Q1 2025 Distribution Solutions Group Inc Earnings Call

Greetings and welcome to the distribution solutions group first quarter 2025 earnings Conference call.

Operator: Greetings, and welcome to the Distribution Solutions Group First Quarter 2025 Earnings Conference. At this time all participants are on a listen only mode and 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. Please note, this conference is being recorded.

At this time all participants are on a listen only mode on the 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.

Operator: I will now turn the conference over to your host.

Speaker Change: I'll now turn the conference over to your host Mr. Steven Hooser Investor Relations, Sir you may begin.

Steven Hoosier: Stephen Hoosier, Investor Relations. Sir, you may begin.

Speaker Change: Good morning, and welcome to the distribution solutions group first quarter 2025 earnings call. Joining me on today's call are <unk>, Chairman and Chief Executive Officer, Bryan King and Executive Vice President and Chief Financial Officer, Ron Clayton <unk>.

Steven Hoosier: Good morning and welcome to the Distribution Solutions Group First Quarter 2025 Earnings Call. Joining me on today's call are DSG's Chairman and Chief Executive Officer, Brian King, and Executive Vice President and Chief Financial Officer, Ron Connolly. In conjunction with today's call, we have provided a financial results slide deck posted on the company's IR website at investor.distributionsolutionsgroup.com.

Speaker Change: 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 Dot com.

Speaker: 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 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, and we may elect to update the forward-looking statements made today, but we disclaim any obligation to do so.

Speaker Change: 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 and subject to risks and uncertainties that could cause actual results to differ materially from those described.

Speaker Change: 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 who used to change and we may elect to update the forward looking statements made today and we disclaim any obligation to do so.

Speaker: This has been a presentation of the Library of Congress.

Speaker: Management will also refer to certain non-gap measures, and reconciliations to the nearest gap measures can be found at the end of the earnings report. 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 the current report on Form 8K filed with the FDA.

Speaker Change: Management will also refer to certain non-GAAP measures and reconciliations to the nearest GAAP measures can be found at the end of the earnings release.

Speaker Change: Earnings release issued earlier today was posted on the Investor Relations section of our website a.

Speaker Change: A copy of the release has also been included in the current report on form 8-K filed with the SEC Lastly.

Speaker: Lastly, this call is being webcast live on the DSG Investor Relations website and a replay will be available through May the 15th.

Speaker Change: Lastly, this call is being webcast live on the D. S. G Investor Relations website, and a replay will be available through may the 15th.

Brian King: Now I would like to turn the call over to Brian King. Thanks, Steven, and good morning, everyone. Thank you all for joining us.

Bryan King: Now I would like to turn the call over to Bryan King.

Speaker Change: Ian.

Speaker Change: Thanks, Steven and good morning, everyone. Thank you all for joining us.

Brian King: I want to start with some high-level comments given the stirred-up murkiness in the marketplace created over the last 100-plus days by the new administration's priority of reshaping global trade patterns while prioritizing rebuilding domestic manufacturing and reinforcing trade with allies to improve long-term national security. In the long term, and even in the more medium term, we believe DSG will be rewarded by being very well-positioned with trusted resources on the ground and in the plant alongside our customers, helping them navigate their needs with our expansive global and domestic vendor base and the pricing and geography biases that will continue to unfold.

Speaker Change: I want to start with some high level comments, given the startup murkiness in the marketplace created over the last 100 plus days by the new administration's priority are reshaping global trade patterns, while prioritizing rebuilding domestic manufacturing and reinforcing trade with allies to improve long term national security.

Speaker Change: And the long term and even in the more medium term, we believe DSG will be rewarded by being very well positioned with trusted resources on the ground and in the plant alongside our customers, helping them navigate their needs with our expansive global and domestic vendor base and the pricing and geography biases that will continue to unfold.

Brian King: We expect the pressures around the reordering of trade and manufacturing to increase our customer engagement and to drive our profitability. We believe the current noisiness in the marketplace will even out as the year progresses and we all have a better lens around how to best reshape our sourcing efforts. And as a value-added distributor, much of the value we bring is driven by our procurement team's efforts alongside our product technical expertise and the flexibility that allows us to enjoy where the marketplace has flexibility to source from the best partners the most appropriate substitutable products globally at the most appropriate prices.

Speaker Change: We expect the pressures around the reordering of trade and manufacturing to increase our customer engagement and to drive our profitability.

Speaker Change: We believe the current noise munis in the marketplace will even out as the year progresses, and we all have a better lens around how to best to reshape our sourcing efforts and as a value added distributor much of the value. We bring is driven by our procurement teams efforts alongside our product technical expertise and the flexibility that allows us to enjoy with them.

Speaker Change: Marketplace has flexibility to source from the best partners. The most appropriate substitutable products globally at the most appropriate prices.

Brian King: As we review our sourcing efforts and vendor relationships, a very modest amount of our total procurement comes from those that we can see will be the most disadvantaged trade partners based on the administration's reordering, and it is largely products where all the competitive products almost exclusively come from those same markets. Our sourcing capabilities teamed with our on-the-ground capabilities alongside our customers with our real value-trusted employee partners offers us an excellent position to improve our engagement and ability to earn, notwithstanding any nearer-term challenges the marketplace is facing as we all try and decipher what a more steady-state environment will look like in the near future.

Speaker Change: As we review our sourcing efforts and vendor relationships, a very modest amount of our total procurement comes from those that we can see will be the most disadvantaged trade partners based on the administration's reordering and it is largely products, where all the competitive products almost exclusively come from those same markets.

Speaker Change: Our sourcing capabilities teamed with our on the ground capability alongside our customers with our real value trusted employee partners offers us an excellent position to improve our engagement and the ability to earn notwithstanding any near term challenges the marketplaces facing as we all try and decipher what a more steady.

Speaker Change: State environment will look like in the near future.

Brian King: As we inventory how well positioned DSG is to help our customers navigate sourcing and supply chains, technical and on-site product services in this ambiguous time, many of our organic and inorganic investments over the last few years were made to help us strengthen our efforts for this environment. We invested in ways to better serve our customers with expanded value-added capabilities across North America, and even put resources closer to the manufacturers in deliberate parts of Southeast Asia, all as part of a lens that expected the pressures that started before COVID under the first Trump administration around encouraging manufacturing and trade partners to shift for global security, supply chain stability and trade and federal deficit objectives, and around a priority to re-energize domestic manufacturing.

Speaker Change: As we inventory, how well positioned ESG is to help our customers navigate sourcing and supply chain technical and onsite product services and this ambiguous time.

Speaker Change: Many of our organic and inorganic investments over the last few years were made to help us strengthen our efforts for this environment.

Speaker Change: We invested in ways to better serve our customers with expanded value added capabilities across North America, and even put resources closer to the manufacturers and deliberate parts of southeast Asia, all as part of a lens that expected the pressures that started before COVID-19 under the first Trump administration around encouraging manufacturing and trade.

Speaker Change: Partners is shift for global security supply chain stability in trade and federal deficit objectives and around our priority to reenergize domestic manufacturing all priorities that have only accelerated under the current administration second term.

Brian King: All priorities that have only accelerated under the current administration's second term. Our analysis has shown that the tariff pressures will impact only about 5% of our total direct purchases and a larger but still modest amount of our indirect purchases in our businesses. In total, less than 6% of our aggregate product spend, direct and indirect, comes from China. And while we plan to work closely with our customers to offset these potential costs through a variety of actions, including sourcing alternatives and product selection, we do expect pricing to flow through our vendors and our pricing model even where our alternative sourcing avoids some of the more onerous tariff impacts that other sources in the marketplace are faced with.

Speaker Change: Our analysis has shown that the tariff pressures will impact only about 5% of our total direct purchases and a larger but still modest amount of our indirect purchases in our businesses in total less than 6% of our aggregate products spend direct and indirect comes from China, and while we plan to work closely with our customer.

Speaker Change: There is offset these potential cost through a variety of actions, including sourcing alternatives and product selection, we do expect pricing to flow through our vendors and our pricing model, even where our alternative sourcing avoid some of the more onerous tariff impacts that other sources in the marketplace are faced with.

Brian King: At the end of the first quarter, we took our first price actions where necessary to protect or improve our margins, where we expect our landed costs will be going up. And to support what we anticipate will be a larger investment longer term in working capital, but with a commensurate opportunity to sustain or improve returns on that increased investment. Our products are largely a small percentage of the overall cost to our customers, and our pricing adjustments should not be a tipping point issue for our customers, although other key inputs may have more challenging implications as they try and work those out.

Speaker Change: At the end of the first quarter, we took our first price actions were necessary to protect or improve our margins, where we expect our landed cost will be going up and to support what we anticipate will be a larger investment longer term in working capital, but with a commensurate opportunity to sustain or improve return on that increased investment.

Speaker Change: Our products are largely a small percentage of the overall cost to our customers and our pricing adjustments should not be a tipping point issue for our customers. Although other key input may have more challenging implications as they try and work those out.

Brian King: We are appreciative of our end market and product diversification as we recognize that different markets will be more choppy than others as they digest this policy shift, but we remain cautiously optimistic that both our customer base and our relationships with them will be better positioned in the long run once we get a more complete playbook from where things settle out in Washington.

Speaker Change: We are appreciative of our end market and product diversification as we recognize that different markets will be more choppy than others as they digest. This policy shift, but we remain cautiously optimistic that both our customer base and our relationships with that with them will be better positioned in the long run once we get a more complete play.

Speaker Change: But from where things settle out in Washington.

Brian King: While many Marketplace participants retreat from chaos, our around-the-clock work on DSG offers us renewed confidence in our business and its improved longer-term positioning. So we've been active in the Marketplace buying back our stock as we weighed that option with our cash this first quarter versus the M&A opportunities that we foresee in the near term, while maintaining appropriate leverage on the business. In the first quarter, we repurchased $11.2 million of stock, with over $15 million remaining under prior authorization, and we continue to take advantage of others' anxieties in the Marketplace by acquiring more shares in April.

Speaker Change: While many marketplace participants retreat from chaos, our around the clock work on DSG offers us renewed confidence in our business and its improved longer term positioning. So we've been active in the marketplace buying back our stock as we weigh that option with our cash this first quarter versus the M&A opportunities that we foresee in the near future or in the near term.

Speaker Change: While maintaining appropriate leverage on the business in the first quarter, we repurchased $11 $2 million of stock with over $15 million remaining under prior authorization and we continue to take advantage of other things Ids in the marketplace by acquiring more shares in April.

Speaker Change: Turning to first quarter results, our first quarter financial results were in line with our expectations with revenue a slight bit softer than our budget, but EBITDA slightly ahead, we budgeted for the first quarter to be our softest quarter based on how our many internal initiatives layer up throughout the year, while we feel good about our objectives for the year.

Brian King: Turning to first quarter results, our first quarter financial results were in line with our expectations, with revenue a slight bit softer than our budget, but EBITDA slightly ahead. We budgeted for the first quarter to be our softest quarter based on how our many internal initiatives layer up throughout the year. While we feel good about our objectives for the year, we appreciate at this moment that it is hard to anticipate how the economy will digest the current trade policy initiatives. We delivered sales of $478 million, up 14.9% compared to the year ago quarter. Total sales included $51 million of incremental revenue from our five 2024 acquisitions and our organic average daily sales growth of 4.3%.

Speaker Change: We appreciate at this moment that it is hard to anticipate how the economy will digest the current trade policy initiatives.

Speaker Change: We delivered sales of $478 million up 14, 9% compared to the year ago quarter total sales included $51 million of incremental revenue from our five 2024 acquisitions and our organic average daily sales growth of four 3%.

