Distribution Solutions at Midwest Ideas Conference: Strategic Growth Insights

On Wednesday, 27 August 2025, Distribution Solutions Group Inc. (NASDAQ:DSGR) presented at the 16th Annual Midwest Ideas Conference. The company showcased its strategic focus on growth through both organic means and acquisitions, while also highlighting its robust financial performance. Despite the challenges of a dynamic market, Distribution Solutions has maintained its resilience through diversification and strategic investments.

Key Takeaways

• Distribution Solutions has doubled its revenue to 2 billion dollars in 3.5 years.
• The company has achieved an adjusted EBITDA run rate of 195 million dollars.
• Nine acquisitions have been completed, deploying 550 million dollars in capital.
• Revenue retention rates are high, with Gexpro Services at nearly 98%.
• The company ended Q2 with no borrowing and 60 million dollars in cash.

Financial Results

• Revenue: 2 billion dollars on a combined basis.
• Adjusted EBITDA: Approximately 10% margin, with a run rate of 195 million dollars.
• Revenue Growth: Over 14% total, with 3.3% being organic.
• Free Cash Flow: Capital expenditures are about 1% of revenue.
• Leverage: Comfortable range of 3 to 4 times, with a current leverage of 3.5 times.
• Share Repurchases: 20 million dollars in the first two quarters of the year.

Operational Updates

• DSG operates through three verticals: Lawson Products, Gexpro Services, and TestEquity.
• Lawson Products boasts approximately 930 sales reps and a 70% product gross margin.
• Gexpro Services serves 1,800-2,000 customers, providing Class C parts.
• TestEquity contributes around 40% of DSG’s revenue, offering test and measurement equipment.
• The acquisition of Hisco has been fully integrated into TestEquity.
• Strong pricing capabilities help mitigate tariff impacts.

Future Outlook

• Focus on organic growth and acquisitions within the existing verticals.
• Targeting GDP plus 1-2% organic growth across these verticals.
• M&A strategy emphasizes acquiring established businesses at high single-digit EBITDA multiples.
• Continued reinvestment in business and acquisitions.
• Comfortable with leverage in the 3-4x range, utilizing the balance sheet for acquisitions.

Q&A Highlights

• M&A within existing verticals remains a priority due to ample opportunities.
• Integration strategies vary, with some acquisitions fully integrated and others operating separately.
• DSG is the most significant investment for LKCM Headwater, emphasizing its strategic importance.
• Tariffs are managed through pricing strategies, domestic sourcing, and private label options.

For a detailed view, readers are encouraged to refer to the full transcript below.

Full transcript - 16th Annual Midwest Ideas Conference:

Stephen: Ready? Okay. Good afternoon, everyone. Next, presenting today is gonna be Distribution Solutions Group, DSGR is the ticker. With us from the company is Ron Knudson, who’s the CFO.

Ron is also the CFO of what you probably remember from here in Chicago, especially Lawson Products, which was one of the businesses that was merged into the multiple business here of Jexpro Services, TestEquity and Lawson Products to create Distribution Solutions Group. So some of you may remember Ron, but if not, I’ll turn it over to Ron to go from there. Thanks, Ron.

Ron Knudson, CFO, Distribution Solutions Group (DSG): Great. Thanks, Stephen, and good afternoon, everybody. So with me also today is Brett Scarborough. Brett’s VP of Strategy, Investor Relations on the DSG side and Brett works really close. He’s actually LKCM, which is our largest shareholder owning 78%.

So Brett plays a critical role both on the LKCM side as well as DSG. So he’s here to help us out this afternoon as well. So I’m going to give just a high level overview of of DSG and as Stephen mentioned the bringing together of three organizations Lawson Products on the MRO side, Gexpro Services on the OEM production side and then Test Equity on the Industrial Technology side. What I would say is that the common thread amongst all three of these companies and really DSG’s overall value proposition to our customers is that we are a high touch, high value, very well embedded with customers and provide them not only the product, but really the additional labor and services that they need. So we’re not a we’re not just a straight distribution organization.

We’re all we’re worried about is distributing product. A big, big piece of our value to our customers is the additional support that we offer through them through VMI services, through sourcing services, through additional technical support whether or not it’s on the technology side or on the just on the product side and really well embedded within the organization. Just some high level stats, we’re about a $2,000,000,000 organization on a combined basis in terms of revenues, earnings or adjusted EBITDA running right around 10%. When we brought the organization together three point five years ago, we were less than $1,000,000,000 in revenue and we’re about $90,000,000 in EBITDA. This year, we’re on a run rate of about $195,000,000 if you look at the trailing 12,000,000 So effectively in about three point five years, we’ve doubled the size of the business both through organic improvement of our operations and we’ll talk a little bit about the three individual companies and how they go to market and then also our acquisition strategy, which is a big, big piece of our overall growth strategy.

