yeah.

Speaker Change: But.

Kevin Spanky: You know on your your previous conference call you had been talking about kind of a flattish outlook. So.

The revenue side of the equation there is starting.

Speaker Change: To feel better.

Speaker Change: We've got a lot of operating leverage in both of those two business models.

Kevin Spanky: I was wondering if you felt like.

Speaker Change: The acquisitions that we've done at <unk> services, there are really help.

Kevin Spanky: The organic sales trend was.

Bit of a positive surprise for you in the fourth quarter.

Speaker Change: Helping the total margin profile of the business, that's part of our deliberate objective to add some specifics.

Kevin Spanky: Hum.

Kevin Spanky: Yeah, just just a relative to.

Speaker Change: Capabilities that are higher value add.

Kevin Spanky: To improve.

Kevin Spanky: The improvement in the end markets that are that you referenced.

Speaker Change: Boy the margin profile of these businesses higher over time, but we've got to get the footprint right, which is why you've seen us do some things that.

Kevin Spanky: Yeah I mean.

Speaker Change: And Grandpa has some.

Speaker Change: Some specifics on that but.

Speaker Change: May require us to.

Speaker Change: Just two.

Speaker Change: <unk>.

Kevin Spanky: Kevin I would say that we we were respectful going into the fourth quarter certainly helped.

Speaker Change: Areas like sports Atlantic, where we start off with a lower margin.

Speaker Change: Sure, we can kind of try and work it work at higher.

Speaker Change: So I don't know if thats helpful or not.

Kevin Spanky: The fourth quarter can taper off we've had some tough decembers and in years past around.

Speaker Change: No. It definitely is yes. Thanks, thanks for all the additional color.

Kevin Spanky: Around purchasing purchasing behavior.

Kevin Spanky: And what we ended up with was a was a bit more firm fourth quarter that reflects kind of the way we feel about the first quarter.

Speaker Change: I wanted to also ask about <unk>.

Speaker Change: Lawson and.

Speaker Change: The the margin trajectory there.

Kevin Spanky: And that.

Speaker Change: You noted that.

Kevin Spanky: It flowed through to the.

Speaker Change: First quarter has started off pretty pretty well with.

Kevin Spanky: The verticals.

Kevin Spanky: Levels that were kind of above.

Speaker Change: Getting back to a double digit margin in a bit more sales momentum there.

Kevin Spanky: Maybe where we had confidence to that.

Kevin Spanky: <unk> forecast.

Kevin Spanky: Or kind of message at the end of the third quarter and that was you know obviously the extra services vertical sustained.

Speaker Change: Just as we think of the progression of margins for losses as we move throughout 2025, you said, you're kind of past the near term pain in the.

Kevin Spanky: Sustaining the momentum that it is it is sustaining the momentum it has been enjoying.

Speaker Change: The sales force initiatives, but at the same time, you're also I guess, we will have some.

Kevin Spanky: And.

Kevin Spanky: And more of its end markets are cooperating.

Speaker Change: Compression from ramping up that sales force and also the.

Kevin Spanky: Not cooperating right now and those those end markets are tough.

Speaker Change: Continued softer military sales so I'm just trying to think about how all of those factors.

A lot more of our of the revenue there than the ones that are softer.

Speaker Change: Yes.

Speaker Change: Margin also for logs.

Kevin Spanky: <unk> power.

So it really super fair in an area that.

Kevin Spanky: C&I are the two areas that we've got our eyes on I do think that the.

Speaker Change: All of us.

Speaker Change: Acutely focused on.

Kevin Spanky: We've got a meaningful.

Speaker Change: The law sudden.

Kevin Spanky: <unk>.

Speaker Change: We got the benefit of some margin lift.

Kevin Spanky: Exposure there are set of relationships.

Speaker Change: In 2020.

Kevin Spanky: A bowl on electricity or power needs I think many of US are so that super cycle, We think will ultimately help us.

Speaker Change: <unk> I guess it was.

Speaker Change: As our compression started but our sales momentum was still.

Speaker Change: We're still enjoying good relative momentum there.

Kevin Spanky: And.

Kevin Spanky: Yes.

Kevin Spanky: And the other and we've got some renewed.

Speaker Change: And then the markets turned tougher our government business turned a lot tougher last year and we also had a lot less feet on the street selling for us as we.

Kevin Spanky: Customer.

Kevin Spanky: <unk> there.

Kevin Spanky: Test and measurement side of the business.

Kevin Spanky: We saw indications we spoke towards book to Bill our order flow being positive I think in the third quarter conference call there, but it started to translate into the dollars.

Speaker Change: Went through the compression cycle and what I tried to highlight in my prepared remarks is the significant amount of dollars that we committed to this salesforce.

Kevin Spanky: More during the fourth quarter, we still had a few areas, where we're working through filling orders.

Speaker Change: Resources.

Speaker Change: Significant investment in sales force resources that we put into the Watson team over the last 18 months and so we knew that we were putting over $10 million of investment back into the business.

Kevin Spanky: Yeah.

Kevin Spanky: But.

Kevin Spanky: The revenue side of the equation, they're starting to.

Kevin Spanky: To feel better.

Kevin Spanky: We've got a lot of operating leverage in both of those two business models.

On the income statement.

Speaker Change: And then if you think about also the hiring.

Kevin Spanky: The acquisitions that we've done at <unk> services, there are really help.

Speaker Change: <unk> capabilities are I mean.

Kevin Spanky: Helping the total margin profile of the business, that's part of our deliberate objective to add some specific U K.

Speaker Change: Hiring with more feet on the street.

The 100 sellers for us typically costs about $5 million in the first year that we've got them.

Kevin Spanky: Capabilities that are of higher value add the boiler.

Kevin Spanky: Boy the margin profile of these businesses higher over time, but we've got to get the footprint right, which is why you've seen us do some things that.

Speaker Change: And so that was.

Speaker Change: Our real investment that we.

Speaker Change: Started staging through last year, and we are planning on our staging more of that through this year.

Kevin Spanky: May require us to.

Kevin Spanky: Areas like sports Atlantic, where we start off with a lower margin.

Speaker Change: So that that number kind of straddles the year some.

Kevin Spanky: Before we can kind of try and work it work at higher.

Speaker Change: But we.

Speaker Change: Benefit of it is that we are starting to see some better productivity.

Kevin Spanky: So that's I don't know if that's helpful or not.

Speaker Change: No. It definitely is yeah. Thanks, thanks for all the additional color.

Speaker Change: And get some lift out of the first wave of sellers that we've hired and then the other challenge that Washington has always had has been turnover and we've been talking about this as long as long before I went on the board of Lawson.

Kevin Spanky: I wanted to also ask about <unk>.

Lawson and.

Kevin Spanky: The the margin trajectory there.

Speaker Change: But the real cost of having <unk>.

Kevin Spanky: You noted that the first quarter has started off pretty pretty well with.

Speaker Change: Over 20% of your sales force.

Kevin Spanky: Getting back to a double digit margin in a bit more sales momentum there.

Speaker Change: Turnover every year, which is the historic numbers metrics are in excess of that for loss in over the last decade, and so seeing that trend down over the last five months.

Kevin Spanky: You know just as we think of the progression of margins for losses as we move throughout 2025, you said you were kind of past the near term pain in the.