Brian King: We are pleased with these top line results, especially given the backdrop of trade policy noise during the quarter. While there have been questions around orders pulling forward, we did not see that as we believed in some categories, there was slightly more reticence by customers to release POs as the quarter progressed. Currency exchange impacts on our Canadian operations were a headwind in the first quarter, so our constant currency organic average daily sales was 4.7%. Also noteworthy, since each of our verticals measures selling days differently, we compute a consolidated average daily sales metric to add comparability against others reporting total sales days or selling days in the quarter.

Speaker Change: We are pleased with these top line results, especially given the backdrop of trade policy noise during the quarter, while there have been questions around orders pulling forward, we did not see that as much as we believed in some categories. There was slightly more reticence by customers, who are released P. OS as the quarter progressed currency exchange impacts on our Canadian <unk>.

Speaker Change: Operations were a headwind in the first quarter. So our constant currency organic average daily sales was four 7%.

Speaker Change: Also noteworthy since each of our verticals measure selling days differently, we computer consolidated average daily sales metric to add comparability against others reporting total sales day for selling days in the quarter.

Brian King: Adjusted EBITDA for the first quarter grew to nearly $43 million, an increase of 18.6% over the prior year. EBITDA margin, measured as a percentage of sales, rose to 9%, up 30 basis points from the year-ago period, and dragged down by our addition of Source Atlantic, where we have a significant renovation of structural profitability project well underway. Notwithstanding our early heavy lifting on integrating and building out our Canadian unit with the source Atlantic acquisition, we are pleased with the first quarter's year-over-year net margin expansion in each of our three core verticals. Based on disciplined execution of planned initiatives, loss in products generated an adjusted EBITDA, or a net margin of 11.9%, which was higher sequentially from the fourth quarter of 9.8%, and higher than the year-ago quarter, and with the leverage we expect in the future from a larger and maturing field sales team with much better tools, we will expect more and more from loss.

Speaker Change: Adjusted EBITDA for the first quarter grew to nearly $43 million, an increase of 18, 6% over the prior year EBITDA margin measured as a percentage of sales rose to 9% up 30 basis points from the year ago period, and dragged down by our addition of source Atlantic where we have a significant renovation of structural profitability.

Speaker Change: <unk> project well underway.

Speaker Change: Notwithstanding our early heavy lifting on integrating and building out our Canadian unit with the source Atlantic acquisition. We are pleased with the first quarters year over year net margin expansion in each of our three core verticals.

Speaker Change: Just on disciplined execution of planned initiatives Lawson products generated an adjusted EBITDA or a net margin of 11, 9%, which was higher sequentially from the fourth quarter of nine 8% and higher than the year ago quarter and with the leverage we expect in the future from a larger and maturing the field sales team with much.

Speaker Change: Better tools, we will expect more and more from Lawson.

Brian King: Jet Pro Service has generated a net margin of 12.6%, an improvement over the 11% in the previous quarter, and while we see a path for this to improve over time with more revenue leverage and insourcing, more value-added capabilities, we believe the net margin is within striking distance of our EBITDA margin objectives presented two years ago. Finally, test equity reported a net margin of 6.8% in the first quarter, 60 basis points ahead of the year-ago quarter, but still a significant level below where we expect to drive margins in the nearer term off of the integration and commercial discipline efforts largely now in place after the combination of test equity and HSCO.

Speaker Change: Jet Pro services generated a net margin of 12, 6% an improvement over the 11% in the previous quarter and while we see a path for this to improve over time with more revenue leverage and in sourcing more value added capabilities. We believe the net margin is within striking distance of our EBITDA margin objectives presented two years ago.

Speaker Change: Finally test equity reported a net margin of six 8% in the first quarter 60 basis points ahead of the year ago quarter, but still a significant level below where we expect to drive margins in the near term also the integration and commercial discipline efforts largely now in place after the combination of test equity and Hesco marketplace revenue leverage will be.

Brian King: Marketplace revenue leverage will be important to getting margins over the next year above the 10% threshold that we expected to reach by the end of last year, but where in-market demand has persisted is a headwind.

Speaker Change: Porting to getting margins over the next year above the 10% threshold that we expected to reach by the end of last year, but where end market demand has persisted as a headwind.

Brian King: Starting on slide four, I'll review our continued solid progress on strategic initiatives and specifically how we've done in the first quarter. But first, I will summarize DSG's trailing 12-month highlights. Total revenues, including pre-acquisition revenues for periods in 2024, totaled nearly $2 billion. Our adjusted EBITDA margin over the same period was 9.7 percent, up from the prior quarter's trailing 12-month computation. While we are still in the early innings with initiatives in each of our five acquisitions closed in fiscal 2024, our progress on integration and building leverage out of our prior year's acquisitions is largely where we want it, and they are yielding real benefits for DSG, even if some of their end markets are not yet the more stable and healthy conditions for customers that we expect to prevail.

Speaker Change: Starting on slide four I'll review, our continued solid progress on strategic initiatives and specifically, how we've done in the first quarter, but first I will summarize dsg's trailing 12 months highlights total revenues, including pre acquisition revenues for periods in 2024 totaled nearly $2 billion, our adjusted EBITDA margin of the Saint <unk>.

Speaker Change: <unk> was nine 7% up from the prior quarter's trailing 12 month computation, while we're still in the early innings with initiatives in each of our five acquisitions closed in fiscal 2024, our progress on integration and building leverage out of our prior year's acquisition is largely where we want it and they are yielding.

Speaker Change: The real benefits for DSG, even if some of their end markets are not yet the more stable and healthy conditions for customers that we expect to prevail. We remain confident in continuing to unlock value through planned actions to improve DSG structural margins and we have continued confidence to reach our stated goal to more than double EBITDA again over the.

Brian King: We remain confident in continuing to unlock value through planned actions to improve DSG's structural margins, and we have continued confidence to reach our stated goals to more than double EBITDA again over the coming three years, while materially lifting current EBITDA margins. We are pleased to report that Lawson Products, Jexpro Services, and TestEquity delivered EBITDA margin expansion over the prior year. Ron will walk through the segment's financial results shortly, but first, at loss in products Revenues expanded sequentially every month in the quarter for most end markets. The growth was driven by unit volume, an important signal of core strength, and we had minimal benefit from pricing actions in the quarter.

Speaker Change: Coming three years, while materially lifting current EBITDA margins.

Speaker Change: We are pleased to report that Lawson products Jeff's Pro services and test equity delivered EBITDA margin expansion over the prior year.

Ron Clayton: Ron will walk through the segments financial results shortly but first at Lawson products Rep.

Ron Clayton: Revenues expanded sequentially every month in the quarter for most end markets. The growth was driven by unit volume an important signal of core strength and we had minimal benefit from pricing actions in the quarter. Our single most significant initiative for Lawson continues to be the Salesforce transformation. We ended March with about 910 sales reps compared to 800 <unk>.

Brian King: Our single most significant initiative for Lawson continues to be the Salesforce transformation. We ended March with about 910 sales reps compared to 860 sales reps a year ago and a low point of 830 at the end of the second quarter of 2024. So in nine months, we've increased our net rep count by approximately 80 individuals. We are pleased to report that about 60% of our fully onboarded sales reps were assigned to new territories in the quarter versus backfilling existing territories. This is a shift from 2024 where most of our reps covered existing open or replacement territories.

Ron Clayton: <unk> sales reps, a year ago, and a low point of 830 at the end of the second quarter of 2024. So a nine months, we've increased our net rep count by approximately 80 individuals. We are pleased to report that about 60% of our fully on boarded sales rep were signed in new territories in the quarter versus back filling existing territories. This is a shift from <unk>.

Ron Clayton: 24, where most of our reps covered existing open a replacement territories. We saw an increase of 6% of ship to locations during the first quarter over the fourth quarter as new sellers get established in their territories.

Brian King: We saw an increase of 6% of ship-to locations during the first quarter over the fourth quarter as new sellers get established in their territories. This year's commitment to assign sales reps to over 100 new territories is well underway, and our internal goal is to reach 1,000 sales reps in the second half of 2025. While the productivity of our new reps is not yet where we want it, we're confident that investments made over the past 12 to 18 months will benefit our new reps and our longer-tenured sales representatives also. The significant investments we have made over the last 18 months in Lawson's customer-centric sales platform, now includes our expanding outside sales team, teamed with the highly skilled inside team we put in place a year ago, along with the expanded group of technical sales specialists, and the count servicing field sales support we launched in late 2024, with individuals actively engaging our customers every day.

Ron Clayton: This year's commitment to assign sales reps to over 100, new territories is well underway and our internal goal is to reach 1000 sales reps in the second half of 2025, while the productivity of our new reps is not yet where we want it we're confident that investments made over the past 12 months to 18 months will benefit our new reps in our longer tenured sales.

Ron Clayton: It is also the significant investments we have made.

Ron Clayton: Over the last 18 months and losses customer centric sales platform now includes our expanding outside sales team teamed with a highly skilled inside team we put in place a year ago, along with expanded group of technical sales specialists and account servicing field sales support we launched in late 2024 with Individuals' Act.

Ron Clayton: <unk> engaging our customers every day.

Brian King: We are also continuing to enhance our Customer Relationship Management System, or CRM, tool we implemented midway through 2024, where it supports our sales teams by connecting them with customers seamlessly while providing leadership visibility into territory activities in progress. With the CRM and with more ambitious commercial leadership objectives, our DSMs and RSMs, district sales managers and regional sales managers, have a different level of insight and a very different level of accountability on how they are expected to support our expanded investment in our field service reps. On the product side, Our loss in sourcing initiatives that we've been diligently investing in and coordinating across DSG's total procurement spend and broader sourcing capabilities have presented recent opportunities to negotiate with our vendors while reducing our cost per unit, which we recognize with our shorter cycle value-added distribution business model offers us the flexibility to pivot and negotiate on sourcing and even more valuable capability during this period of tariff disruption.

Ron Clayton: We are also continuing to enhance our customer relationship management system or CRM tool, we implemented midway through 2024, where it supports our sales team by connecting them with customers seamlessly, while providing leadership visibility into territory activities and progress with.

Ron Clayton: With the CRM and with more ambitious commercial leadership objectives, our DSM and RSM district sales managers and regional sales managers have a different level of insight and a very different level of accountability on how they are expected to support our expanded investment in our field service reps on the product side.

Ron Clayton: Our loss in sourcing initiatives that we've been diligently investing in and coordinating across Esg's total procurement spend and broader sourcing capabilities have presented recent opportunities to negotiate with our vendors, while reducing our cost per unit, which we recognized with our shorter cycle value added distribution business model offers us the.

Ron Clayton: Alrighty to pivot and negotiate on sourcing and even more valuable capability. During this period of tariff disruption.

Brian King: Lawson also went live recently in the first quarter with our completely re-imagined, enhanced, and expanded e-commerce website. We've received excellent customer feedback on the site so far. As I mentioned in my opening comment, Lawson's EBITDA margins moved from 9.8% in the fourth quarter of 2024 to 11.9% in the first quarter, reflecting a commitment that while the investments we are making, expensive that they are, will not always drive the improvements linearly, the strategy and solid execution by our team on our initiatives will continue to drive structurally higher margins while increasing profits and returns on invested capital.

Ron Clayton: <unk> also went live recently in the first quarter with our completely re imagined enhanced and expanded E. Commerce website, we've received excellent customer feedback on the site so far.

Ron Clayton: As I mentioned in my opening comments losses, EBITDA margins moved from nine 8% in the fourth quarter of 2024% to 11, 9% in the first quarter, reflecting a commitment that while the investments we are making in expenses that they are will not always drive the improvements linearly this strategy and solid execution by our team.