We service over 200,000 customers and about 85% of our revenue is in North America. But one of the things that’s really nice with DSG is we have really no customer concentration or no end market concentration either. So it’s a great position to be in when we see any softening within any of our end markets to be able to leverage our relationships with a lot of other customers. So maybe before we jump into a ton of detail, kind of why invest in DSG. I’ve touched on a couple of these points.

We’re a leading specialty distributor. That’s how we describe ourselves. We go to market with a really strong product sourcing capabilities. We work with over 10,000 suppliers. We have in excess of 500,000 SKUs that we can get out to our customers really and all of our companies have the ability to source products even though we may not stock them within our distribution centers as well.

Comprehensive high touch, high value distribution services, so that can range anywhere from Lawson Products has about 1,000 sales reps that are going out and visiting 70,000 customers. And effectively our customers are outsourcing the labor to Lawson to show up for forty five minutes a week. Lawson Products loves their products, but also operates at a gross margin product margin of around 70%. You don’t see that within normal distributors and the reason we’re able to achieve that 70 is because the customers value the service and the offering and the knowledge that our sales reps take to our customers. A couple of areas that and I’ll touch on this later as well.

A couple of areas that really places DSG in a really strong position from a macro perspective, I would say labor shortages. All three of our companies, all three of our verticals offer a lot of labor support to our customers. We don’t see that labor shortage getting easier. We in fact see it getting tougher. So to the extent that we can supplement our customers with on-site labor, We think that that’s a really good solution for our customers to outsource that to us.

On sourcing, bringing production back to The U. S. Again that place is really all three verticals in a really strong position whether or not it’s break fix on the MRO side, whether or not it’s OEM production on the Class C parts or if it’s Industrial Technology which is really Test Equity Group bringing a lot of those facilities and production back to The States places DSG in a really strong position. And then lastly the IoT of everything. Everything we touch today has some type of technology slant to it.

Test Equity Group, which is about an $800,000,000 piece of our business supports all of that production as well as some test and measurement equipment that places them in a great position to take advantage of that. Proven acquisition platform, made technically we’ve made nine acquisitions since we brought DSG together. There’s a couple more that closed right about at the same time that we brought DSG together. So you’ll see we flip back and forth between nine and eleven sometimes. But on the nine, we’ve deployed about $550,000,000 of capital, about $100,000,000 of that was through a rights offering and remainder of that was really through internal cash flow generation and debt on our balance sheet.

And then driving mid to long term EBITDA expansion, all three verticals have expansion opportunities from a margin standpoint in generating consistent really strong cash flows. If we think about where or free cash flow generation, our CapEx is only about 1% of our revenue. So to my point earlier on $195,000,000 of trailing 12 EBITDA, we’re only putting back about $20,000,000 back in from a CapEx perspective. So we really like the free cash flow generation of DSG. The other piece that kind of comes right along with that is why we like specialty distributors.

And it’s a business model that really differentiates us from many other distributors. We are not out competing on price with Amazon or with anybody else that’s solely looking for price is their way to win the customer. We feel like our capabilities, our technical knowledge, our ability to really be in front of our customers on multiple levels of platforms and our ability to source products is a real strength of DSG and really builds a nice competitive landscape for us or a competitive moat that it’s hard to other for it’s hard for others to replicate that. We believe that the consolidation of and the acquisition of companies within this market, it’s a pretty fragmented market. There are hundreds of acquisition opportunities.

I’ve mentioned that we’ve made nine so far within the first three point five years. Typically, we will be paying in the high single digit as a multiple of EBITDA. We like to buy really good businesses that we see a path towards margin expansion and a reduction of the turns in terms of where we bought them at. And then I touched on this diversification across a lot of end markets, customer suppliers, end markets, geographies and we’re resilient through a lot of business cycles. Even if you look at what we’ve done in the last three point five years, I would describe the industrial distribution space is relatively flat.

I think ISM has been down for twenty nine out of the last thirty one months or something like that. So even within that we’ve been able to really execute on a really nice platform that we put together. I’m not going to touch too much on this. I think I already hit it pretty hard relative to the value added capabilities. And I’ll talk a little bit about this on each of the three businesses.