That should help.

Speaker Change: The margin because it has been.

Kevin Spanky: Our sales force initiatives, but at the same time, you're also I guess, we will have some.

Speaker Change: Our estimation, it's been in over $20 million EBITDA drag a year of kind of trying to manage through that that salesforce turnover.

Kevin Spanky: Compression from ramping up that sales force and also the.

Speaker Change: Many of the tools that we're adding.

Kevin Spanky: Continued softer military sales I'm, just trying to think about how all those factors.

Speaker Change: And the capabilities that we've added have been tried buffer that drag that you have when you do have turnover.

Kevin Spanky: Yeah.

Kevin Spanky: Margin also for Lawson.

Kevin Spanky: It really super fair in an area that.

Speaker Change: Or to try and figure out how to shorten that.

Kevin Spanky: All of us here.

Speaker Change: The lead time before your Salesforce hits profitability.

Acutely focused on.

Kevin Spanky: You know the law sudden.

Speaker Change: Or is it productive for you.

Kevin Spanky: We got the benefit of some margin lift there.

Speaker Change: So that J curve gets cut and then also try to make sure that our territories are more profitable on day, one or at least stay scoped.

Kevin Spanky: 2020.

Speaker Change: Three I guess it was.

Speaker Change: As our compression started but our sales momentum was still there.

Speaker Change: Scoped.

Speaker Change: More attractive territory size. So all of those should add too we think not only getting us back to the levels of profitability that we enjoyed when we were starting to compression and still having.

Speaker Change: We're still enjoying good relative momentum there.

Speaker Change: And then the markets turned tougher our government business turned a lot tougher last year and we also had a lot less feet on the street selling for us as we are.

Speaker Change: End market momentum.

Speaker Change: But to higher levels than that even which I've alluded to is our primary long term objective of loss in which to get it up into the high teens and higher.

Speaker Change: Went through the compression cycle and you know what I tried to highlight in my prepared remarks is the significant amount of dollars that we committed to this sales force.

Speaker Change: We don't know, we don't think that thats going to happen.

Speaker Change: Overnight, it's not a dramatic move we do think we'll see good progression there this year.

Speaker Change: Resources.

Speaker Change: Significant investment in sales force resources that we put into Lawson team over the last 18 months and so we knew that we were putting over $10 million of investment back into the business.

Speaker Change: But it's going to take a couple of years to really get that back to the levels that we enjoyed probably at 2022. It also is going to take just end markets being more firm.

Speaker Change: On the income statement.

Speaker Change: And then if you think about also the hiring of capabilities.

Ron: Ron is there are elements that I Miss there.

Speaker Change: I think you hit it Brian, especially around the rep turnover when we when we look at what we call impacted revenues.

Speaker Change: Hiring with more feet on the street.

Speaker Change: The 100 sellers for us typically costs about $5 million in the first year that we've got them.

Speaker Change: From the Rep turnover more of that.

And so that was.

Speaker Change: Our real investment that we saw.

Speaker Change: We've seen some some positive movement here as Brian mentioned over the last three to four months in terms of those dollars being back in where.

Speaker Change: Started staging through last year.

Speaker Change: And we were planning on or our staging more of that through this year.

Speaker Change: So that that number kind of straddles the year some.

Speaker Change: We were back in call. It 2022 2023, when we started the compression we did see a speak and again those impacted revenues that are connected to a sales rep.

Speaker Change: But we.

Speaker Change: Benefit of it is that we are starting to see some better productivity.

Speaker Change: And get some lift out of the first wave of sellers that we've hired and then the other challenge that Watson has always had has been turnover and we've been talking about this as long as long before I went on the board of Lawson.

Speaker Change: Continue to get.

Speaker Change: Progressively better throughout 2024, and then the last few months.

Speaker Change: As seen as seen.

Speaker Change: <unk> improvement versus where we're at in the last couple of years, so that that plus.

Speaker Change: But the real cost of having.

Speaker Change: Being at call it 920 sales reps today.

Speaker Change: Over 20% of your sales force.

Speaker Change: Our low point in 2024 was about about 830 at the end of the second quarter. So having 90 more individuals on the street now certainly help us in that <unk> number, which as you know we can drop.

Speaker Change: Turnover every year, which is the historic numbers metrics are in excess of that for loss in over the last decade, and so seeing that trend down over the last five months is something that should help.

Speaker Change: The margin because it has been in months RF.

Speaker Change: 30% to 40 cents of every incremental sales dollar into losses EBITDA line. So.

Speaker Change: Our estimation extending over $20 million EBITDA drag a year of kind of trying to manage through that that salesforce turnover. Many of the tools that we're adding.

Speaker Change: And then certainly building net out to 1000 sales reps here by the second half of 2025 so.

Speaker Change: And the capabilities that we've added have been to try to buffer that drag that you have when you do have turnover.

Speaker Change: Still some investments to be made relative to the sales reps, but we're excited about a lot of the areas and a lot of the data that we're now receiving through our CRM tool and then also the rollout of our new website, which will take place here.

Speaker Change: Or to try and figure out how to shorten the lead time before your Salesforce hits profitability.

Speaker Change: Or is productive for you.

Speaker Change: Later, yet here in the first quarter and we think that those are our two areas that really can help the productivity of our reps.

Speaker Change: So that that J curve gets cut and then also try to make sure that our territories are more profitable on day, one or at least escape scoped.

Speaker Change: Okay great.

Speaker Change: At a more attractive territory size. So all of those should add too we think not only getting us back to the levels of profitability that we enjoyed when we were starting to compression and still having.

Speaker Change: Helpful.

Speaker Change: Sure.

Speaker Change: I also wanted to ask with regard to loss.

Speaker Change: So there are some positive.

Speaker Change: Signs initially around the military orders, but no.

Speaker Change: And market momentum.

Speaker Change: Outlook is a little more subdued is just how do you think about that as the.

Speaker Change: But to higher levels than that even which I've alluded to is our primary <unk>.

Speaker Change: And your progress because it probably accept mcdevitt for bolt.

Speaker Change: Long term objective of law said, which is to get it up into the high teens and higher.

Speaker Change: Point, but.

Speaker Change: We don't know, we don't think that that's going to happen.

Speaker Change: I'd call it.

Speaker Change: <unk>.

Speaker Change: Overnight, it's not a dramatic move we do think we'll see good progression. There this year, but it's going to take a couple of years to really get that back to the levels that we enjoyed probably in 2022. It also is going to take just end markets being more firm.

Speaker Change: Any government spent anything tied to government spending federal government spending or military.

Speaker Change: Specifically right now has been an Enigma it was an Enigma for me as they change their ordering.

Speaker Change: Program, if you will or the way the way that you had to be on their federal supply schedule last year in it.

Ron Lawson: Ron is there are elements that I missed there.

Speaker Change: Some of the bunch of the kits that we.

Ron Lawson: I think you hit it Brian and especially around the rep turnover when we when we look at what we call impacted revenues.

Speaker Change: MRO kits that we put together for them.

Speaker Change: Keep it equipment up and running.

Speaker Change: Got those orders got held.

Speaker Change: So.

Ron Lawson: From the Rep turnover more of that.

Speaker Change: I just hope that all of our equipment is running out there I'm more worried about the military that I am worried about her about our revenue associated with it although I guess I'm worried about both of them.