Ron Clayton: On our initiatives will continue to drive structurally higher margins, while increasing profits and returns on invested capital.

Ron Clayton: First quarter revenues in our Canadian Division, which combines bolt supply and sourced Atlanta were soft during the quarter. This was the result of some seasonality, but also the market disruptions from customers reacting to tariff changes currency exchange headwinds and an overall soft project and manufacturing market.

Brian King: First quarter revenues in our Canadian division, which combines Bolt Supply and Source Atlantic, were soft during the quarter. This was the result of some seasonality, but also the market disruptions from customers reacting to tariff changes, currency exchange headwinds, and an overall soft project and manufacturing market. It was also disrupted, in my estimation, by Source Atlantic being a recently acquired business from a long-time family owner, and our Canadian leadership team's objective to both reinvest while synergizing the two businesses that we have in Canada into a coordinated best-in-class Canadian distributor. Jared Janke was recruited to lead the Canadian business as its president.

Ron Clayton: It was also disrupted in my estimation by source Atlantic being a recently acquired business from a long time family owner and our Canadian leadership team's objective to both reinvest while synergize into two businesses into that we have in Canada into a coordinated best in class Canadian distributor.

Ron Clayton: Jared Yankee was recruited to lead the Canadian business as its president his successful track record of leading large distribution businesses in Canada makes him the right leader for the job Jared hired a seasoned and experienced Canadian CFO to help align people culture and initiatives in 2025.

Brian King: His successful track record of leading large distribution businesses in Canada makes him the right leader for the job. Jared hired a seasoned and experienced Canadian CFO to help align people, culture, and initiatives in 2025. Through this leadership investment and ownership transition, our genuine commitment to having capable Canadians build an exceptional business in Canada has been well received. Jared and the team are accelerating the realization of plan synergies by combining source Atlantic and Bolt supply. This includes consolidating four facilities in Western Canada into one, improving gross margins through value creative initiatives, and implementing plan synergies. We expect to realize the synergies between the two Canadian businesses while most importantly organizing and investing in our Canadian company to be a best-in-class specialty distribution partner for Canadian companies, which includes driving its own profitability levels consistent with what we enjoyed with our Western-only Canadian business Bolt Supply.

Ron Clayton: Through this leadership investment and ownership transition our genuine commitment to having capable Canadians build an exceptional business in Canada has been well received Jared and the team are accelerating the realization of planned synergies by combining source Atlantic and bolt supply. This includes consolidating four facilities in Western Canada.

Ron Clayton: One <unk>.

Ron Clayton: Improving gross margins through value accretive initiatives.

Ron Clayton: Implementing planned synergies.

Ron Clayton: We expect to realize the synergies between the two Canadian businesses, while most importantly, organizing and investing in our Canadian company to be a best in class specialty distribution partner for Canadian companies, which includes driving its own profitability levels consistent with what we enjoyed with our western only Canadian business bolt supply.

Brian King: While the marketplace in Canada is more murky currently as the tariff pressures work through the system, we strongly believe having an exceptional presence and commitment to a Canadian business added to DSG's solid commercial flexibility in North America to serve our customers. and was particularly attractive as an opportunity, given that we paid largely for the working capital and real estate delivered by Source Atlantic. Using our Bolt supply house purchase in 2017 as a framework for success in driving margins and offering an opportunity for Source Atlantic to team up, we reflect that Bolt generated high single-digit net margins when we purchased it, and today, net margins consistently run in the 13-14% range on a constant currency basis.

Ron Clayton: While the marketplace in Canada is more market currently is the tariff pressures worked through the system we.

Ron Clayton: We strongly believe having an exceptional presence and commitment to our Canadian business added the DSG solid commercial flexibility in North America to serve our customers and was particularly attractive.

Ron Clayton: As an opportunity given that we paid largely for the working capital or real estate delivered by source Atlantic using our bolt supply house purchase in 2017, as a framework for success and driving margins and offering an opportunity for source Atlantic to team up we reflect the bolt generated high single digit net margins when we purchased it.

Ron Clayton: And today net margins consistently run in the 13% to 14% range on a constant currency basis.

Ron Clayton: Although the Canadian Division sales in the first quarter were below our internal plan, we have confidence in our team and plan and expect the value for shareholders of how we bought source Atlantic and are bringing it into the DSG Canadian fold will result in strong shareholder value creation sources.

Brian King: Although the Canadian division sales in the first quarter were below our internal plan, we have confidence in our team and plan, and expect the value for shareholders of how we bought Source Atlantic and are bringing it into the DSG Canadian fold will result in strong shareholder value creation. Atlantic's market presence, strong customer relationships, and highly strategic coverage fit well with our existing bolt and Lawson businesses in Canada. We have seen sequential improvement each month this year, even with the market noisiness, and we expect the coming consolidation in four of our locations to help drive some of the operating leverage we expect later in the year coming into the Canadian DSG business model.

Ron Clayton: Atlantic market presence strong customer relationships and highly strategic coverage fit well with our existing Bolton Lawson businesses in Canada, we have seen sequential improvement each month this year, even with the market noisy Ness, and we expect the coming consolidation.

Ron Clayton: Four of our locations to help drive some of the operating leverage we expect later in the year into the coming into the Canadian DSG business model.

Ron Clayton: <unk> Pro services, we continued to drive strong quarter over quarter growth in large end markets that include aerospace and defense renewables and technology. These industries collectively represent over half of our daily sales volume and continue to show healthy growth leading to the momentum that <unk> services continues to enjoy if we had to call out.

Brian King: At Jexpro Services, we continue to drive strong quarter-over-quarter growth in large end markets that include aerospace and defense, renewables and technology. These industries collectively represent over half of our daily sales volume and continue to show healthy growth, leading to the momentum that Jexpro Services continues to enjoy. If we had to call out areas with softer sales in Q1 for Jexpro Services, it'd be the industrial power and consumer and industrial segments. However, the activity and bookings for industrial power are improving. We're pleased to report an EBITDA margin expansion in the first quarter to 12.6%, an increase over last year's net margin of 11%.

Ron Clayton: Areas with software sales in Q1 projects Pro services, it would be the industrial power and consumer and industrial segments. However, the activity and bookings for industrial power are improving we're pleased to report an EBITDA margin expansion.

Ron Clayton: The first quarter.

Ron Clayton: 12, 6% and increased over last year's net margin of 11%.

Speaker Change: The team has done a great job leveraging its fairly fixed cost structure as end markets recover acquisitions at <unk> Pro services contributed significantly to the business has momentum and the opportunity for margin improvement. We recently hired a new chief commercial officer projects Pro services and Eric will.

Brian King: The team has done a great job leveraging its fairly fixed cost structure as end markets recover. Acquisitions at Jaxpro Services contributed significantly to the business's momentum and to the opportunity for margin improvement. We recently hired a new Chief Commercial Officer for Jaxpro Services in Eric Wilk. This investment in talent will continue to fuel our growth initiatives, mainly as we focus on investing in our commercial sales pipeline. As a market leader, we will continue to grow and scale as the leading global supply chain services and C-parts provider to OEMs. We also enjoy a strong lens around additional accretive acquisitions planned for 2025 at Jexpro Services.

Speaker Change: This investment and talent will continue to fuel our growth initiatives, mainly as we focus on investing in our commercial sales pipeline as a market leader, we will continue to grow and scale as the leading global supply chain services and see parts provider to Oems. We also enjoyed a strong lens around additional accretive acquisitions planned for 2025 and <unk>.

Speaker Change: Services.

Speaker Change: Moving lastly to test equity group, the core test and measurement revenues grew by mid single digits over the prior year, while growth rates moderated sequentially. We were pleased to see mid single digit increases in electronic production supply revenues compared to last year's first quarter. We're also encouraged by the used and rental equipment.

Brian King: Moving lastly to Test Equity Group. The core test and measurement revenues grew by mid-single digits over the prior year, while growth rates moderated sequentially. We were pleased to see mid-single digit increases in electronic production supply revenues compared to last year's first quarter. We're also encouraged by the used and rental equipment business in both the U.S. and European markets. Our core rental business is up, and a number of our increasingly requesting quotes for new and used equipment. We believe we are well-positioned if customers decide to pull back on new equipment due to tariff price increases, but would rather rent or purchase used equipment.

Speaker Change: Business.

Speaker Change: In both the U S and European markets, our core rental business is up and a number of our customers are increasingly requesting quotes for new and used equipment. We believe we are well positioned if customers decide to pull back on new equipment due to tariff price increases, but would rather rent or purchased used equipment. The.

Brian King: The value of our rental fleet recently increased significantly with our ConRes acquisition. And it's worth a lot more now as the reference pricing is shifting higher due to the tariffs and is driving higher profitability contribution out of our test and measurement rental and use franchise. Our proprietary Test Chambers revenues, which are made in the USA, remain strong in the quarter with strong double-digit revenue and bookings growth, and also are one of our strongest profitability contributors. Hisco sales are up sequentially and are now positioned to steer customers to non-tariff products through Hisco's broadly sourced selection. Several new VMI installations were also implemented in the first quarter, delivering recurring revenue in 2025 and beyond.

Speaker Change: The value of our rental fleet recently increased significantly with our Congress acquisition.

Speaker Change: And it's worth a lot more now as the reference pricing is shifting higher due to the tariffs and is driving higher profitability contribution out of our test and measurement rental and used franchise.

Speaker Change: Our proprietary test chambers revenues, which are made in the USA remained strong in the quarter with strong double digit revenue and bookings growth and also our one of our strongest profitability contributors.

Speaker Change: <unk> sales are up sequentially and are now positioned to steer customers to non tariff products through his goes broadly source selections.

Speaker Change: Several new <unk> installations were also implemented in the first quarter delivering recurring revenue in 2025 and beyond.

Speaker Change: Our aerospace and defense and technology verticals remained strong consistent with what we've been seeing at <unk> Pro services and with new business opportunities for <unk> offerings in the industrial sectors automotive continues to be soft and may continue to be.

Brian King: Our aerospace and defense and technology verticals remain strong, consistent with what we've been seeing at JExPRO Services and with new business opportunities for Hisco's offerings in the industrial sector. Automotive continues to be soft and may continue to be soft given its more sensitive position to the tariff impact. We believe our increased bookings on the production supply business will translate to higher electronic production supply sales of HSCO products, which are expected to improve business unit margins moving forward, along with visibility around more total revenue. Investments over the last year in our go-to-market and sales strategies to ensure better production supply performance are now positively impacting results.

Speaker Change: <unk> given its more sensitive sensitive position of the <unk>.

Speaker Change: Tariff impacts.

Speaker Change: We believe our increased bookings on the production supply business will translate to higher electronic production supply sales.

Speaker Change: Hesco products, which are expected to improve business unit margins moving forward along with visibility around more total revenue.

Speaker Change: Investments over the last year and our go to market and sales strategies to ensure better production supply performance are now positively impacting results.

Brian King: TestEquity's total value proposition provides differentiated products and services by combining the offerings acquired through the TestEquity T-Equipment and Hisco acquisitions with other key tuck-in acquisitions that strengthen our ability to more intimately work with our customers. With a host of value-added service offers. Along with our VP of Integration, my internal team is working relentlessly with the test equity leadership to rebaseline all costs, understand and drive pricing, and allocate additional investments identified to optimize the platform and unlock the profitability opportunity available to this business unit. After two years of relentless effort by the team, about every bit of our customer-facing efforts and capabilities has been retooled as we brought these three larger businesses together with their smaller tuck-in acquisitions, and we believe profitability is beginning to benefit as many of the investments and initiatives are complete.

