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Distribution Solutions Group, Inc. (DSGR)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 met management’s plan: revenue $478.0M (+14.9% y/y), Adjusted EBITDA $42.8M (9.0% margin), GAAP diluted EPS $0.07 and non‑GAAP adjusted EPS $0.31; organic average daily sales (ADS) +4.3% (+4.7% ccy) .
  • Segment margin expansion across core verticals on a comparable basis: Lawson 11.9%, Gexpro Services 12.6%, TestEquity 6.8%; Canada (Source Atlantic + Bolt) diluted consolidated margins, with ex‑Source Atlantic EBITDA margin at 9.6% in Q1 .
  • Outlook and capital: 2025 net CapEx guided to $20–$25M; leverage targeted at 3–4x; management “cautiously optimistic,” noting Q1 was budgeted as the softest quarter given sequencing of initiatives .
  • Liquidity $304.8M and net leverage 3.6x; opportunistic buybacks of $11.2M in Q1; catalysts include modest tariff exposure (<6% total product spend from China) with price actions taken and sourcing alternatives in motion .

What Went Well and What Went Wrong

What Went Well

  • Delivered top-line and profit growth with mix of inorganic ($50.8M) and organic ADS +4.3%; Adjusted EBITDA +18.6% y/y to $42.8M, margin +30 bps y/y to 9.0% . “Our financial results met expectations… Adjusted EBITDA grew to $42.8 million” (CEO) .
  • Y/y net margin expansion across Lawson, Gexpro Services, and TestEquity; ex‑Source Atlantic, consolidated Adjusted EBITDA margin would have been 9.6% .
  • Gexpro Services momentum continued with strong end-market exposure (aerospace & defense, renewables, technology) and 12.6% Adjusted EBITDA margin in Q1 .

What Went Wrong

  • Canada Branch Division softness and integration drag from Source Atlantic compressed consolidated margins; segment Adjusted EBITDA margin 5.2% (vs 11.0% y/y) with timeline to 10% likely pushed to next year given top-line deleverage .
  • Test & Measurement capital equipment POs slower to release late in Q1; sequential moderation within TestEquity despite strength in used/rental and test chambers .
  • Lawson organic ADS down 6.8% y/y (military sales and sales force rebuild headwinds), though sequential ADS improved and margins recovered to 11.9% .

Financial Results

Consolidated (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($M)$468.0 $480.5 $478.0
GAAP Diluted EPS$0.46 ($0.55) $0.07
Adjusted Diluted EPS (non‑GAAP)$0.37 $0.42 $0.31
Adjusted EBITDA ($M)$49.1 $44.9 $42.8
Adjusted EBITDA Margin %10.5% 9.3% 9.0%
Operating Income ($M)$18.9 $20.1 $20.1
Operating Margin %4.0% 4.2% 4.2%
Gross Profit ($M)$158.8 $160.0 $164.0

Estimates (S&P Global) vs Actual – Q1 2025

  • Consensus revenue and EPS were unavailable from S&P Global for Q1 2025; therefore no estimate comparison is provided. S&P Global consensus data unavailable.

Segment Breakdown

SegmentRevenue ($M) Q1 2024Revenue ($M) Q1 2025Adj. EBITDA Margin % Q1 2024Adj. EBITDA Margin % Q1 2025
Lawson Products$118.2 $120.5 11.4% 11.9%
Canada Branch Division$12.5 $50.5 11.0% 5.2%
Gexpro Services$98.7 $118.9 11.0% 12.6%
TestEquity$187.1 $188.8 6.2% 6.8%

KPIs and Balance Sheet/CF Highlights (Q1 2025)

KPIQ1 2025
Organic ADS growth y/y+4.3%
Organic ADS (ccy) y/y+4.7%
Organic ADS seq. vs Q4(1.4%)
Liquidity$304.8M
Cash (restricted + unrestricted)$80.0M
Net debt leverage3.6x
Net CapEx$5.1M
Share repurchases$11.2M
Adjusted Operating Income$34.4M
Adjusted Diluted EPS$0.31

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net CapExFY 2025$20–$25M $20–$25M Maintained
Target LeverageOngoing3–4x 3–4x Maintained
Revenue/EPSFY 2025None providedNone provided—