But even as an example, one the offerings that really I think places Jexprus puts Jexprus services apart from other competitors is about 70% of their products that they provide to our customers is spec to the customers need. So what’ll happen there is a customer will come to us, they will say we want you to handle all of the class c items which could be 60 to 70 part of the parts that may go into the production, but it may be only be 5%, 6%, 8% of the cost. And so our customers look at that and say look, they would rather focus on the larger dollar items from their own purchasing department and they provide JexPro services the specs. We go out, we find the supplier, find the I’m sorry the manufacturer, we provide all the just in time delivery. We’ve got insight into the customer’s production cycle and we make sure that the product is there when they need it.

So that’s just one example of how in-depth we are within our customers and how well embedded we are within our customers. And then the human capital piece of it, can’t emphasize this enough. You know our human capital, the sales individuals that we have on board, the thousand sales reps at Lawson or the technical individuals within the test equity group. You would think that selling solder is not a technical sale but it is. You have to know all the dynamics of the different types of welding equipment and soldering and all the specifics around tapes and adhesives in terms of what can affix to what different types of products.

So that’s a real skill set that I would say goes across all three of the verticals for for DSG. So again, I think I’ve hit on most of these items. Let me just pull out a couple of items here really quick. Strong sticky role within the value chain of our customers. We have upwards of 92% revenue retention.

So once we are in with a customer, it is we retain that customer. And I would say even on the Jexpral services side that number is closer to 98%. And certainly on the Lawson side within our larger accounts, it’s a really high retention rate as well. It’s rare that we look at some of our larger customers that we lose the business. I mentioned this 10 plus industries over 200,000 customers that we service and about 10,000 different suppliers.

When we brought the three companies together pre merger, EBITDA was running at about 8%, south of the $100,000,000 that I mentioned previously. Trailing 12 is we look at it most recently, we’re about 9.5%. I always view that really more as about a 10%. A couple of the acquisitions that we’ve made recently, we knew we’re going to compress that a bit. In fact, one acquisition we made a year ago, Source Atlantic up in Eastern Canada, has compressed our margins over the last couple of quarters by about 60 bps.

We’re not concerned about that. We’re not always going out trying to acquire companies that will be accretive to that percentage, But we certainly have a path where we’ll be creative. So we’re looking for really good assets and some may perform better than our 10% and the last couple of larger ones that we’ve made have been less than 10%. But again, they’re really good assets and provide a longer term value creation for DSG. And then really we’ll talk a little bit about our end markets.

We have it’s a dual pronged growth strategy. It’s both organic and its acquisitions. And acquisitions plays a big, big part of our overall growth strategy. As you look at most of these businesses, you would say historically they’ve operated at GDP. We would say within our internal initiatives within the organizations within all three verticals, We believe it should be GDP plus a point or two.

And we feel like a lot of the underlying macro changes positions us well to be able to achieve that. This slide really just gives you a little bit of an overview of some of the end markets. Again, you can see here no concentration from a customer perspective or from an end market perspective. And then I think I touched on most of these items. The value creation themes that we really lean into heavily are around the labor piece, the IoT piece and then certainly the onshoring and near shoring activities that we believe positioned for nice improvements as well.

So let me spend just a couple of minutes. I know I went through that pretty quickly, but let me spend just a couple of minutes on each of the three verticals as we define them. I’ll give you a little bit of an overview in terms of what the business does and some of the value there as well. So on the Lawson Products side, again, may know Lawson, Chicago based business, 75, almost seventy five year old organization. VMI vendor managed inventory.

So about 1,000 sales reps, a little less than that. Today we’re sitting at about nine thirty sales reps. Our sales reps go into a customer’s location. We place real estate within our customers’ location, so bins and cabinets. And our sales reps will visit 70,000 customers.

They’ll make four or five visits a day. They will put product away that it was shipped to our customers from last week. They will do an informal inventory and actually place the order on behalf of the customer. In many situations, the customer doesn’t even know they placed an order until the product shows up. That that’s how well embedded we are within within our customers.

It is a high relationship, high trust. Our role model or our what we’re delivering on is when the mechanic reaches into the bin, we want to make sure that the part is there. The fastest way for our customers to be frustrated is either one, we’ve anticipated that demand or secondly that we’re overstocking the bins. These are consumable Class C parts with an average piece price across Lawson of 1.22 So it can be a hydraulic fitting, it can be a drill bit, it can be nuts, washers, electrical components. Lawson has 12 product categories that we sell.