Speaker Change: Test equities total value proposition provides differentiated products and services by combining the offerings acquired through the test equity key equipment and Hesco acquisitions with other key tuck in acquisitions that strengthen our ability to more intimately work with our customers with a host of value added service offerings along.

Speaker Change: Our VP of integration my internal team is working relentlessly with the test equity leadership to re baseline all cost understand and drive pricing and allocate additional investments identified to optimize the platform and unlock the profitability opportunity available to this business unit after two years of relentless effort.

Speaker Change: By the team about every bit of our customer facing efforts and capabilities has been retooled as we brought these three larger businesses together with their smaller tuck in acquisitions and we believe profitability is beginning to benefit as many of the investments and initiatives are complete our integration cost savings have been largely wrung out at levels greater than our.

Brian King: Our integration cost savings have been largely wrung out at levels greater than our underwriting model, and we are confident that we are seeing early evidence that sales and margins are building as end markets return after a prolonged period of softness. and with the building and conversion of new customer revenue from our reinvigorated commercial sales funnel.

Speaker Change: City model and we are confident that we are seeing early evidence that sales and margins are building as end markets return after a prolonged period of softness.

Speaker Change: And with the building and conversion of new customer revenue from our reinvigorated commercial sales funnel.

Ron Connolly: With that, I'll turn it over to Ron to walk through our financials.

Speaker Change: With that I'll turn it over to Ron to walk through our financials.

Ron Connolly: Ron Thank you, Brian. And good morning, everyone. Turning to slide five, DSG's consolidated revenue for the first quarter was $478 million. This represents an increase of 14.9% driven by $51 million from acquisitions in 2024, along with organic average daily sales growth of 4.3% versus the year ago quarter. When we exclude the impact of foreign exchange on our revenues, our organic average daily sales were 40 bps higher, or 4.7%. For the quarter, we generated adjusted EBITDA of $42.8 million, or 9% of sales, compared to 8.7% in the year-ago period. This represents an increase of $6.7 million over a year ago, of which $4.9 million was generated from the 2024 acquisition.

Speaker Change: Ron.

Speaker Change: Thank you, Brian and good morning, everyone turning to slide five.

Speaker Change: <unk> consolidated revenue for the first quarter was $478 million.

Speaker Change: This represents an increase of 14, 9% driven by $51 million from acquisitions in 2024, along with organic average daily sales growth of four 3% versus the year ago quarter.

Speaker Change: When we exclude the impact of foreign exchange on our revenues our organic average daily sales were 40 bps higher or four 7%.

Speaker Change: For the quarter, we generated adjusted EBITDA of $42 8 million or 9% of sales compared to eight 7% in the year ago period.

Speaker Change: This represents an increase of $6 $7 million over a year ago of which $4 9 million was generated from the 2024 acquisitions.

Ron Connolly: As expected, Source Atlantic compressed our first quarter margins. Excluding Source Atlantic in the first quarter, net margins would have been 9.6%, which was a sequential improvement over Q4 and up against the 8.7% from a year ago. We reported operating income of $20.1 million for the quarter, including $11.6 million in intangible amortization from acquisitions and another $2.7 million of severance or non-cash charges. Adjusted Operating Income improved to $34.4 million or 7.2% of sales, flat with the year-ago quarter as a percent of sales. We reported a gap net income per diluted share of $0.07 for the quarter versus a gap net loss per share of $0.11 a year ago.

Speaker Change: As expected sources landing compressed our first quarter margins.

Speaker Change: Excluding source Atlanta in the first quarter net margins would have been nine 6%, which was a sequential improvement over Q4 and up against the eight 7% from a year ago.

Speaker Change: We reported operating income of $20 1 million for the quarter, including $11 6 million in intangible amortization from acquisitions, and another $2 7 million of severance or noncash charges adjusted.

Operating income improved to $34 4 million or seven 2% of sales.

Speaker Change: With the year ago quarter as a percent of sales.

Speaker Change: We reported a GAAP net income per diluted share of seven for the quarter versus a GAAP net loss per share of 11, a year ago.

Ron Connolly: Adjusted EPS of $0.31 for the quarter compares favorably to earnings per share of $0.25 in the year-ago quarter.

Speaker Change: Just with EPS of <unk> 31 for the quarter compares favorably to earnings per share of <unk> 25 in the year ago quarter.

Speaker Change: Now turning to slide six.

Ron Connolly: Now turning to slide 6. Starting with Lawson, Q1 sales were $120.5 million and average daily sales were up 1.9% on acquired revenue. Organic ADS was down 6.8% from the prior year, primarily due to a decline in military sales and salesforce transformation efforts that Brian talked about. Sequentially, compared to Q4, average daily sales was up 4.3% on growth in all end markets except for flat military sales. For the quarter, Lawson reported an adjusted EBITDA of $14.3 million, or 11.9% of sales, up sequentially from 9.8% in Q4, and an increase over the prior year's quarter of 11.4%.

Speaker Change: Starting with loss in Q1 sales were $125 million in average daily sales were up one 9% on acquired revenue.

Speaker Change: Organic aes was down six 8% from the prior year, primarily due a decline in military sales and sales force transformation efforts that Brian talked about.

Speaker Change: Sequentially compared to Q4 average daily sales was up four 3% on growth in all end markets, except for flat military sales.

Speaker Change: For the quarter loss on a reported and adjusted EBITDA of $14 3 million or 11, 9% of sales up sequentially from nine 8% in Q4, and an increase over the prior year's quarter of 11, 4%.

Ron Connolly: The net margin expansion was driven by sequentially improving sales as the quarter developed and by closely managing operating expenses. We are continuing to proactively manage margins given the potential tariff impact, however, we do not anticipate this will negatively impact Lawson's margins in 2025.

Speaker Change: The net margin expansion was driven by sequentially improving sales as the quarter develops and by closely managing operating expenses.

Speaker Change: We are continuing to proactively manage margins given the potential tariff impact. However, we do not anticipate this will negatively impact <unk> margins in 2025.

Speaker Change: Turning to slide seven first quarter sales for the Canadian segment in U S dollars were $50 5 million, which included a full quarter of source of Atlanta.

Ron Connolly: Turning to slide 7, first quarter sales for the Canadian segments and U.S. dollars were $50.5 million, which included a full quarter of Source Atlantic. Excluding the acquired revenue, organic sales increased 5.3%, however we're up approximately 13% on a constant currency basis. Q1's adjusted EBITDA for the Canada segment was $2.6 million or 5.2% of sales. And excluding Source Atlantic, Q1 adjusted EBITDA for this segment would have been 13.1% for both on a standalone basis. As Brian mentioned, softer sales in the first quarter at Source Atlantic put some downward pressure on their overall net margins.

Speaker Change: Excluding the acquired revenue organic sales increased five 3% however were up approximately 13% on a constant currency basis.

Speaker Change: Q1's, adjusted EBITDA for the Canada segment was $2 6 million or five 2% of sales and.

Speaker Change: And excluding source Atlantic Q1, adjusted EBITDA for the segment would have been 13, 1% for bolt on a standalone basis.

Speaker Change: As Brian mentioned softer sales in the first quarter at source Atlantic put some downward pressure on their overall net margins.

Ron Connolly: Turning to Jack Sparrow Services on slide 8, first quarter revenue was $118.9 million, up over 20% from the year ago quarter, and essentially flat with Q4. However, given the difference in the number of selling days between the quarters, Organic ADS was up 23.3% from a year ago and up 4.6% sequentially from Q4. Jaxpro Services adjusted EBITDA was $15 million, or 12.6% of sales, up from 11% a year ago and compared to 13.3% in the fourth quarter. Operating leverage is strong, and Jaxpro Services continues to cross-sell and realize acquisition synergies with a growing book-to-bill as end markets strengthen compared to the year-ago period.

Speaker Change: Turning to external services on slide eight.

Speaker Change: First quarter revenue was $118 9 million up over 20% from the year ago quarter, and essentially flat with Q4.

Speaker Change: However, given the difference in the number of selling days between the quarters organic EPS was up 23, 3% from a year ago and up four 6% sequentially from Q4.

Speaker Change: Jack <unk> Services', adjusted EBITDA was $15 million or 12, 6% of sales up from 11% a year ago and compared to 13, 3% in the fourth quarter.

Speaker Change: Operating leverage is strong injectable services continues to cross sell and realized acquisition synergies with a growing book to bill and end markets strengthened compared to the year ago period.

Speaker Change: Lastly, I'll turn to test equity grew by slide nine.

Ron Connolly: Lastly, I'll turn to Test Equity Group on slide 9. First quarter sales were $188.8 million, with average daily sales up 2.5% versus a year ago and down sequentially, primarily on softer test and measurement sales. The acquired revenue from Congress for the period was approximately $1.9 million.

Speaker Change: First quarter sales were $188 8 million with average daily sales up two 5% versus a year ago and down sequentially, primarily on softer test and measurement sales do.

Speaker Change: The acquired revenue from <unk> for the period was approximately $1 9 million.

Ron Connolly: Test equities adjusted EBITDA for the quarter was $12.8 million, or 6.8% of sales, up from 6.2% in the prior year quarter and down versus the fourth quarter, which benefited from some non-recurring items. Moving to slide 10, we ended the quarter with $305 million of total liquidity, which gives us plenty of flexibility to execute on our capital allocation priorities. Starting from left to right on the slide, organic growth continues to be a priority for the company with initiatives supporting market share growth, wallet share expansion, and cross-selling. With more than 200,000 customers worldwide, we have diverse end markets to grow our business.

Speaker Change: Cash equities adjusted EBITDA for the quarter was $12 8 million or six 8% of sales up from six 2% in the prior year quarter and down versus the fourth quarter, which benefited from some non recurring items.

Speaker Change: Moving to slide 10, we ended the quarter with $305 million of total liquidity, which gives us.

Speaker Change: Plenty of flexibility to execute on our capital allocation priorities.

Speaker Change: Starting from left to right on this slide organic growth continues to be a priority for the company with initiatives supporting market share grow wallet share expansion and cross selling.

Speaker Change: With more than 200000 customers worldwide, we have diverse end markets to grow our business.

Speaker Change: As Brian will discuss in a moment M&A is critical to our growth strategy and we remain disciplined with our approach, especially during turbulent times when valuations are being tested.

Ron Connolly: As Brian will discuss in a moment, M&A is critical to our growth strategy, and we remain disciplined with our approach, especially during turbulent times when valuations are being tested. Our Working Capital Management Initiatives remain a key focus for our teams and we review these metrics closely during our monthly update meetings. At the end of March, cash and cash equivalents and restricted cash were $80 million and net working capital was approximately $496 million. Debt leverage at the end of the quarter was 3.6 times, which includes 9 acquisitions with deployed cash of approximately $455 million since our merger in 2022.

Speaker Change: Our working capital management initiatives remain a key focus for our teams and we review these metrics closely during our monthly update meetings at the end of March cash and cash equivalents and restricted cash were $80 million and net working capital was approximately $496 million.

Speaker Change: Debt leverage at the end of the quarter was three six times, which includes nine acquisitions would deploy cash of approximately $455 million since our merger in 2022.

Speaker Change: Given our asset light structure, we believe our cash generation is sufficient to manage our leverage in a targeted range of three to four times.

Ron Connolly: Given our asset-light structure, we believe our cash generation is sufficient to manage our leverage in a targeted range of three to four times. As Brian mentioned, we've been proactively repurchasing DSG shares in the first four months of the year, and today we reported 11.2 million of share buybacks in the first quarter. Our trailing 12-month free cash flow conversion was approximately 90%, and we are tracking with the trailing 12-month return on invested capital using NOPAT in our calculation of approximately 11%. As our distribution assets mature, we expect to generate ROIC in excess of 20% as we scale the business.