Ron Lawson: We've seen some some positive movement here as Brian mentioned over the last three to four months in terms of those dollars being back in.

Speaker Change: The.

Speaker Change: We're hearing that those orders or had been held they went through a process. If you will and then we started to see.

Ron Lawson: We were back in call it 2022.

Ron Lawson: 23, when we started the compression we did see a speak and again those impacted revenues that are connected to a sales rep.

Speaker Change: And here that those orders are going to be released and then there has been a more austere.

Ron Lawson: <unk> continued to get <unk>.

Speaker Change: Element of force in Washington.

Ron Lawson: Progressively better throughout 2024, and then the last few months.

Speaker Change: Drive.

Ron Lawson: As seen as Gino.

Speaker Change: Holding down spending and so I don't know whether or not it is holding down or delay at this point, but.

Ron Lawson: Marked improvement versus where we were in the last couple of years, so that that plus.

Speaker Change: We're just being subdued in our expectation on when those dollars are going to get relates to us and so that could create some noise in this.

Ron Lawson: Being at call it 920 sales reps today.

Ron Lawson: Our low point in 2024 was about about 830 at the end of the second quarter. So having 90 more individuals on the street now certainly help us in that <unk> number, which as you know we we can drop.

Speaker Change: It we said, it's a big number when you look at our total.

Speaker Change: Revenue that was down in the fourth quarter or.

Speaker Change: The drag that we had for all of last year.

Speaker Change: Federal government spending lines, we won some contracts last year on local and state.

Ron Lawson: 30% to 40 cents of every incremental sales dollar into losses EBITDA line. So.

Speaker Change: So we had some benefits that.

Ron Lawson: And that is certainly building that out.

Speaker Change: We expect to flow through this year on organically growing our government business, but it's all at the local and state level.

Ron Lawson: 1000 sales reps here by the second half of 2025 so.

Ron Lawson: Still some investments to be made relative to the sales reps, but we're excited about a lot of the areas and a lot of the data that we're now receiving through our CRM tool and then also the rollout of our new website, which will take place here.

Speaker Change: And then we had these federal relationships.

Speaker Change: We're well over were down well over 50% I mean, I think our military was down 75% or something.

Speaker Change: Crazy in the fourth quarter and so.

Ron Lawson: Later, yet here in the first quarter and we think that those are our two areas that really can help the productivity of our reps.

Speaker Change: It's anybody's guess as to the timing of when that comes back our sales force that covers it has been.

Speaker Change: Our key people to our organization that have stayed steady on even though they have seen their book of business contract. We appreciate their commitment to their customers. During this tough period of there and for themselves on their own income from a commission perspective so.

Ron Lawson: Okay great.

Ron Lawson: Helpful.

Ron Lawson: I also wanted to ask about with regard to loss.

Ron Lawson: You said there are some positive.

Ron Lawson: Signs initially around the military orders, but now youre.

Ron Lawson: Look there's a little more subdued is just how do you think about that as the [laughter].

Speaker Change: We're not hearing that we're losing that business. We're just hearing that it's.

Speaker Change: On somebody's desk, and it's not being released.

Ron Lawson: Rashes as it probably mcdevitt for Volta to pinpoint but.

Speaker Change: So.

Speaker Change: I wish I had a better answer for you.

Ron Lawson: I'd call. It you know.

Speaker Change: We just kind of what we modeled and forecasted our year without making bold assumptions around that at all and so we just felt like it was out of our control.

Ron Lawson: Any government spent anything tied to government spending federal government spending or the military specifically right now has been an Enigma. It was an Enigma for me as they change their ordering.

Speaker Change: Is that fair logs slowly, yes, yes, yes.

Ron Lawson: Program, if you will or the way the way that you had to be on their federal supply schedule last year in it.

Speaker Change: It is Brian it feels like we've been kind of whipsawed on this.

Speaker Change: Throughout the second half or maybe even the last the last three quarters of 2024, where we thought.

Ron Lawson: Some of the bunch of the kits that we.

Ron Lawson: MRO kits that we put together for them for keeping equipment up and running.

Speaker Change: We are going to see some of this come through and then it seems like we get some positive news and then and then some news that things were going to continue to get held so to Brian's point, we're just being.

Ron Lawson: Got those orders got held.

Ron Lawson: So.

Ron Lawson: I just hope that all of our equipment has brought it out there are more worried about the military that I am worried about her about our revenue associated with it although I guess I'm worried about both of them.

Speaker Change: Just really.

Speaker Change: It's hard to make a prediction as to when it's ultimately going to come through again.

Ron Lawson: The.

Ron Lawson: We're hearing that those orders or had been held they went through a process. If you will and then we started to see it.

Speaker Change: We feel good that the orders are still sitting in the Q. It's a matter of when they will be released in just the mixed messaging that we've received over the latter half of 2024, just makes us a little.

Ron Lawson: Here that those orders are going to be released and then.

Ron Lawson: More austere element of force in Washington.

Speaker Change: A little more conservative on China submitted as to when they may come through in 'twenty five.

Ron Lawson: Drive.

Speaker Change: Yes.

Ron Lawson: Holding down spending and so I don't know whether or not it is holding down or delay at this point, but.

Speaker Change: Okay totally makes sense, just lastly, I wanted to ask could you remind us about.

Ron Lawson: We're just being subdued in our expectation on when those dollars are going to get relates to us.

Speaker Change: If you have a certain timeframe in mind for ramping source Atlantic margins up to the double digit level.

Ron Lawson: So that could create some noisy ness.

Ron Lawson: It's a big number when you look at our total.

Speaker Change: Not fast enough.

Speaker Change: [laughter] yeah.

Ron Lawson: Revenue that was down in the fourth quarter.

Ron Lawson: Or.

Speaker Change: We've got a great team in place, we're adding a couple more resources that we're really excited about there.

Ron Lawson: What's the drag that we had for all of last year.

Ron Lawson: That federal government spending lines you know we won some contracts last year on local and state.

Speaker Change: We appreciate that we had.

Speaker Change: Source Atlantic has a great.

Ron Lawson: So we had some benefits that we expect to flow through this year.

Speaker Change: Organizational structure some great employees.

Speaker Change: A wonderful commercial later, we had great people over at bolt supply House, we're very.

Ron Lawson: On organically growing our government business, but it's all at the local and state level and then we had these federal relationships.

Speaker Change: We wanted to be mindful about how we brought those organizations together and not be too abrupt just given that they both had proud cultures and there.

Ron Lawson: We're well over were down well over 50% I mean, I think our military was down 75% or something crazy in the fourth quarter and so.

Speaker Change: We're.

Speaker Change: Bringing two different Canadian organizations together on either side of the country and so we.

Ron Lawson: It's anybody's guess as to the timing of when that comes back our sales force that covers it has been.

Ron Lawson: Our key people to our organization that have stayed steady even though they've seen their book of business contract. We appreciate their commitment to their customers. During this tough period of there and for themselves on their own income from a commission perspective.

Speaker Change: We wanted to.

Speaker Change: Make sure that we had.

Speaker Change: Tom.

Speaker Change: <unk> Bye, Ed and strong cultural leadership, there to try and bridge that.

Speaker Change: That process, we have four facilities that are in the process of being.