And the revenue number you see here at the $7.00 3 that does include the Canadian operations as well, which would include Bolt Supply, is on the Western Part of Canada and then the acquisition of Source Atlantic, which we made a year ago in Eastern Canada. On Jexpro services, here revenues of about 25% of DSG’s revenue about $480,000,000 trailing 12 revenues described a little bit about how they go to market. They provide really Class C parts into the manufacturing process about 1,800 to 2,000 customers, so much larger customer than what Lawson has and really well embedded, really good relationships. We typically will support our customers wherever they go. And so we are in a position to be able to pick up additional volume through their growth.

Again, our value proposition at Jexpro Services is that we take all of those Class C items that the customer doesn’t necessarily want to deal with and we deal with them. We go out, we find the manufacturer, we make sure it shows up in time, we’ve got insight into their production cycle and we make sure that it’s there on a JIT basis and also offer VMI services to make sure that product is on hand. Six diverse end markets here, renewables, technology, aerospace and defense, industrial power, consumer run industrials and transportation. JECSpro has a great ability to be able to reallocate resources to grow the business depending upon which of those end markets is growing or if any of those are tightening up. And I would say, if you look at Jexpro, really strong performance over the last year, over the last four to five quarters.

They’ve got really good insight into where these end markets are heading and are positioned very well to take advantage of that in the short and long term. ChecksPro Services continues to invest on the people side even though their margins are in the 14% range. They continue to make really good smart investments to be able to expand their base of business on a relatively fixed cost structure which allows a nice operating leverage on the Jexpro side. And then the Test Equity Group makes up about 40% of DSG’s revenue about $800,000,000 in total. That business really was so the legacy test equity business was about a $400,000,000 business.

We acquired Hisco, Houston Industrial Supply Company in June 2023 basically doubled the size of this vertical within DSG. About 20% of TestEquity’s revenue is on the Test and Measurement side and 80% being electronic production supplies that would support the manufacturing anything industrial technology wise. So on the test and measurement side, oscilloscopes, so they are either desktop or handheld units. They can measure wattage, voltage, noise interference, really anything that needs to be tested in the electronic production environment. The test and measurement equipment can do that and we both sell that equipment as well as lease it.

On the electronic production supplies, those are items that are going into, I mentioned earlier, solder or tapes, adhesives, specialty tools, anything that really fits into the production environment of anything technology. So you can see that there’s a nice connection point between those two, very technical type of sales. And so really strong sales team there that are able to go into customers and specifically recommend exactly what they need. From a free cash flow perspective and how we think about cash flow, we continue to reinvest in the business whether or not it’s through internal initiatives such as expanding the Lawson sales force or hiring key individuals into the Jexpro services team to expand their business. We are continuing to put dollars back in the business either from an internal organic initiative or through M commented earlier about M what we’ve done on the M and A side.

And then when it makes sense, we also purchase shares back. In the first couple of quarters of this year, we’ve bought back about $20,000,000 worth of our shares. So we think that’s a good return of our capital as well. As we sit today, we’ve got about a $1,100,000,000 credit facility. We ended the second quarter with really with nothing drawn under our revolver which is $255,000,000 of the 1,100,000.0 and we were sitting with about $60,000,000 of cash.

So we’ve got the balance sheet is really strong and we continue to throw off positive cash flow. Let me touch base really quick on the M and A side and then we’ll open it up for any questions. As I mentioned, nine acquisitions, what we’re not doing is we’re not buying turnaround businesses. We like to buy really good assets. Those that have typically have been around for some period of time.

The nine acquisitions that we’ve made none of those nine have been through a bank process. They’ve all been identified either through our M and A team, through support of the LKCM team or individually within each of the each of the verticals. And each vertical has their own CEO, their own CFO, their own management teams. So we run those verticals separately and we what I always describe is we’re protecting the commercial side of the business because we go to market differently and we have different types of buyers that are buying those services. So we really like nice assets that if you look back historically we’ve paid kind of in the high single digit multiples standpoint.

Again, we’re not overly concerned if they’re going to compress our overall margins a bit as long as we’ve got a path to identify the synergies and a path for it to be accretive to us. And you can see here, I mean we look at everything from product offerings to geographic coverage end markets, service capabilities, calibration for example on the test and measurement side through in fact we picked up some of those capabilities through a recent acquisition we made in November. Really quick on financial highlights, coming off a really strong quarter, you’ll see we had total revenue growth of over 14%, about 3.3% of that was organic. The other were the acquisitions that closed in 2024. You’ll see a nice jump up in our overall EBITDA from 42.8% a sequential basis up to almost $49,000,000 All of that is organic.