Bryan King: As Brian mentioned, we've been proactively repurchasing at ESG shares in the first four months of the year and today, we reported $11 2 million of share buybacks in the first quarter.

Bryan King: Our trailing 12 months free cash flow conversion was approximately 90% and we are tracking with the trailing 12 months return on invested capital using no cat in our calculation of approximately 11%.

Bryan King: As our distribution assets mature, we expect to generate Rois C.

Bryan King: In excess of 20% as we scale the business.

Bryan King: Finally, the first quarter's net capital expenditures, including rental equipment were $5 1 billion.

Ron Connolly: Finally, the first quarter's net capital expenditures, including rental equipment, were $5.1 million.

Ron Connolly: We expect our full year 2025 net capex to be in the range of $20 to $25 million, or approximately 1% of our revenue.

Bryan King: We expect our full year 2025, net capex to be in the range of 20% to $25 million or approximately 1% of our revenues.

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

Brian King: I'll now turn the call back over to Brian. Thank you, Ron. The DSG management team, fully aligned with our LKCM Headwater Ops team, continues to actively drive the business to maximize long-term value. And while we are focused on fully realizing underwritten synergies for each of our acquisitions, value accretive organic growth initiatives remain a high priority. We also continue to embrace the tension to drive quarterly performance without foregoing powerful opportunities to compound longer-term profitability and return metrics. Our culture of accountability, collaboration, and continuous operational improvements is at the core of DSG. With five highly strategic acquisitions completed in 2024, our M&A pipeline continues to grow and is vitally important to our long-term growth strategy.

Brian: Thank you Ron the DSG management team fully aligned with our <unk> head what our ops team continues to actively drive the business to maximize long term value and while we are focused on fully realizing underwritten synergies for each of our acquisitions value accretive organic growth initiatives remain a high priority. We also.

Brian: Continue to embrace the tension to drive quarterly performance without foregoing powerful opportunities to compound longer term profitability and return metrics, our culture of accountability collaboration and continuous operational improvements is at the core of DSG with five highly strategic acquisitions completed in 2024.

Brian: Our M&A pipeline continues to grow and is vitally important to our long term growth strategy as I discuss every quarter. We are building a compounding engine, we set high goals for management's allocation of available capital and high goals for performance from those capital deployment. These actions are what drive that compounding engine.

Brian King: As I discuss every quarter, we are building a compounding engine. We set high goals for management's allocation of available capital and high goals for performance from those capital deployments. These actions are what drive that compounding engine. Our leaders in each business unit continue to compete for capital but also collaborate on cross-selling, expanding wallet share with our existing customer relationships, and capturing market share. We believe that executed well, we enjoy a platform set up to grow EBITDA faster than our competitors with a sustainable long-term growth trajectory, offering a highly compelling opportunity for all DSG shareholders to enjoy this compounding engine with us.

Brian: Our leaders in each business unit continue to compete for capital, but also collaborate on cross selling expanding wallet share with our existing customer relationships and capturing market share.

Brian: We believe that executed well, we enjoy a platform set up to grow EBITDA faster than our competitors with a sustainable long term growth trajectory offering a highly compelling opportunity for all DSG shareholders to enjoy this compounding engine with US we are excited to report our progress each quarter and although certain investments take time.

Brian King: We are excited to report our progress each quarter, and although certain investments take time to produce the results we expect, we continue to push forward with persistence and confidence, and we'll continue to invest the time, accountability, and capital in the company to strengthen DSG and to drive shareholder value. Our teams are highly aligned with all shareholders, and we continue to be bullish about our business prospects in 2025 and beyond, consistent with our appetite to buy more shares with our available free cash flow, even while evaluating strategic acquisitions.

Brian: To produce the results. We expect we continue to push forward with persistence and confidence and we'll continue to invest the time accountability in capital in the company to strengthen DSG and to drive shareholder value. Our teams are highly aligned with all shareholders and we continue to be bullish about our business prospects in 2025 and beyond.

Brian: Consistent with our appetite to buy more shares with our available free cash flow, even while evaluating strategic acquisitions. Thank you for your interest in DSG, we've a proven track record for resilience through business cycles benefiting from our asset light model and tight working capital management, which Ron described our specialty distribution platform generate.

Brian King: Thank you for your interest in DSG. We have a proven track record for resilience through business cycles, benefiting from our asset light model and tight working capital management, which Ron described. Our specialty distribution platform generates significant free cash flow, allowing us to efficiently reinvest at high expected returns to unlock value and return capital to shareholders.

Brian: <unk> free cash flow, allowing us to efficiently reinvest at high expected returns to unlock value and return capital to shareholders with that operator lets open the lineup for questions.

Operator: With that operator, let's open the lineup for questions. Thank you. At this time, ladies and gentlemen, we'll be conducting our question and answer session. If you have any questions, please press star 1 on your telephone keypad. A confirmation tome will indicate your line is in the question. and you may press star 2 if you would like to remove your question. participants using speaker equipment, it may be necessary. Lift up your handset before pressing the start button. One moment, please, while we pause for questions. Thank you.

Brian: Foreign key.

Speaker Change: At this time, ladies and gentlemen, we will be conducting a question and answer session.

Speaker Change: If you have any questions. Please press star one on your telephone keypad.

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

Speaker Change: Participants using speaker equipment, it may be necessary.

Speaker Change: So next up your handset before pressing the star keys.

Speaker Change: One moment, please while we pull for questions.

Speaker Change: Thank you.

Tommy Moll: Our first question is coming from Tommy Moll with Stevens. Good morning, and thanks for taking my question. Morning, Tommy.

Speaker Change: Our first question is coming from Tommy Moll with Stephens. Your line is live.

Tommy Moll: Good morning, and thanks for taking my question.

Speaker Change: Morning, Tommy and Tommy.

Brian King: I want to start with a quick one on daily sales trends, and then we'll pivot to a more strategic discussion. But just looking at the Q1 performance, you were up Almost 5% constant currency, organic. Any change to that trend if you look at your April pacing? Anything even not maybe not yet reflecting in your sales, but just anecdotes is it's a pretty rapidly evolving marketplace here. Just anything you've picked up that'd be worth calling out as we calibrate our own expectations would be helpful. Yeah, Tommy, I can comment on what we're seeing here so far in the month of April.

Speaker Change: I wanted to start with a quick one on a daily sales trends and then we'll pivot to a more strategic discussion, but just looking at the Q1 performance you were up.

Speaker Change: Almost 5% constant currency organic.

Speaker Change: Any change to that trend if you look at your April pacing.

Speaker Change: Anything even.

Speaker Change: Maybe not yet reflecting in your sales, but just anecdotes as its a pretty rapidly evolving marketplace here.

Speaker Change: Just anything you've picked up that would be worth calling out as we calibrate our own expectations would be helpful. Thanks.

Ron Clayton: Yes, Tommy I can I can comment on what we're seeing here so far in the month of April.

Brian King: I would say that compared to a year ago, it's tempered a little bit versus what we reported in the first quarter, although if I look at April kind of sequentially versus the first quarter, it's pretty flat versus what we reported here in the quarter. I would say no major kind of movements one way or another. We are impacted a little bit just by number of daily sales. For example, Jacksboro Services has more selling days in April, and that typically kind of compresses the ADS number a little bit, and we see the same thing on the Lawson side when we get more selling days in a particular month.

Ron Clayton: Yes, I would say that compared to compared to a year ago, it's tempered a little bit versus what we reported in the first quarter.

Ron Clayton: Although.

Ron Clayton: If I look at April kind of sequentially versus the first quarter relative relatively flat.

Ron Clayton: Versus what versus what we reported here in the quarter. So.

Ron Clayton: I would say no no major kind of movements, one way or another.

Ron Clayton: We are impacted a little bit just by number of daily sales in for example, Jack for services has more.

Ron Clayton: More selling days in April and that typically kind of compresses the ABS number a little bit and we see the same thing on the loss side when do we get more selling days in a particular month, but.

Ron Connolly: So I would say no major moves as the month of April has developed in terms of what we saw in the first quarter. It is, and I think you're aware of this, so I would say Lawson is, for the first half of the year, Lawson is up against tougher comps versus a year ago, and up against easier comps in the second half of the year, and then when you look at Jacksboro Services, it's really kind of the opposite of that. They're up against easier comps. I think you saw some of that in the comparisons that we just reported, but they're certainly up against tougher comps in the second half of the year.

Ron Clayton: So I would say no no major moves you know as the month of April as developed in terms of what we what we saw in the first quarter. It is and I think you may I think you are aware of this so.

Ron Clayton: I would say loss for the first half of the year loss is up against tougher comps versus a year ago and up against easier comps in the second half of the year.

Ron Clayton: Then when you look at Jets Pro services, it's really kind of the opposite of that they are up against easier comps I think you saw some of that.

Ron Clayton: In the comparisons that we just reported but there are certainly up against tougher comps in the second half of the year. So we've kind of got two different opposite scenarios within each of those two verticals. So I'll pause there.

Ron Connolly: So we've kind of got two different opposite scenarios within each of those two verticals.

Ron Connolly: So I'll pause there. We went to the other vertical.

Ron Clayton: Yes.

Ron Clayton: Went to the other vertical.

Brian King: Tommy, you and I, when we ran into each other, we haven't been seeing a lot of accelerated order flow at all, and I went back and spent some time looking at it. In fact, what we've been more worried about is that, like on test and measurement equipment, some of the POs have been held up. Those capital spending decisions are a little bit bigger than just reloading inventory. While we've been seeing a lot of picked-up interest in test and measurement equipment coming out of the end of last year and the first part of this year, the OEM side of TestEquityHISCO has been seeing some strengthening, but the test and measurement business, which we expected to see a real recovery in and our backlog looks good, the POs have been slower to get released.

Ron Clayton: Tommy.

Ron Clayton: When we ran into each additive we.

Ron Clayton: We haven't been seeing a lot of accelerated.

Ron Clayton: Order flow at all and I went back and spend some time looking at it.

In fact, what we've been more worried about is that like on test and measurement equipment. Some of the P. O as had been held up.

<unk>.

Ron Clayton: Those capital spending.

Ron Clayton: Decisions are a little bit bigger than kind of just reloading inventory and.

Ron Clayton: And so while we've been seeing a lot of picked up interest in text and test and measurement equipment coming out of the end of last year and the first part of this year.

Ron Clayton: There has been.

Ron Clayton: The OEM side of test equity Cisco has been.

Ron Clayton: Seeing some strengthening with the test and measurement business, which we expected to see a real recovery in.

And our backlog looks good the Pos have been slower to get released.

Ron Clayton: So.

Tommy Moll: Thank you both.

Ron Clayton: Thank you both.

Tommy Moll: I wanted to then pivot to a Lawson discussion. I guess there's two pieces of it. Where you described the trends you saw in the first quarter, it was down high single digits. There were two factors, the military sales and the Salesforce rebuild. So my question is for more detail on both of those. On the military side, any any visibility to those trends picking up. I realize it's beyond your control, but any update would be helpful.

Ron Clayton: I wanted to.

Ron Clayton: So then pivot to a loss in discussion.

Ron Clayton: Yes, there's two pieces of it where you described the trends you saw in the first quarter. It was down high single digits. There were two factors the military sales and the sales force rebuild.

Ron Clayton: So my question is for more detail on both of those on the military side any.

Ron Clayton: Any visibility to those trends picking up I realize it's beyond your control, but any update would be helpful. And then on the sales force rebuild maybe a broader discussion just around how the progress is unfolding there you noted.