Speaker Change: At four locations, where we're consolidating facilities and so that is going to release some dollars. When we looked at source Atlantic and worked through by them. They had a fledgling western Canadian operation that had a lot of expenses associated with it and was losing quite a bit of money on the web.

Ron Lawson: No.

Ron Lawson: We're not hearing that we're losing that business. We're just here in minutes.

Speaker Change: Stuck on somebody's desk, and it's not being released.

Ron Lawson: So.

Ron Lawson: I wish I had a better answer for you.

Ron Lawson: We just got it we modeled and forecasted our year without making bold assumptions around that at all and so we just felt like it was out of our control.

Speaker Change: Turn half just as they were building it out and so when we looked at our purchase price on all sorts of Atlantic It was largely working capital and real estate.

Ron Lawson: Is that fair largely yeah, yeah, yeah. It is Brian it feels like we've been kind of whipsawed on this.

Speaker Change: Very modest air ball.

Speaker Change: Over.

Speaker Change: Real estate and working capital values.

Ron Lawson: Throughout the second half or maybe even the last the last three quarters of 2024, where we thought.

Speaker Change: And that's not a fair ball.

Speaker Change: Collectively the total purchase price was sub 10% right at 10 times multiple but when we looked at the specific dollar loss that we could.

Ron Lawson: We're going to see some of this come through and then it seems like we get some positive news and then and then some news that things were going to continue to get held so to Brian's point, we're just being.

Speaker Change: We could reverse bye.

Speaker Change: By consolidating facilities in Western Canada.

Ron Lawson: Just really.

Speaker Change: It significantly lifted their margins and it significantly it didn't get them all the way to 10%, but it.

Ron Lawson: It's hard to make a prediction as to when it's ultimately going to come through again, we feel good that the orders are still sitting in the Q. It's a matter of when they will be released in just the mixed messaging that we've received over the latter half of 2024, just makes us a little.

Speaker Change: You made a big dent to getting them there and so we're in the process of doing that it will happen.

Speaker Change: Between now and the.

Speaker Change: We ended the second quarter.

Ron Lawson: A little more conservative on trying to commit as to when they may come through in 'twenty five.

Speaker Change: So it's going to take us two quarters to get through the consolidation piece and then.

Ron Lawson: Yes.

Speaker Change: Then we've got some work to do on how we manage our our margin structure there.

Ron Lawson: Okay totally makes sense and just lastly, I wanted to ask could you remind us about.

Speaker Change: If you have a certain timeframe in mind for ramping our source Atlantic margins up to the double digit level.

Speaker Change: All of that.

Speaker Change: It's easier to do that.

Speaker Change: A number of our customers operate up there.

Speaker Change: Pretty harsh weather environments. This time of the year and so it's easier to try and work through the volumes that we get there is a lot more seasonality in that book of business.

Ron Lawson: Not fast enough.

Speaker Change: [laughter].

Speaker Change: We've got a great team in place, we're adding a couple more resources that we're really excited about there.

Speaker Change: Then maybe we communicated well to the street, because when you get to mining captive mines and large infrastructure investments that are going on.

Speaker Change: We appreciate that we had.

Speaker Change: The source of Atlantic has a great organizational structure some great employees.

Speaker Change: Large companies with significant infrastructure.

Speaker Change: A wonderful commercial later, we had have great people over at bolt supply House, we're very.

Speaker Change: It's pretty far north.

Speaker Change: Especially on that eastern Seaboard swath of Canada.

Speaker Change: We wanted to be mindful about how we brought those organizations together and not be too abrupt just given that they both had proud cultures and there.

Speaker Change: Theres not a lot of activity during these winter months, and so fourth quarter and first quarter are seasonally soft months for source of Atlantic.

Speaker Change: We're.

Speaker Change: And.

Speaker Change: Bringing two different Canadian organizations together on either side of the country and so are.

Speaker Change: That dragged our margins in the fourth quarter.

Speaker Change: <unk> down more than they would've been dragged down had they've been at.

Speaker Change: We wanted to.

Speaker Change: Make sure that we had.

Speaker Change: One of the.

Speaker Change: Tom.

Speaker Change: Second our third quarter revenue months, and we've obviously had some of that in January February just in terms of total volume and throughput.

Speaker Change: So by Ed and put strong cultural leadership, there to try and bridge that.

Speaker Change: That process, we have four facilities that are in the process of being.

Speaker Change: We're also now going to work on trying to get that margin to where it needs to be longer term.

Speaker Change: Okay.

Speaker Change: When you can take out expenses.

Speaker Change: On a part of the business that was losing $6 million or so of EBITDA and you can flip that to a positive contributor.

Speaker Change: My team likes to call that a pick six at the goal line. So youre kind of swing in the points in your favor and so it can happen in a pretty good hurry.

Speaker Change: Turn half just as they were building it out and so when we looked at our purchase price on outsourced Atlantic It was largely working capital and real estate.

But it's not going to happen here in the first three or four or five months of the year.

Speaker Change: Very modest air ball.

Speaker Change: Over.

Speaker Change: Real estate and working capital values and that modest air ball.

Speaker Change: Okay. Thanks for all the insight I'll turn it over.

Speaker Change: Yeah.

Thank you.

Speaker Change: Collectively the total purchase price was sub 10% or right at 10 times multiple but when we looked at the specific dollar loss that we could.

Speaker Change: As a reminder, if you would like to ask a question. Please press star one.

Speaker Change: That we could reverse bye.

Ken Newman: Your next question for today is from Ken Newman with Keybanc capital markets.

Speaker Change: By consolidating facilities in Western Canada.

Speaker Change: It significantly lifted their margins and it significantly it didn't get them all the way to 10%, but it made a big dent to getting them there and so we're in the process of doing that it will happen.

Speaker Change: Good morning, Ken.

Speaker Change: Hey, good morning, guys. Thanks for squeezing me good morning, Ken sure appreciate you hanging in here.

Speaker Change: Yeah No of course.

Speaker Change: First one Ron I just wanted to go back to the loss of <unk> comments, you made about January and February.

Speaker Change: Between now and the.

Speaker Change: End of the second quarter.

Speaker Change: I'm, just trying to understand whether holiday timing.

Speaker Change: So it's going to take us two quarters to get through the consolidation piece and then.

Speaker Change: <unk>.

Speaker Change: Our material impacts there relative to those rebounds I think.

Speaker Change: Then we've got some work to do on how we manage our our margin structure there.

Some of your larger peers decided some extended customer shutdowns.

Speaker Change: Due to the timing of new year's and in Christmas.

Speaker Change: All of that.

Speaker Change: It's easier to do that.

Was that something that kind of materially impacted the sequential move of Adi from December to January and then I'm also wondering if.

Speaker Change: A number of our customers operate up there.

Speaker Change: Pretty harsh weather environments. This time of the year and so it's easier to try and work through the volumes that we get there's a lot more seasonality in that book of business.

Speaker Change: Just given the moving target on tariffs, if youre seeing customers pre buying inventory at all within that business.

Speaker Change: Then maybe we communicated well to the street this because when you get to the mining captive mines in large infrastructure investments that are going on.

Speaker Change: So.

Speaker Change: So typically just by way of history.

Speaker Change: We would normally see.