Notes: Management reiterated cautious optimism and that Q1 was planned as the softest quarter given initiative timing; no formal revenue or EPS guidance was issued .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3’24 / Q4’24)Current Period (Q1’25)Trend
Tariffs / MacroAnticipated easing macro and improving PMI; acknowledged election/policy overhang Tariff exposure modest (~5% direct; <6% total from China); price actions initiated late Q1; sourcing flexibility emphasized Managing cost pass‑through; controlled exposure
Lawson sales force & militaryPlan to reach ~1,000 reps by mid‑2025; CRM/e‑commerce rollout; military down significantly y/y ~910 reps; sequential ADS improved; Lawson margin 11.9%; military flat sequentially but a y/y drag persists Productivity improving; rebuild ongoing
Canada / Source AtlanticNew segment created; Q3 Canada 10.3% margin (Source 7.6%); Q4 Canada 7.2%; targeting double‑digit over time Q1 margin 5.2%; 4 facility consolidations underway; path to ~10% likely pushed into next year on softer sales Near‑term pressure; synergy execution underway
Gexpro ServicesRecovery in tech/renewables/A&D; margins 14.1% Q3; 13.3% Q4 Strong momentum; 12.6% margin Q1; bookings healthy Healthy end‑market demand
TestEquity / T&MRecord bookings, rental utilization up, channel normalizing; 7.8% margin Q4 Slower PO releases on T&M; margin 6.8%; strength in used/rental and proprietary test chambers Mixed: services/used strong; capex timing slower
ROIC / FCFTTM FCF conv. ~100%; ROIC ~11%; mature assets target >20% TTM FCF conv. ~90%; reiterated ambition toward ~20% ROIC over time On path; numerator growth focus
M&A / Capital allocationClosed TCR & ConRes; robust pipeline; expanded facility Pipeline robust but paced; opportunistic buybacks viewed as best ROI currently Disciplined; buybacks active

Management Commentary

  • “Our financial results met expectations… first quarter sales of $478 million, up 14.9%… organic average daily sales of 4.3%… Adjusted EBITDA grew to $42.8 million” .
  • “Year‑over‑year net margin expansion in each of our three verticals… Lawson 11.9%, Gexpro Services 12.6% and TestEquity 6.8%… Excluding Source Atlantic… Adjusted EBITDA margin… 9.6%” .
  • “Tariff pressures will impact only about 5% of our total direct purchases… less than 6% of our aggregate product spend… comes from China” .
  • “We remain confident… to more than double EBITDA again over the coming 3 years while materially lifting current EBITDA margins” .

Q&A Highlights

  • April pacing: sequentially flat vs Q1 average; tempered vs prior year; selling-day mix affects ADS math in some verticals .
  • Lawson: organic decline tied to military and ongoing sales force rebuild; sequential improvement month‑to‑month; goal remains ~1,000 reps in H2 2025; rep productivity improving, aided by CRM and expanded support structure .
  • M&A/Buybacks: robust pipeline but management is measured amid policy uncertainty; views share buybacks as the “cheapest acquisition” currently .
  • Tariffs/reshoring: modest direct exposure; long‑term setup favorable for sourcing/value‑add distributors; expect ability to pass through vendor price moves .
  • Canada (Source Atlantic): mid‑single‑digit margins today; 10% EBITDA margin target likely into next year given top‑line softness; executing facility consolidations and gross margin initiatives .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2025 revenue and EPS was unavailable; as a result, no estimate comparison is provided. S&P Global consensus data unavailable.

Key Takeaways for Investors

  • The DSG flywheel is working: acquisitions plus positive organic ADS drove double‑digit revenue growth and y/y margin expansion across core verticals; ex‑Source Atlantic, consolidated margins were stronger at 9.6% .
  • Near‑term margin headwinds are concentrated in Canada; synergy actions (branch consolidation, pricing and integration) are underway, but a 10% margin run‑rate is more likely in 2026 without top‑line acceleration .
  • Gexpro’s end‑market mix (A&D, renewables, technology) continues to power above‑company margins and looks well‑positioned for continued operating leverage .
  • TestEquity’s services/used/rental and proprietary test chambers provide resiliency while customers delay some T&M capital POs; watch conversion of backlog and PO timing .
  • Lawson execution is improving (sequential ADS and margin), with structural levers (CRM, territory redesign, inside sales, technical specialists) targeting sustained margin lift as rep count scales toward ~1,000 in H2 .
  • Capital allocation remains disciplined: 2025 CapEx guided to $20–$25M, target leverage 3–4x, and buybacks active; liquidity ample at ~$305M to support organic and inorganic initiatives .
  • Tariff risk appears manageable (limited direct exposure); pricing actions and sourcing optionality should help protect margins and may be a positive for DSG’s value‑add model over time .

Citations: Press release and 8‑K for Q1 2025: . Q1 2025 earnings call: . Prior quarters (trend context): Q4 2024 8‑K/PR and call ; Q3 2024 PR and call .