Ron Connolly: And then on the Salesforce rebuild, maybe a broader discussion just around how the progress is unfolding there. You noted you added, I think, 10 reps net from year end to March end, but how is that progressing versus your original plan?

Ron Clayton: Added I think 10 reps.

Ron Clayton: <unk>.

Ron Clayton: From year end to March end, but how how is that progressing versus your original plan.

Tommy Moll: Yes, Tommy so I can jump in on both of those and then.

Ron Connolly: Yeah, Tommy, so I can jump in on both of those, and then I'm sure Brian will jump in on the second one as well. So on the military, more specifically, here in the quarter, we were still up against some pretty tough comps versus a year ago quarter. But what I would say is that that trend, if we look at it on a sequential basis, has been relatively flat. So if we look at that 6.8% that we were down just in terms of raw dollars, about 40% of that versus a year ago was sitting within the military.

Speaker Change: Sure Brian I'll jump in on the on the second one as well so on the military more specifically.

Tommy Moll: Here in the quarter.

Speaker Change: We were still up against some pretty tough comps versus a year ago quarter.

Tommy Moll: Yes.

Tommy Moll: What I would say is that that trend if we look at it on a sequential basis has been it's been relatively flat so.

Tommy Moll: If we look at that six 8% that we were down just in terms of raw dollars about 40% of that versus a year ago, we're sitting within the military.

Ron Connolly: And then the other pieces, which we've talked about, are just really a lot of the tougher comps that we're up against here in the first quarter. And what I would say, though, on the Lawson side more specifically, is if you look at our sequential sales, really from month to month to month, over the last three or four months, we've seen that improving nicely on a sequential basis. So really, I would say positive trend as the quarter was developing, which was great to see, but then still up against some of the tougher comps. And military certainly is not a driver of that.

Tommy Moll: And then the other pieces.

Tommy Moll: Which we've talked about are just really a lot of it prolongs the tougher comps that we're up against.

Tommy Moll: Here in the first quarter.

Tommy Moll: And.

Tommy Moll: What I would say, though on the loss side more specifically is if you look at our sequential sales.

Tommy Moll: Really from months to months demand over the last three or four months, we've seen that improving nicely.

Tommy Moll: On a sequential basis, so really I would say positive trend as the as the quarter was developing which was great to see.

Tommy Moll: But then still up against some of the tougher comps and in military certainly is not a driver of that as I said military is flat.

Ron Connolly: As I said, military is flat. But we saw sequential improvement within our strategic accounts, as well as our core accounts that, where we saw some more pressure on that in 2024, our core accounts were growing nicely as the first quarter developed as well.

Tommy Moll: We saw sequential improvement within our strategic.

Tommy Moll: Accounts as well as our.

Tommy Moll: Our core accounts.

Tommy Moll: That where we saw some more pressure on that in 2020 for our core accounts, we're growing nicely as the first quarter developed as well.

Ron Connolly: And then I'll just maybe open up the comments here a little bit around Lawson in terms of sales force transformation. As Brian mentioned in his prepared remarks, we continue to make a lot of investments to support our sales reps and help them drive overall productivity. The CRM that Brian mentioned, technical sales specialists, on-site service reps, core business development reps to provide additional leads and so forth. And we were up, call it a net 10 here in the first quarter. We've continued to expand that here in the month of April as well. So we're still, we're growing even a number of sales reps.

Tommy Moll: And then just I'll just maybe open up the comments here a little bit around Washington in terms of Salesforce transformation.

Speaker Change: As Brian mentioned in his prepared remarks, we continue to make a lot of investments to support our sales reps and help them drive overall productivity.

Tommy Moll: <unk>.

Speaker Change: The CRM that Brian mentioned technical sales specialists onsite service reps.

Tommy Moll: Core business development reps to provide additional leads and so forth.

Speaker Change: And we were up.

Speaker Change: Call. It a net 10 here in the first quarter, we've continued to expand that here in the month of April as well. So we're we're still we're growing even a number of sales reps.

Ron Connolly: as April has finished out as well. Our goal is to get back to that 1,000 sales reps by the second half of the year. That's probably not a linear movement either. It's probably going to bounce around a little bit on us. But in 2024, I would say we were really putting more of our reps within kind of defined territories. And here in 2025, where we're placing reps has shifted more towards what we would classify as Greenfield or newer territory. So those are always a little more challenging when you're not inheriting a book of business. So we've seen some higher turnover in some of those, which is generally expected.

Speaker Change: As April has finished out as well our goal is to is to get back to that 1000 sales reps by the by the second half of the year.

Speaker Change: That's probably not a linear.

Speaker Change: Movement to either its probably going to bounce around a little bit on us.

Speaker Change: But in 2020 for I would say we were.

Speaker Change: Really putting more of our reps within kind of defined territories.

Speaker Change: And.

Speaker Change: Here in 2025.

Speaker Change: Where we're placing reps has shifted more towards what we would classify as greenfield or newer territory. So those are always a little more challenging right when youre not inheriting a book of business.

Speaker Change: So we've we've seen.

Speaker Change: Some some higher turnover in.

Speaker Change: And some of those which is which is.

Speaker Change: Generally expected, but and Brian mentioned this as well.

Brian King: And Brian mentioned this as well, we're still working hard on out of the gate, more productivity within our newer sales reps. We all recognize that it's not where we want it to be right now, but we're confident that a lot of these investments that we're making ultimately will have long-term value in that regard.

Speaker Change: We're still working hard on.

Speaker Change: Out of the gate more productivity within our newer sales reps.

Brian: We all recognize that it's not where we wanted to be right now, but but we're confident that a lot of these investments that we're making ultimately we will have we will have long term value in that regard. So let me I'll pause there I'm sure Brian.

Brian King: So let me, I'll pause there. I'm sure Brian will- I'll just add, Tommy, that rep productivity is a real focus for us. And so the CRM has helped us a lot. We're getting kind of linear, we're getting kind of grinding out better performance, but it's been much more metered or much more slow than I would have hoped. But we're picking up one point or more a month, if you will, in rep productivity. We did from February to March, and while we'd hoped to get two or three points in rep productivity more than we got in the quarter, we still ended the quarter in a better spot than we certainly had started the quarter and picked up about half of what we'd hoped to get.

Brian: I'll just add tammi.

Speaker Change: Rep productivity is a real focus for us and so the CRM has helped us a lot.

Brian: We're getting.

Brian: You know kind of linear or we're getting kind of grinding out.

Brian: Better performance, but it's been much more.

Brian: Metered or much more.

Brian: Slow than I would've hoped, but we're picking up one point or more a month. If you will on rep productivity. We did from February to March and while we'd hope to get two or three points in rep productivity more than we got in the quarter. We still ended the quarter in a better spot.

Brian: Certainly it started the quarter.

Brian: And picked up about half of what we'd hope to get and that's an important part of driving higher structural margins in the business higher margins like we generated in the first quarter, even though we added.

Brian King: And that's an important part of driving higher structural margins in the business, higher margins like we generated in the first quarter, even though we added, you know, reps that were a real cost to us. So when you're, anytime you're, you know, these reps are not profitable for us in the first year or so, two years really, and what we're trying to do is shorten that. And so the investment that we're putting into the sales force is weighing down our profitability, but we're seeing, I highlighted it in the call, that we've seen an increased number of ship twos, we're seeing a better level of rep productivity, and it's moving up.

Brian: Reps that were a real cost to us so when youre anytime youre. These reps are not profitable for us in the first year or so two years really and what we're trying to do shorten that.

So the investment that we're putting into the sales force is weighing down.

Brian: Our profitability.

Brian: But we're saying I highlighted it in the call that we've seen an increased number of ship twos, we're seeing a better level of rep productivity and it's moving up and we've got a lot more accountability out of our DSM.

Brian King: And we've got a lot more accountability out of our DSMs, you know, where if they're underperforming and the CRM has given us leading in, you know, a leading lens on that, you know, there's a lot more active conversations about, you know, how we can help them. And then with all the support that we've put into the corporate office in terms of inside sales and business development efforts and customer retention efforts and technical selling to personnel, all that we think is making our field reps more productive.

Brian: Or if they're underperforming and the C.

Brian: <unk> given us leading.

Brian: Yes.

Brian: A leading lens on that there's a lot more.

Brian: Active active conversations.

Brian: You know how we can help them and then with all the support that we've put into the corporate office in terms of inside sales and.

Brian: Business development efforts and customer retention efforts and technical selling too.

Brian: Personnel all of that we think is making our field reps more productive.

Brian: Thank you both I will turn it back.

Tommy Moll: Thank you both. I'll turn it back.

Brian: Okay.

Speaker Change: Thank you. Our next question is coming from Kevin Spanky with Barrington Research your line of sight.

Operator: Thank you.

Kevin Steinke: Our next question is coming from Kevin Steinke with Barrington Research. Your line is Thanks. Good morning. Morning, Kevin. I just wanted to ask about the M&A pipeline.

Speaker Change: Thanks, Good morning, Kevin.

Speaker Change: Hey, Kevin.

Speaker Change: I just wanted to ask about the M&A pipeline, you mentioned that that continues to build and just wondering if this.

Brian King: You mentioned that that continues to build, and just wondering if this environment creates more opportunities for you, if it impacts valuations at all, or your overall thoughts on the M&A landscape. Yeah, I'm happy to tackle that. So, Kevin, we would say that this sort of environment. you know, will ultimately create more opportunity. In our pipeline, we had several things that we were, we have several things currently that we're contemplating and that we're deep in diligence on or at least looking at. And this is also a good time to be, you know, to slow down a little bit and see exactly what, you know, kind of what the rules of engagement are going to be out of Washington.

Speaker Change: This environment creates more opportunities for you with it.

Speaker Change: Impacts valuations at all or your overall thoughts on the.

Speaker Change: The M&A landscape.

Speaker Change: Yes.

Speaker Change: To tackle that.

Speaker Change: So Kevin we would say that this sort of environment.

Speaker Change: We will ultimately create more opportunity.

Speaker Change: And our pipeline we had several things that we were.

Speaker Change: With several things currently that we're contemplating and we're deep in diligence on or at least.

Speaker Change: Looking at it and this is also a good time to be.

Speaker Change: To slow down a little bit and see exactly what kind of what the rules of engagement are going to be out of Washington, and I think that.

Brian King: And I think that, you know, that's the case for sellers and it's also the case for buyers. While we're transacting right now across broadly our, you know, distribution franchise and across our private investment effort, it's with, you know, certainly measured lens. And we took a more measured approach on a couple acquisitions just recently for DSG, where I felt like the right thing to do is we're in the throes of continuing to integrate some of our more recent actions that we've taken, particularly on the Lawson front. I think we've got most of what we wanted to get from an integration perspective out of our efforts on JetSpro services and over at TestEquity, Hisco.

Speaker Change: That's the case for sellers and it's also the case for buyers, while we're transacting right now across broadly our distributions.

Speaker Change: Distribution franchise and across our private investment effort.

Speaker Change: You know certainly measured a lens and we took a more measured approach on a couple acquisitions just instantly for DSG we're off.

Speaker Change: Felt like the right thing to do is we're in the throes of.

Speaker Change: Continuing to add.

Speaker Change: Integrate some of our more recent actions that we've taken particularly on the loss in front.

Speaker Change: I think we've got most of what we wanted to get from an integration perspective out of our efforts on <unk> services.

Speaker Change: And over at test equity his scale, but I don't want to die.

Brian King: But, you know, I don't want to dive in and add complexity to our business model right now at a time when, you know, we're also getting complexity added to us by, you know, by Washington. So, robust pipeline, plenty of opportunity. We expect that we're going to tackle some of those most desirable opportunities over the next 12 months. But I don't think that there's any urgency on our path aside to spend the money right now or to add the complexity. I think sellers are, you know, are anxious as well. You know, so in some levels that can cause for some opportunities in the marketplace.