Speaker Change: A lift going from from December to January specifically to your point just around.

Speaker Change: Large companies with significant infrastructure.

Speaker Change: It's pretty far north.

Speaker Change: Especially that eastern Seaboard swath of Canada.

Speaker Change: Some of the holiday timing and so forth.

Speaker Change: But I would say we saw.

Speaker Change: Theres not a lot of activity during these winter months, and so fourth quarter and first quarter are seasonally soft months for source of Atlantic.

Speaker Change: A much almost <unk> that normalized lift.

Speaker Change: This year going from going from December into into January and when we look at our our kind of the.

Speaker Change: And.

Speaker Change: You know that dragged our margins in the fourth quarter.

Speaker Change: Core piece of the business.

Speaker Change: In terms of what's coming through on the on the field sales Rep side, we are.

Speaker Change: <unk> down more than they would've been dragged down had they've been at.

Speaker Change: One of the.

Speaker Change: Seeing.

Speaker Change: Second our third quarter revenue months, and we've obviously had some of that in January and February just in terms of total volume and throughput.

Much better results, even if I go back over many months.

Speaker Change: <unk>.

Speaker Change: We're also now going to work on trying to get that margin to where it needs to be longer term.

It was.

Speaker Change: It was higher than in December it was higher than November and it was higher than October all three months and so.

Speaker Change: Okay.

Speaker Change: When you can take out expenses.

Speaker Change: And then February sequentially. It was up over where January was add as well so.

Speaker Change: On a on a part of the business that was losing $6 million or so of EBITDA and you can flip that to a positive contributor.

Bryan King: Yes, I mean, certainly the soft December played into that a little bit although as Brian mentioned December is always a little bit of a wildcard.

Speaker Change: My team likes to call that a pick six at the goal line. So youre kind of swing in the points in your favor and so it can happen in a pretty good hurry.

Speaker Change: Especially on the loss in business.

Speaker Change: But it's not going to happen here in the first three or four or five months of the year.

Speaker Change: But it feels like we've seen some nice movement upward.

Speaker Change: Beyond what we would normally expect bolt in January and in February So I think that points to some sites. Yes go ahead, Brian one of the things that are.

Speaker Change: Okay. Thanks for all the insight I'll turn it over.

Speaker Change: Thank you.

Speaker Change: As a reminder, if you would like to ask a question. Please press star one.

Speaker Change: Ken.

Speaker Change: I'm a lot more respectful of I always have been respectful. This is a public shareholder and Lawson for years.

Speaker Change: Your next question for today is from Ken Newman with Keybanc capital markets.

Speaker Change: <unk>.

Speaker Change: Very curious about the math associated with.

Speaker Change: Good morning, Ken.

Speaker Change: <unk>.

Hey, good morning, guys. Thanks for squeezing me good morning, Ken sure appreciate you hanging in here.

Speaker Change: About hiring and Spooling up the sales force I mean for years in the 2015.

Speaker Change: <unk> 18 period or so.

Speaker Change: Yeah No of course.

Speaker Change: First one Ron I just wanted to go back to the loss of <unk> comments, you made about January and February.

Speaker Change: 13 to 17 period before it was over the wall, we talk about adding 50 sellers are 100 sellers on a net basis.

Speaker Change: I'm, just trying to understand whether holiday timing.

Speaker Change: At the end of the day feed on the street matters, our Salesforce our outside sales force is the lifeblood in many ways. It is certainly this business and.

Speaker Change: <unk>.

Speaker Change: Our material impacts there relative to those rebounds I think.

Speaker Change: Some of your larger peers decided some extended customer shutdowns.

Speaker Change: Going compressing 200 sellers are 190 <unk>.

Speaker Change: Due to the timing of new year's and in Christmas.

Speaker Change: Going from 1020 down to 830, and then now building back up is it.

Speaker Change: Was that something that kind of materially impacted the sequential move of Adi from December to January and then I'm also wondering if just given the moving target on tariffs if youre seeing customers pre buying inventory at all within that business yes.

Speaker Change: No matter, what's going on in your end markets.

Speaker Change: With your customers. The most important thing on a comp store basis, our comp sales basis is how many feet you've got out there and how many people making sales calls you've got.

Speaker Change: Yes so.

Speaker Change: So typically just by way of history.

Speaker Change: Working for you, but we have.

Speaker Change: We we would normally see a.

Speaker Change: A massive amount of.

Speaker Change: Of customers that we have bins and cabinets with where we are not.

Speaker Change: Lift going from from December to January specifically to your point just around.

Speaker Change: Covering them the way that we should be because we just we didn't have enough sales people as we are reorganizing territories and we were going through all of these sales tools that we're adding to our capabilities for our sellers trying to make them better and so the end of the.

Speaker Change: Some of the holiday timing and so forth.

Speaker Change: But I would say we saw it.

Speaker Change: A much almost <unk> that normalized lift this year going from going from December into into January and.

Speaker Change: When we look at our our kind of the.

Speaker Change: Core piece of the business.

Speaker Change: Day that the cost of that if we had had a tailwind with our customers. It would've been less noisy than it was if we hadn't had the military spending.

Speaker Change: In terms of what's coming through on the on the field sales Rep side, we are.

Seeing.

Speaker Change: Much better results, even if I go back.

Speaker Change: The federal government spending challenges last year it would've been.

Speaker Change: Over many months.

Speaker Change: January.

Speaker Change: More.

Speaker Change: It was.

Speaker Change: Okay.

Speaker Change: It was higher than the December it was higher than November and it was higher than October all three months and so.

Speaker Change: So the public shareholder investors.

Speaker Change: But the reality of it is with a headwind.

Speaker Change: And then February.

Speaker Change: And PPI.

Speaker Change: Sequentially was it was up over where January was add as well so.

Speaker Change: And with the government spending.

Speaker Change: What really is exposed here is the fact that we had 190 less sellers at one point than we've had.

Bryan King: Yes, I mean, certainly the soft December played into that a little bit although as Brian mentioned December is always a little bit of a wildcard.

Speaker Change: <unk> 12, or 18 months before and Thats, a massive drag to try to drive revenue and so im really proud of the team for having tackle what was it.

Speaker Change: Especially on the Washington business.

Speaker Change: But it feels like we've seen some nice movement upward.

Speaker Change: Beyond what we would normally expect bolt in in January and in February So I think that points to some pad sites. Yes go ahead, Brian one of the things that a.

Speaker Change: Initiatives that we've been.

Speaker Change: We started we were talking about it from the first day of one on the board about at what point in time, when we're going to really rollout all these tools.

Speaker Change: How disruptive would it be to some of our sellers that were later in their careers and we're closer to retirement.

Speaker Change: Ken.

Ron Lawson: Good I'm a lot more respectful of I always have been respectful. This is a public shareholder and Lawson for years.

Speaker Change: Try that protect them and not have them have to worry about the tools, but making sure that we have the tools for those that we were hiring and that we're bringing on board. So that they were better equipped to drive revenue faster.

Speaker Change: As you know.

Curious about the math associated with.

Speaker Change: About hiring and Spooling up the sales force I mean for years into 2000.

Speaker Change: And to have a better.

Speaker Change: 15 to 18 period or seven of our 13.

Speaker Change: Level of accountability of 90000 inactive Lawson bins and cabinets that we have out there in the field and so.