So that’s a really nice movement in the right direction. Typically our second and third quarters are our strongest quarters. So we would expect a lift there generally and we were able to certainly achieve that in the quarter. And then you’ll see a nice overall revenue growth there as well over the last five quarters. From a capital allocation standpoint, think I hit on this a little bit.

Our overall leverage right now sits at about 3.5. When we brought the three businesses together, we were at 3.5 as well. So we’ve been able to grow the business, make all the acquisitions and keep the leverage point at about 3.5 times. Publicly, we’ve said we’re comfortable in that three to four times. If we were to stop making acquisitions, we would delever very quickly, But that’s not our intention.

Our intention is to use the balance sheet and to reinvest the capital into the M and A process. Just really briefly on the alignment that you would find within DSG, I would describe us as a very highly aligned organization. I mentioned when I introduced Brett, Luther King Capital Headwater, they own about 78% of the shares of DSG. Most, you know, it happened through not only purchasing shares in the open market on Lawson, but also through the combination of test equity and Jexpr services which were 100% owned by LKCM Headwater. So effectively when they contributed the equity, they were awarded more shares in return for that equity of the three companies.

Mentioned each of the three verticals have separate CEO, separate management teams. We’ve got Cesar Lunuza on Lawson, Bob Connors on Jexpro Services and Barry Litwin who just joined us about six weeks ago on test equity group. And then certainly Brian King who leads up the LKCM Headwater piece is the CEO and Chairman has really been involved on the Lawson side going back to probably 2012 or 2013 when LKCM started purchasing shares in the open market. So knows distribution extremely well which is I would say an area that LKCM continues to highly invest in on their headwater operations or headwater LKCM headwater side. So let me we’ve got about five or six minutes left.

Why don’t I just open it up for questions and we’ll take it from there. Yes. So right now we believe that there’s enough M and A activity. The pipeline is pretty strong right now. We feel like the markets within those three verticals are fragmented enough where most of our acquisition is focused within those three verticals.

It’s not to say that we’ll never add a fourth leg to the stool, but right now there’s plenty of opportunity within those three. And then on the integration side, it somewhat depends. Of the nine that we’ve acquired, a few of those we’ve 100% integrated into our existing just because it just the businesses are so similar. And there’s others that we’re still operating separately. Source Atlantic for example, we’re integrating that with Bolt Supply which is in the Western Part of Canada, but we’re not probably going to fully integrate it within the Lawson side.

So I mentioned earlier about we were very protective of how we go to market from a commercial perspective And certainly we want to be able to have the right systems and integration process. Hisco though for example which I mentioned earlier as well, we have fully integrated that into the test equity group. So it’s a little kind of half and half I would probably say. Other questions? Yeah.

Yeah. Yeah. Yeah. And if so, how does that work in terms of acquiring bolt ons versus?

Brett Scarborough, VP of Strategy, Investor Relations, Distribution Solutions Group (DSG) / LKCM: Yeah. So so this investment is the most important investment we have at LKCM Headwater. And so, yes, we have a lot of other distribution investments. But if we come across an asset that fits in DSG, it’s gonna go in DSG. Because it’s if it’s accretive and it creates value, it’s it’s worth a it’s worth a lot more to us in DSG.

Ron Knudson, CFO, Distribution Solutions Group (DSG): Yes? How if they are, are tariffs complicated your business? Yeah. So what I would so we have, what I would say is pretty strong pricing, capabilities within DSG. So as I think about the amount of product that we’re directly importing, it’s in the single digits relative to our total cost to get sold and our total purchases.

We certainly have domestic suppliers that are importing product to find their way in as well. But we’ve said publicly and we’ve been able to work with our customers from a pricing standpoint and also from a sourcing perspective. So we don’t believe that inflation typically is good for distribution. And we’ve seen that in the past. We saw that in 2022.

We don’t see tariffs as an issue relative to compressing our margins and in fact actually gives us an opportunity to strengthen our relationships with a lot of our customers. I didn’t mention this but on the Lawson side 40% of what Lawson sells is private label highly engineered product. So if we’re experiencing higher tariff rates that are coming through on import products within Lawson, most of that private label is manufactured here in The States. It’s an opportunity for us to go to our customers with a different solution there which is and when I say private label when you think about good, better or best, it’s at the good level. Typically private label is at the best level from a quality standpoint.

Ours are highly engineered products. So it actually offers us the ability to go at our customers, you know, with a different source. Anything else? It looked like it. Okay.

Thanks everybody. Appreciate your

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