Speaker Change: Dive in and add complexity to our business model right now at.

Speaker Change: At a time when we're also getting complexity added to us.

Speaker Change: By Washington, So.

Robust pipeline plenty of opportunity, we expect that we're going to tackle some of those.

Speaker Change: Most.

Speaker Change: Desirable opportunities over the next two.

Speaker Change: <unk> months, but I don't think that theres any urgency on our effect on our path of side of it.

Speaker Change: Spend the money right now or to add the complexity.

Speaker Change: Sellers are.

Speaker Change: Are anxious as well so in some levels that can cause for some opportunities in the marketplace. So if the right opportunity presented itself the right seller, who is motivated to <unk>.

Brian King: So, if the right opportunity presented itself, the right seller who was motivated to transact in this environment and offered the right reason to step in, we would do it for sure. But right now, we think the right thing to do is to let some of the complexity settle down. But as we look at our business model, you know, that gives us, you know, an opportunity to buy back our stock. So, that's the good news is that we think that the cheapest acquisition we have right now by far is buying shares.

Speaker Change: Transact.

Speaker Change: In this environment and offered the right of.

Speaker Change: A reason to step in and we would do it for sure but right now we think the right thing to do is to let some of the complexity settle down.

Speaker Change: But as we look at our business model that gives us an opportunity to buy back our stock so.

Speaker Change: That's good news.

Speaker Change: We think that the cheapest acquisition, we have right now by far is buying shares.

Speaker Change: Well it makes thanks that makes sense.

Kevin Steinke: Well, thanks, that makes sense.

Speaker Change: So.

Brian King: So, I know it's kind of still early days and lots of uncertainty around tariff policy, but Are you detecting anything in the market around, you know, potential re-shoring, on-shoring of manufacturing? that could potentially be of a longer-term benefit to you. Well, without a doubt, we think that there's longer term, that there's opportunities that this environment's creating. You know, I'm a firm believer that when you are, you know, great at sourcing, and JetSpot Services is as good of a sourcing engine as there is, we've continued to refine and improve our ability to source more nimbly as well as at better pricing, landed prices at Lawson.

Speaker Change: I know, it's still early days and lots of uncertainty around tariff policy, but.

Speaker Change: Are you detecting anything in the market around.

Speaker Change: Potential reassuring onshoring of manufacturing.

<unk> Patel.

Speaker Change: Potentially be up.

Speaker Change: The longer term benefit to you.

Speaker Change: Well.

Speaker Change: Without a doubt we think that theres.

Speaker Change: Longer term that there is opportunities that this environment is creating.

Speaker Change: I'm a firm believer that when you are greatest sourcing export services as good of a sorcerer sourcing engine is there it is.

Speaker Change: We've continued to refine and improve our ability to source.

Speaker Change: More nimbly as well as better pricing landed prices at a loss and we.

Brian King: We've got a really strong sourcing and broad lens on our OEM side for HSCO. And so this sort of murkiness, especially for where we play as partners with our customers, allows us to create more value. And we think ultimately not only play a better or more important role for our customers, but also, you know, make more money. It's early to see how the trade patterns are going to shift, you know, manufacturing. I think that initially what you're seeing is, you know, anxiety around, you know, cost of raw materials and products that are going into manufacturing and instability of supply chains for our customers that are here.

Speaker Change: We've got a really strong sourcing and broad lens on our OEM side for his go and so.

Speaker Change: So this sort of murky ness.

Speaker Change: Especially for where we play with as partners with our customers allows us to create more value and we think ultimately not only play a better or more important role for our customers, but also make more money.

Speaker Change: The.

Speaker Change: It's early to see how the trade patterns are going to shift.

Speaker Change: Manufacturing I think initially what you're saying is anxiety around.

Speaker Change: Cost of raw materials and products that are going into manufacturing and.

Speaker Change: Stability of supply chains for our customers that are here and so that's.

Brian King: And so that's now longer term or in the medium term. You know, we were already believing after the first administration of Trump that there was a strong force towards reshoring and nearshoring. And we obviously have continued to build our business around that. We also believe that there was going to continue to be anxiety and pressures around global sourcing and instability around supply chains. And so we spent a lot of time over the last five years studying how to address that inside of the business that we put together here. So we feel like we're well positioned.

Speaker Change: Now longer term or in the medium term we were already believing after the first administration of Trump that there was a strong force towards re shoring and near shoring and we obviously have continued to build our business around that we also believe that there was going to continue to be anxiety and pressures around global sourcing.

Speaker Change: Instability around supply chain and so we spent a lot of time over the last five years.

Speaker Change: Studying how to address that inside of the business that we put together here.

Speaker Change: We feel like we're well positioned we're not caught off guard on this transaction.

Brian King: We're not caught off guard on this transaction or I'm sorry, off this policy shift at all. We expected some elements of it. Is it more murky right now than we expected it would be? But murkiness in some ways can allow somebody who plays in our role with our customers some advantages. The disadvantage is that our customers are, you know, have anxiety. And when they have anxiety around, you know, there's the stability of their supply chains for the products that they need or the parts that they need to make their products here, you know, or if they're worried about their own profitability, then they're, you know, measuring their POs more carefully right now.

Speaker Change: Transaction or I'm, sorry. After this policy shift at all we expected some elements of it.

Speaker Change: Is it more murky right now than we expected it would be yes, but martinez in some ways can allow somebody who plays in our role with our customers. Some advantages the disadvantages that our customers are.

Speaker Change: Anxiety and when they have anxiety around there's the stability there.

Speaker Change: Supply chains for the products that they need or that the parts that they need to make their products here.

Speaker Change: There.

Speaker Change: Or if they're worried about their own profitability and they're measuring their P. O's.

Speaker Change: More.

Speaker Change: Carefully right now.

Speaker Change: Okay.

Kevin Steinke: Okay, that's helpful. Thanks for the comments.

Speaker Change: Helpful. Thanks for the comments ill turn it back over.

Brad Hathaway: I'll turn it back over. Thank you. Our next question is coming from Brad Hathaway with Fairview Capital.

Speaker Change: Thank you. Our next question is coming from Brad Hathaway with far view capital. Your line is live.

Brad Hathaway: Your line is Morning Brad. Hi everyone. Morning. Hope all is well. It's foggy outside. That kind of feels like it's foggy in Texas. Yeah.

Brad Hathaway: Good morning, everyone and.

Speaker Change: Hope all is well.

Brad Hathaway: Okay.

Brad Hathaway: Kind of feels like.

Brad Hathaway: Foggy.

Brian King: Maybe Washington dialed it in for It's foggy and rainy here as well. So I was pleased to see the commentary around the target of 20% returns on invested capital, and I was wondering if we could just talk a little bit about the path to that. So obviously one key part of the path is increasing the numerator, which is NOPAT, but the second part is clearly obviously managing the denominator very well. So I was, you know, curious to kind of some of your, you know, maybe more qualitative views on how we get from where we are today to that kind of 20% target.

Brad Hathaway: Yeah.

Brad Hathaway: Maybe Washington dialed it in for Us.

Yes, it's foggy and rainy year as well.

Brad Hathaway: So I was pleased to see the commentary around the target.

Speaker Change: <unk> target of 20% returns on invested capital and I was wondering if you can just talk a little bit about the path to that so obviously one key part of the path is increasingly numerator, which is no Pat but the second part is clearly obviously managing the denominator very well. So I was just curious to kind of some your.

Speaker Change: Yeah, maybe more qualitative views on how we get from where we are today to that kind of 20% target.

Ross: You would start Ross, yes, I can.

Speaker Change: I'll start Brian so thanks, Brad so.

Speaker Change: We feel.

Speaker Change: We know that.

Speaker Change: That calculation today is getting compressed.

Speaker Change: <unk> upon the acquisitions that we've made over the last over the last couple of years and.

Speaker Change: And we have our underwriting synergies that we're that we're certainly working towards an all of the acquisitions of which five of them were made in 2024. So I would say that the biggest opportunity for us to drive that towards that 20% is.

Speaker Change: On the numerator side.

Speaker Change: And it's for example, like on source Atlantic.

Speaker Change: Getting them from mid single digits too.

Speaker Change: 10% that that we've talked about in the past and so and now they are facing some bigger I would say kind of market headwinds.

Speaker Change: Within the Canadian market, but.

Speaker Change: That's the largest opportunity in terms of.

Speaker Change: Getting those.

Speaker Change: Acquisitions to where we underwrote them too.

Speaker Change: As they develop out.

Speaker Change: On the numerator side certainly.

Speaker Change: Managing working capital as a key priority for us I.

Speaker Change: I think I've mentioned this on previous calls we have really every every individual that participates in an annual plan within all three companies.

Speaker Change: With very specific targets as to where we want working capital as a percent of sales to make sure that we're managing those investments.

Speaker Change: And there is still some opportunity there in terms of making sure that one we continue with the highest service levels to our customers, which is number one priority, but also balancing that against <unk>.

Speaker Change: Primarily on the inventory side.

Speaker Change: Terms of the inventory that we're carrying so.

Speaker Change: And if you look at it across across ESG it varies that working capital varies.

Speaker Change: <unk> Pro is call it about 30% test equity group and loss and are in the kind.

Speaker Change: Low twenties.

Speaker Change: And again, we think that there is still some opportunity there, but I think the biggest creator of getting towards that 20% is on the numerator side. So I know, Brian you probably want to jump in that as well.

Speaker Change: I think youre right. Its a numerator theres four levers that we're working on the numerator side, Brad there are some cost synergies and savings and kind of continuing to drive efficiencies out of the network of DSG, which we have gotten a lot of the underwritten synergies out of the acquisitions pretty last year at.

Speaker Change: At this point factored a lot more than we originally underwrote and we think that there is more yet to come but most of that's done we've got next last years.

Speaker Change: Cost synergies that we're working on taken out and then there's just kind of a re underwriting of all of our spend which is just more broad across ESG and how we can do.

Speaker Change: How we can be more efficient there some of that sourcing.

Speaker Change: So there so on the sourcing side, we think there's opportunity to continue to buy better at the same time, we think that the environment that we're in it's not only allow us to.

Speaker Change: Value by buying but there is we've taken some pricing pricing initiatives in the marketplace and we expect that some of our vendors are going to be.

Speaker Change: Repricing their own products to us and it's come and it's consistent with the way that we've operated in the past to be able to pass that on and to pick up some margin along the way incremental margin.

Speaker Change: And so that's a lever that.

Speaker Change: The third lever is going to be the market normalization I mean, we've got some end markets that are still not where we want them to be on the those businesses. We've highlighted some of them obviously.

Speaker Change: Electronic production.

Speaker Change: Uh huh.

Speaker Change: The electronic manufacturing.

Speaker Change: Expanded manufacturing for his go has been a weak and market has shown some life again for us, but it's not.

Speaker Change: Where we expect it to be there.

Speaker Change: The test and measurement business has been obviously, a lagging part of the business for some period of time, we've talked about industrial or C&I.

Speaker Change: For Jack Pro.

Speaker Change: Services and.

Speaker Change: Obviously, the military spend for us it Lawson are ones that jump off the paper.

Speaker Change: And now we've got you know some of the drag in the Canadian market right. Now is they are trying to digest the relationship with the U S and their trade partner.

Speaker Change: And then the last one is you are going to be the <unk>.