Speaker Change: 13 to 17 period before it was over the wall, we talk about adding 50 sellers are 100 sellers on a net basis.

Speaker Change: That's a lot of customers that we have had.

Speaker Change: At the end of the day feed on the street matters, our Salesforce our outside sales force is the lifeblood in many ways. It is certainly this business and.

Speaker Change: Had very active relationships with that are.

Speaker Change: That has our infrastructure that we floor plan for them.

Speaker Change: Going compressing 200 sellers are 190.

Speaker Change: The other thing that was a massive surprise for me when I went on the board was how much money was buried in our cost of sales of us, giving bins and cabinets away or floor planning them for customers to put our product in those things in cabinets and when you step back and you looked at whether or not you're covering them adequately with your.

Speaker Change: Going from 1020 down to 830, and then now building back up is it.

Speaker Change: No matter, what's going on in your end markets.

Speaker Change: With your customers. The most important thing on a comp store basis, our comp sales basis is how many feet you've got out there and how many people making sales calls you've got.

Speaker Change: Outside Salesforce, we worked and so we are going to and we are.

Speaker Change: We're going to continue to invest we wanted to get it organized in a way that.

Speaker Change: Working for you, but we have.

Speaker Change: Massive amount of Av.

Speaker Change: Allows our sellers that we're hiring to be more effective and efficient.

Speaker Change: Of customers that we have bins and cabinets with where we are not.

Speaker Change: Their time and for us collectively with them to be able to have the tools to help them.

Speaker Change: Covering them the way that we should be because we just we.

Speaker Change: Didn't have enough sales people as we are reorganizing territories and we were going through all these sales tools that we're adding to our capabilities for our sellers trying to make that better and so the end of the day that the cost of that if we had had a tailwind.

Speaker Change: See where they needed to be.

And how they could make sure they did the best job possible for their customers and there's a lot of customers out there that are asking us to.

Speaker Change: With the infrastructure that we have on site for them to do a better job.

Speaker Change: Now the customers that we're covering we're covering well.

Speaker Change: And with our customers it would've been less noisy than it was if we hadn't had the military spending.

Speaker Change: It's not having enough feet on the street and we're back building into that.

Speaker Change: That's the primary driver to average daily sales.

Speaker Change: The federal government spending challenges last year it would've been more.

Speaker Change: Out of that so just to be clear, Brian youre, not seeing any indication of customer pre buy and the reason I ask obviously as <unk>.

Speaker Change: Sure.

Speaker Change: Opaque to the public.

PMI is back above 50 for new orders is back in contraction rates. So I'm, just making sure that that's not exactly what we're saying.

Speaker Change: Public shareholder.

Speaker Change: Masters, but the reality of it is with a headwind.

Speaker Change: And PPI.

Speaker Change: What.

Speaker Change: And Rod Ron has got a great schedule. We've spent a lot of time looking at our.

Speaker Change: And with the government spending.

Speaker Change: The what really is exposed here is the fact that we had 190 less sellers at one point than we've had.

Speaker Change: Our indirect and direct sourcing.

Speaker Change: For us.

I don't think.

Speaker Change: 12, or 18 months before and that's a massive drag to try to drive revenue and so I'm really proud of the team for having tackle what was it.

Speaker Change: That were saying any indication based on the amount of revenue per invoice.

Speaker Change: And the.

Speaker Change: And those categories that were we.

Speaker Change: Initiatives that we've been.

Speaker Change: We started we were talking about it from the first to have one of the board about at what point in time, where we're going to really rollout all these tools.

Speaker Change: That's not jumping off the page for us if that makes sense.

Speaker Change: Yes.

Speaker Change: And for La said, we don't have a ton of product that we're sourcing.

Speaker Change: How disruptive would it be to some of our sellers that were later in their careers and we're closer to retirement.

In a way where we're at.

Speaker Change: You have some test and measurement equipment, that's coming out of.

Speaker Change: And try that protect them and not have them have to worry about the tools, but making sure that we have the tools for those that were hiring and that we're bringing on board. So that they were better equipped to drive revenue faster.

Speaker Change: Tariff.

Speaker Change: Focused areas, but in total.

Speaker Change: Eight or $9 million of indirect and direct.

Speaker Change: Impact that we would say across all of our categories in all of our verticals.

Speaker Change: And to have a better.

Speaker Change: Level of accountability of 90000 inactive Lawson bins and cabinets that we have out there in the field and so.

Speaker Change: We could have tariff impact.

Speaker Change: And back on.

Speaker Change: But that's.

Going all the way most of that is indirect.

Speaker Change: That's a lot of customers that we have had.

Speaker Change: Our much of its indirect.

Speaker Change: Had very active relationships with the <unk>.

Speaker Change: Or it's a large electronics.

Speaker Change: Or.

Speaker Change: <unk> that are coming out of China on the test and measurement side.

That has our infrastructure that we floor plan for them you know that was another thing that was a massive surprise for me when I went on the board was how much money was buried in our cost of sales of us, giving bins and cabinets away or floor planning them for customers to put our product in those bins and cabinets.

Speaker Change: Got it.

Speaker Change: Help me there.

Speaker Change: Yes, yes, that's right.

Speaker Change: Question relative to your question is yes.

Speaker Change: On the chair side so.

We look.

Speaker Change: Kind of across DSG.

Speaker Change: When you step back when you looked at whether or not you're covering them adequately with your outside sales force. We worked and so we are going to and where we're going to continue to invest we wanted to get it organized in a way that.

Speaker Change: Direct import.

Speaker Change: And not all of that would be impacted by by the potential tariffs, it's about 12% of our overall purchases on the direct on the straight direct imports.

Speaker Change: On the indirect it's a little tougher to get to an all in number just because of.

Speaker Change: Allow there are sellers that we're hiring to be more effective and efficient with.

Speaker Change: The raw materials that are built into some of the products that we're purchasing and so forth but.

Speaker Change: Their time and for us collectively with them to be able to have the tools to help them.

Speaker Change: But I think when Brian mentioned this in his prepared remarks as well if you look back over the last couple of years relative to us being able to work closely with our customers. So that we don't see margin deterioration I think we've proven that we've been able to do that in the past.

Speaker Change: See where they needed to be and how they could make sure. They did the best job possible for their customers and there's a lot of customers out there that are asking us to.

Speaker Change: <unk>.

Speaker Change: With the infrastructure that we have on site for them to do a better job.

Speaker Change: It's not again, it's not a huge number for us across DSG.

Speaker Change: Now the customers that we're covering we're covering well.

Speaker Change: It's not having enough feet on the street and we're back building into that and that's the primary driver to average daily sales.

Speaker Change: Impacted countries, where the tariffs have been put in place, but I would say, we're I mean, we're starting to receive some letters from our vendors.

Speaker Change: Without a doubt, but just to be clear, Brian youre, not seeing any indication of customer pre buy and the reason I ask obviously is yeah. PMI is back above 50, the new owners is back in contraction right. So I'm, just making sure that that's not exactly what we're saying it's you know.

Speaker Change: Starting to have some communication with some of our end customers as well already in terms of what that means. So we're we're not sitting idle around this we.

Speaker Change: We'll get will be in front of it for sure.

Speaker Change: To make sure that we don't have any margin impact on us and one of the.