Speaker Change: At work in fact that we think we've created and as we look at the business. We really do have ambitious objectives around organic revenue growth, we will get some out of layering on a 100 plus more sellers at loss and we expect that that we're seeing increased ship twos, we're seeing efficiency. We know the natural maturation of those hundred plus sellers that were.

Speaker Change: It's going to be adding this year.

Speaker Change: And and we know how that drives organic revenue we just.

Speaker Change: Hired a exceptionally strong commercial chief commercial officer at Jetblue services. He was a longtime member of their leadership team.

Speaker Change: It went away.

Speaker Change: Big roles in the marketplace and wanted to come back to help build out your export services, where.

Speaker Change: The team that he used to work with is still there that was a great.

Speaker Change: Recruitment, we've got strong recruitment that we did it inside of Canada for our Canadian operation all of that bodes for strong.

Speaker Change: Organic revenue opportunities for us to completely re imagine and redesign test equity his co sales.

Speaker Change: Effort, we expect.

Speaker Change: To get back towards organic revenue growth there not just the normalization of market. So those are the four levers and those four levers drive the top I think that we've done a good job on the on the denominator the denominator is.

Speaker Change: Tricky in an environment that we're in so while we can drive more efficiency on kind.

Speaker Change: Kind of percentage of revenue intensity of our working capital, which we expect.

Speaker Change: To continue to do we know that our working capital investment is likely going to go up with inflation and with tariffs and so that's.

Speaker Change: We just got to continue to do better there, but more importantly, as we make those investments against inflationary pressures or tariffs and we're repricing that product our expectations that we can make more money.

Brian King: You know, we just got to continue to do better there, but more importantly, as we make those investments against, you know, inflationary pressures or tariffs, and we're repricing that product, you know, our expectation is that we're gonna make more money. Got it. Excellent. That's really helpful. So I guess mainly, the main levers are still some of the kind of getting... the Businesses to the Profitability you expect them to with no acquisitions mature and obviously there's a little bit on the working capital side, but it's mainly a numerator question. That's right. I mean, I appreciate kind of, yeah, I appreciate your putting that kind of 20% number out there and I think as you kind of discuss more the path from where we are today to that, that will be very helpful.

Speaker Change: Got it.

Speaker Change: Excellent that's very helpful. I guess, mainly the main levers are still some of your kind of getting.

Speaker Change: The businesses are the profitability you expect them to do it through acquisitions mature and obviously, there's a little bit on the working capital side, but it's mainly a numerator question understood that's right.

Speaker Change: It kind of yes, I appreciate you putting that kind of 20% number out there and I think as you kind of discuss more of the path from where we are today to that that'll be very helpful. Thank.

Brad Hathaway: Thank you. Yeah. Thanks, Brad. Thank you.

Speaker Change: Thank you Bill.

Brad Hathaway: Thanks, Brad Thanks, Brad.

Speaker Change: Thank you.

Katie Fleischer: Our final question today is coming from Katie Fleischer with KeyBank. Hey, good morning. You guys have covered most of my questions, but I just wanted to ask for a little bit more color on how we should be thinking about source Atlantic margins going forward. Just any color you can provide on how to think about that compression in coming quarters, and if it should improve a bit. I understand the visibility is limited, but anything you can share there would be helpful.

Speaker Change: Our final question today is coming from Katie Fleischer with Keybanc Your line in Tonight.

Speaker Change: Hey, good morning.

Speaker Change: You guys Didnt covered mode.

Speaker Change: Just a my question, but I just wanted to ask for a bit.

Speaker Change: More color on how we should be thinking about or suddenly <unk> margin going forward just any any color you can provide on how to think about that compression in coming quarters, and if it should improve a bit I understand the visibility is limited, but anything you can share there would be helpful.

Speaker Change: Yes, so I'll jump in on <unk>.

Ron Connolly: Yeah, so I'll jump in on that, Katie. When we look at Source Atlantic, I mentioned one of the other questions, kind of being in that mid-single-digit range. When we underwrote the business, a path to 10% is really where we're striving towards. I would say that, and that is a combination of many factors, gross margin improvement, consolidation of some of the locations with Bolt Supply. I think you're aware that we are combining that business with Bolt Supply under Jared's leadership that Brian commented on earlier, but on a standalone basis. I would say, as we have those plans and we're executing, we're seeing the gross margin improvement.

Speaker Change: When we when we look at.

Speaker Change: Source Atlantic I've mentioned.

Speaker Change: The other <unk>.

Speaker Change: <unk> kind of being in that mid single digit range.

Speaker Change: When we underwrote the business.

A path to 10% is really where we're striving towards I would say that.

Speaker Change: That is it is a combination of many factors.

Speaker Change: Gross margin improvement.

Speaker Change: Consolidation of some of the locations with bolt supply I think youre aware that that we are combining that business.

Speaker Change: With bolt supply under under <unk> leadership that Brian commented on earlier.

But on a standalone basis, and I would say is we.

Speaker Change: As we have those plans and we're executing we're seeing we're seeing the gross margin improvement.

Ron Connolly: You'll see some of the branch consolidation that'll take place mid-year this year on a few of those locations that we identified early on during the underwriting process. I think that the top-line pressure there, in terms of just overall sales, is probably going to push out, getting to that double-digit EBITDA out into next year, versus initially thinking that we would find our way exiting 2025 there. I think the reality is it's going to be pushed out a bit, given the sales levels. I would say, though, that we're actively taking other actions around cost controls to make sure that we've got our cost model there synced up with what we're seeing from a revenue standpoint.

Speaker Change: Youll see some of the branch consolidation that will take place.

Speaker Change: Mid year this year on a few of those locations that we identified early on during the underwriting process.

Speaker Change: I think that the top line pressure there in terms of just overall sales.

Speaker Change: Is probably going to push out.

Speaker Change: Getting to that double digit EBITDA.

Speaker Change: Out into next year versus initially thinking that we.

Speaker Change: We would find our way kind of exiting 2025, there I think the reality is it's going to be it's going to be pushed out a bit given the sales levels.

Speaker Change: Would say, though that we are we're actively.

Speaker Change: Taking other actions around cost controls to make sure that we've got our cost model, they're synced up with what we're seeing from a from a revenue standpoint.

Speaker Change: But and we've been.

Ron Connolly: The visibility around that, you'll be able to see most of it within our reporting. Bolt Supply continues to operate in the 13% to 14% margin range, and we'll continue to have visibility on the break out of those two companies as to how it's rolling up.

Speaker Change: The visibility around that youll be able to primarily youll be able to see most of it within our within our reporting bolt supply continues to operate in the 13% to 14%.

Speaker Change: Margin range, so and will continue to show visibility on the on the break out of those two companies as to how it's rolling up but.

Brian King: I'll stop there and see if there's any follow-up. Yeah, I'll just say that there's, you know, when we underwrote it, there's... probably two or three critical things to understand. One is, you know, we've nicely paid for working capital and real estate. So, and we got a really nice book of business with some great employees, with a lot of good customers, and we covered more of the geography of Canada than we were currently covering with Bolt Supply House. And we had a lot of Lawson and Kent sellers in Canada that we felt like could leverage having a stronger on-the-ground presence that Source Atlantic was going to give us in the eastern half of the country.

Speaker Change: So I'll stop there and see if there is any follow up.

Speaker Change: Yes.

Speaker Change: Yes.

Speaker Change: When we underwrote it.

Speaker Change: Probably two years or three critical things to understand one is we've nicely paid for working capital and real estate.

Speaker Change: And we got a really nice book of business with some great employees.

Speaker Change: A lot of good customers and we covered more than geography of Canada. Then we were currently covering with bolt supply house, and we had a lot of Lawson and Kent sellers in Canada that we felt like could leverage having a stronger on the ground presence that source Atlantic was going to give us in the eastern half of the country.

Speaker Change: They were had opened up operations in Western Canada, and so their earnings were unnaturally depressed at that.

Brian King: They had opened up operations in western Canada, and so their earnings were unnaturally depressed at that, you know, mid-single-digit EBITDA level because of the costs that they were bearing on these greenfields that they'd opened up in western Canada that were losing money. We were consolidating those locations into our Bolt Supply locations that were down the street, and so that takes out a bunch of overhead and expenses that significantly would improve their profitability kind of in the back half of the year. That's the reason why we felt like that move alone was the biggest move to get from 5% to 10% in rough terms on their EBITDA margin.

Speaker Change: Mid single digit EBITDA level because of the cost.

Speaker Change: They were bearing on these greenfields that they've opened up in western Canada that were losing money.

Speaker Change: We're consolidating those locations into our bolt supply locations that were down the street and so that takes out a bunch of overhead and expenses with significantly improved would improve their profitability.

Speaker Change: Kind of in the back half of the year. That's the reason why we felt like that that move alone.

Speaker Change: The biggest move to get to.

Speaker Change: From 5% to 10%.

Speaker Change: Rock terms on their EBITDA margin the challenges right now, Canada, some deleveraging going on on the top line, which is just right now with as murky as the backdrop is for the Canadian economy.

Brian King: The challenge is right now Canada has some deleveraging going on on the top line, which is just right now with as murky as the backdrop is for the Canadian economy, we don't want to be prognosticating what's going to happen with the Canadian marketplace right now. There's been some delayed purchase orders there. It's a time of the year and winter where some of that's going to get delayed anyway, but we would expect with the fall and post-fall that we would see how their economy is really set up to perform, and right now there's some anxiety in Canada.

Speaker Change: Don't want to be.

Speaker Change: Gnostic hating whats going to happen with the case with the Canadian marketplace right now.

Speaker Change: Theres been some delayed purchase orders there.

Speaker Change: It's a time of the year and winter, where some of that is going to get the light anyway.

Speaker Change: But we are we would.

Speaker Change: With the fall in postal that we would see how their economy is really set up to perform.

Speaker Change: And right now.

Speaker Change: There are some anxiety in Canada.

Brian King: They just got through an hopefully some of the anxiety settles down and purchase orders are released, but it's harder to get to that 10% number even with the cost savings and the very modest gross margin work that we're doing that we underwrote to that we thought were easier levers to pull if you don't get stability out of the top line.

Speaker Change: I've just got through an election, hopefully some of the anxiety settles down and purchase orders are released.

Speaker Change: But that it's harder to get to that 10% number even with the cost savings and the very modest gross margin work that we're doing.

Speaker Change: By.

Speaker Change: We all that we underwrote to that we thought were easy lap easier levers to pull.

Speaker Change: If you don't get stability out of the top law.

Speaker Change: Okay. Thank you both that's very helpful I'll turn it back.

Katie Fleischer: Okay, thank you both. That's very helpful. I'll turn it back. Thank you.

Speaker Change: Thank you.

Brian King: As we have no further questions on the lines at this time, I would like to turn it back over to Mr. King for his closing remarks. I appreciate everybody's interest in DSG and taking time out of their busy mornings. We are excited to continue to be your partner, and we have a strong perspective about the value we're continuing to build for all of the shareholders, and that's the reason why we are out there in the marketplace. Hope you're doing well. Thanks. Bye. Thank you ladies and gentlemen.

Speaker Change: We have no further questions on the lines at this time I would like to turn it back over to Mr. King for his closing remarks.

Bryan King: I appreciate everybody's interest in DST, and taking time out of their busy morning.

Bryan King: We are excited to continue to be your partner and.

Bryan King: We have strong.

Bryan King: Perspective about the value, we're continuing to build for all of the shareholders and that's the reason why we are out there in the marketplace.

Speaker Change: Hope Youre doing well thanks.

Speaker Change: Thank you ladies and gentlemen, this does conclude today's call you may disconnect. Your lines at this time and we thank you for your participation.

Operator: This does conclude today's call. You may disconnect your lines at this time and we thank you for your participation.