Speaker Change: What.

Speaker Change: And Rod Ron has got a great schedule. We've spent a lot of time looking at our.

Speaker Change: The question you ask is a great one.

Speaker Change: Our indirect and direct sourcing.

Speaker Change: What I would say is that on the MRO side, the order quantities that we get and how distributed our customer base is.

Speaker Change: For Us I.

Speaker Change: I don't I don't think.

Speaker Change: That we're seeing any indication based on the amount of revenue per invoice.

Speaker Change: Really feels more like.

Speaker Change: And the.

Speaker Change: Adding.

Speaker Change: An extra.

Speaker Change: Categories that were weak.

Speaker Change: Now almost 100 additional sellers is more impacting.

Speaker Change: That's not jumping off the page for us if that makes sense.

Speaker Change: Our ability to cover existing Eric kind of historic loss in customers again well.

Speaker Change: Yes.

Speaker Change: <unk>.

Speaker Change: And for La said, we don't have a ton of product that we're sourcing.

Speaker Change: With just having more feet on the street. So I don't I don't see that as it's harder to see at that granular level given how many customers. They are and how small they are if you go over to test equity the test and measurement side.

Speaker Change: In a way where you have some test and measurement equipment, that's coming out of <unk>.

Speaker Change: Tariff.

Speaker Change: Focused areas, but in total.

Speaker Change: Eight or $9 million of indirect and direct.

Speaker Change: And some of the products there.

Speaker Change: The impact that we would say.

Speaker Change: Might be.

Speaker Change: Across all of our categories in all of our verticals.

Speaker Change: It could have some risk around them with tariffs.

Speaker Change: We could have tariff impact.

Speaker Change: That's.

Speaker Change: Tariff impact on.

Speaker Change: Our book to Bill or our order volumes that preceded our revenue volumes, there, where we were saying in the third quarter and early fourth quarter, we were starting to see more and more rfps than we were getting more interest in order that all predated the.

Speaker Change: But that's.

Speaker Change: Going all the way most of that's indirect.

Speaker Change: Our much of its indirect.

Speaker Change: Or it's a large electronic goods that are coming out of China on the test and measurement side Rod is there help me there and.

Speaker Change: And then what you have to say, yes, yes, yes, that's right.

Speaker Change: The election in November so we felt like that that market was coming back.

Speaker Change: Yeah, Yeah, yeah relatively.

Speaker Change: The channel was cleaned up and that that market was coming back.

Speaker Change: Yeah on the chair side, so if we look.

Speaker Change: Just out of the normal long cycle the cycle that we've been through since.

Speaker Change: Kind of across DSG.

Speaker Change: Direct import.

Speaker Change: The kind of summer August of 2020.

Speaker Change: And not that all of that would be impacted by the potential tariffs, it's about 12% of our overall purchases on the direct on the street direct imports.

Speaker Change: Three I think it was maybe it was when it started really deteriorating, but it was certainly not growing after late 2022, and so that cycle started working back in our favor long before there was an election.

Speaker Change: On the indirect it's a little tougher to get to an all in number just because of the raw materials that are built into some of the products that we're purchasing and so forth but.

Speaker Change: Conversation around tariffs so.

Speaker Change: But I think when Brian mentioned this in his prepared remarks as well if you look back over the last couple of years relative to us being able to work closely with our customers. So that we don't see margin deterioration I think we've we've proven that we've been able to do that in the past.

Speaker Change: What we're saying on order flow there is really coming out of the rfps and the <unk>.

Speaker Change: And the indications that we had customers that were going to be buying from us.

Speaker Change: Now on <unk> Pro services flipped it.

Speaker Change: There is.

Speaker Change: It's not again, it's not a huge number for us across DSG.

Speaker Change: The end markets there the book to Bill started building.

Speaker Change: The impacted countries, where the tariffs have been put in place, but I would say, we're I mean, we're starting to receive some letters from our vendors.

Speaker Change: Throughout last year on each of those end markets that have been strong and the book to Bill is continuing to stay consistent with.

Speaker Change: And we're starting to have some communication with some of our end customers as well already in terms of what that means. So we're we're not sitting idle around this we will get will be in front of it for sure.

Speaker Change: With across most all of their end markets.

Speaker Change: Consistent meaning if it's a 105 all the way up to a $1 40 or $1 60.

Speaker Change: <unk>.

Speaker Change: Two relative to orders or revenue that's falling through.

Speaker Change: To make sure that we don't have any margin impact on us and one of the.

Speaker Change: C&I in Hungary, I think it's a little bit in power Gen and where.

Speaker Change: The question you ask is a great one and it's what.

Speaker Change: Where we've seen some softness or some choppiness there between.

Speaker Change: What I would say is that on the MRO side, the order quantities that we get in and how distributed our customer base is.

Speaker Change: Where book to Bill is currently and where revenues have been.

Speaker Change: Trending and.

Speaker Change: But but but things there are seem really consistent with.

Speaker Change: Really feels more like.

Speaker Change: Adding.

Speaker Change: An extra.

Speaker Change: Activity at the plant level, where theyre, having product pulled through.

Speaker Change: Now almost 100 additional sellers is more impacting.

Speaker Change: I don't know.

Speaker Change: And they don't have a lot of.

Speaker Change: Our ability to to cover existing kind of historic loss in customers again well.

Speaker Change: If I remember Ron on looking at our schedule I think they are the least impacted by tariff.

Speaker Change: With just having more feet on the street, so I don't I don't see that as a.

Speaker Change: Other country of origin products of that shrink verticals, yes.

Speaker Change: It's harder to see at that granular level, given how many customers. They are and how small they are if you go over to test equity the test and measurement side.

Speaker Change: So.

Speaker Change: That's helpful.

Speaker Change: Great.

Speaker Change: You're asking.

Speaker Change: The question you asked is it going to be one that will all be torturing myself with because.

Speaker Change: And some of the products there.

Speaker Change: Might be.

Speaker Change: Could have some risk around them with tariffs.

Speaker Change: We're not hearing I'm not hearing it but the fact that I am not hearing it or we're not talking about it we're talking about tariffs and we're talking about what how it could impact us.

Speaker Change: That's.

Speaker Change: But our customers, it's not getting back to our level that customers are pre buy but I'm going to go back and try to ask at the field level and the regional level to see if I can get more insights.

Speaker Change: On whether or not there is something that the street level, but I'm not hearing.

Speaker Change: The election in November so we felt like that that market was coming back with the channel was cleaned up and that that market was coming back.

Speaker Change: Yes.

Speaker Change: One quick one to close this out.

Speaker Change: The Canadian double digit margin target run rate by the end of this year.

Speaker Change: Just out of the normal long side of the cycle that we've been through since you know.

Speaker Change: Whats the risk that tariffs kind of limit your ability to get the revenue synergies there that you need to get to that target.

Speaker Change: The kind of summer August of 2020.

Speaker Change: Three I think it was maybe it was when it started really deteriorating, but it was certainly not growing after late 2022.

Well.

Speaker Change:

Speaker Change: So most of that target to get to that target is going to be this.

Speaker Change: That cycle has started working back in our favor long before there was an election.

Speaker Change: <unk>.

Speaker Change: Fixing their cost structure on the west and Western Canada.

Speaker Change: Conversation around tariffs.

Speaker Change: And these consolidated facilities and kind of.

So.

Speaker Change: What we're saying on order flow there is really coming out of the rfps and the <unk>.

Speaker Change: Designing or executing on a design that we put in place during underwriting.

Speaker Change: And the indications that we had customers that we're gonna be buying from us.

Speaker Change: Make it one really strong Canadian company. So that's the that's largely driven around the Canadian business.

Speaker Change: Now on on Jack's Pro services flipped that.

Speaker Change: There is.

Speaker Change:

Speaker Change: Cost structure of that Canadian business and trying to line it up there.

Speaker Change: The end markets there the book to Bill started building.

Speaker Change: There were some revenue objectives there but.

Speaker Change: Throughout last year on each of those end markets that have been strong and the book to Bill is continuing to stay consistent.

Speaker Change: A lot of their customers are.

Speaker Change: It's it's not as much tied to that Ontario.

Speaker Change: With across most all of their end markets.

Speaker Change: In Quebec revenue that goes back and forth across the border it's really the.

Speaker Change: Consistent meaning if it's a 105 all the way up to a $1 40 or $1 60.

Speaker Change: The business that we have at this point is in Atlantic Seaboard business that has a lot of product flowing north to mines or along the coastline and has trade that's going maybe more pan Atlantic and then it's the Calgary and west.

Speaker Change: Two relative to orders or revenue that's falling through.

It's the C&I in Hungary, I think it's a little bit in power Gen.

Speaker Change: Where we've seen some softness or some choppiness there between.

Speaker Change: Western footprint, a little bit of satisfaction.

Speaker Change: Where book to Bill is currently and where revenues have been.

Speaker Change: Trending.

Speaker Change: The northern provinces.

Speaker Change: Uh huh.

And kind of the middle part of the country.

Speaker Change: But but but things there seem really consistent with.

Speaker Change: So I don't have I don't know how much of it is.

Speaker Change: Activity at the plant level, where theyre, having product pulled through.

Speaker Change: Flowing back this direction.

Speaker Change: It's going to be impacted I don't know, what we don't have a lot of product that's flowing back and forth across the border.

Speaker Change: No.

Speaker Change: And they don't have a lot of.

Speaker Change: If I remember Ron on looking at our schedule I think they are the least impacted by tariff yet.

Speaker Change: At this point that I know of I know that there are our BMI.

Speaker Change: Other country of origin products, yes, there are certain verticals, yes.

Speaker Change: That we've had with the Kent automotive and.

Speaker Change: Lawson business part of the reason why we wanted to make sure we had a stronger Canadian presence was that we wanted to make sure that we built a Canadian business that also gave us more productivity benefits out of our sales channel that we had.

Speaker Change: So okay.

Speaker Change: That's helpful.

Speaker Change: Right.

Speaker Change: You're asking the question you asked is going to be one that will all be torturing myself with because what what.

Speaker Change: We're not hearing I'm not hearing it but the fact that I'm not hearing it or we're not talking about it we're talking about tariffs and we're talking about what how it could impact us.

Speaker Change: Sitting on losses, P&L, which is the cat loss in BMI sellers.

Speaker Change: And they would be the ones that maybe are.

Speaker Change: It could be more impacted.

Speaker Change: Yes by product that we are.

Speaker Change: Traditionally thinking about it.

Speaker Change: Ron.

Speaker Change: On whether or not there's something that the street level, but I'm not hearing.

Speaker Change: Can tell me whether its how much of that product is moving out of them a cook.

Speaker Change: From a cook too.

Speaker Change: Yes.

Speaker Change: One quick one to close this out.

Speaker Change: Salesperson, that's a BMI seller.

Speaker Change: Kent our Lawson.

Speaker Change: The Canadian double digit margin target run rate by the end of this year.

Speaker Change: Filling beds and.

Speaker Change: Ontario.

Whats the risk that tariffs kind of limit your ability to get the revenue synergies there that you need to get to that target.

Speaker Change: But it's not the source of Atlantic and bolt operations that I would feel like are most at risk there, yes, that's right.

Speaker Change: Got it very helpful guys. Thanks.

Speaker Change: Well.

Speaker Change: Yeah. Thank you for the question.

Speaker Change: So most of that target to get to that target is going to be this.

Speaker Change: Everybody everybody's good questions. Thank you.

Speaker Change: We have reached the end of the question and answer session and I will now turn the call over to Brian for closing remarks.

Speaker Change: <unk>.

Speaker Change: Fixing their cost structure on the west and Western Canada.

Speaker Change: And these consolidated facilities and kind of.

Brian: Thank you operator, thank you everyone for engaging with US today. We appreciate your interest in <unk>. We are excited about being aligned with you as shareholders and we look forward to speaking with you again, when we report our first quarter results in a couple of months. Thank you for your time and have a great day and God bless.

Designing or executing on a design that we put in place during underwriting.

Speaker Change: To make it one really strong Canadian company. So that's the.

Speaker Change: Largely driven around the Canadian business, the cost structure of that Canadian business and trying to line. It up there were some revenue objectives there but.

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

Speaker Change: A lot of their customers or our pits, it's not as much tied to that Ontario.

Speaker Change: In Quebec revenue that goes back and forth across the border. It's really the the business that we have at this point is in Atlantic Seaboard business that has a lot of product flowing north to the mines or a lot of that coastline and has trade that's going maybe more pad Atlantic and then it's the Calgary and.

Speaker Change: West.

Western footprint, a little bit of a SaaS kind of.

Speaker Change: The northern provinces in.

Speaker Change: And kind of the middle part of the country.

Speaker Change: So I don't have I don't know.

Speaker Change: How much of it is.

Speaker Change: Flowing back this direction.

Speaker Change: Where it's going to be impacted.

Speaker Change: What are we don't have a lot of product that's flowing back and forth across the border.

Speaker Change: At this point that I know of I know that there is.

Speaker Change: Our R V and VI business that we've had with the Kent automotive and.

Speaker Change: Loss in business.

Speaker Change: Part of the reason why we wanted to make sure we had a stronger Canadian presence was that we wanted to make sure that we built a Canadian business that also gave us more productivity benefits out of our sales channel.

Speaker Change: We've had <unk>.

Speaker Change: Sitting on losses, P&L, which is the cat loss in via by sellers.

Speaker Change: And they would be the ones that maybe are.

Speaker Change: It could be more impacted.

Speaker Change: By product that we are.

Speaker Change: Traditionally thinking about.

Ron Lawson: Ron we can tell me whether its how much of that product is moving out of a cook.

Speaker Change: From a cook too.

Speaker Change: As a salesperson, that's a BMI seller for Kent, our loss and.

Speaker Change: Filling beds and.

Speaker Change: Ontario.

Speaker Change: But it's not the source of Atlantic and bolt operations that would feel like were most at risk there, yes, that's right.

Speaker Change: Got it very helpful guys. Thanks.

Speaker Change: Yeah. Thank you for the great questions.

Speaker Change: Everybody everybody's good questions. Thank you.

Speaker Change: We have reached the end of the question and answer session and I will now turn the call over to Brian for closing remarks.

Speaker Change: This.

Speaker Change: <unk> today's conference and you may disconnect your lines at this time. Thank you for your participation.

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