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Distribution Solutions Group, Inc. (DSGR)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 delivered solid top-line and cash flow with revenue up 14.3% to $502.4M, GAAP EPS $0.11, and Adjusted EPS $0.35; Adjusted EBITDA rose 7.5% YoY to $48.6M (9.7% margin), with sequential EBITDA margin expansion across all verticals .
  • Mix and acquisition drag persisted YoY (Source Atlantic ~60 bps EBITDA margin headwind), but sequentially margins improved 70 bps vs Q1; organic ADS grew 3.3% YoY and 2.4% sequentially .
  • Cash from operations was $33.3M; liquidity ended at $314.4M with no revolver borrowings; leverage at 3.5x; buybacks totaled $8.8M in Q2 and $20.0M YTD, with ~$6M authorization remaining .
  • Management did not provide formal guidance; July pacing tracked “relatively consistent” with Q2, and no unusual margin factors expected near term; Q4 usually has some seasonal compression on fewer selling days .

What Went Well and What Went Wrong

What Went Well

  • Broad sequential margin expansion: “all verticals” lifted adjusted margins QoQ; Lawson 12.6%, Gexpro 13.4%, TestEquity 6.9%, Canada Branch 6.5% in Q2 .
  • Strong cash generation and balance sheet flexibility: $33.3M CFO, no revolver debt at quarter-end, liquidity $314.4M, leverage 3.5x; continuing buybacks ($8.8M in Q2; $20.0M YTD) .
  • Gexpro execution and mix: EBITDA margin expanded to 13.4% (from 12.6% in Q1 and 11.9% YoY) on operating leverage, wallet share expansion, and Southeast Asia buildout .

What Went Wrong

  • Canada softness at Source Atlantic: macro weakness in Eastern Canada and tariff-related uncertainty constrained larger accounts; Canada Branch margin only 6.5% though improving QoQ; Bolt a bright spot (~16% EBITDA margin standalone) .
  • TestEquity sales flat-to-down: ADS down 1.2% YoY (up 1.7% QoQ) with softer electronic production and test & measurement; a bad-debt reserve tied to a channel partner reduced TestEquity EBITDA margin by ~80 bps in Q2 .
  • Lawson organic drag from military: Lawson ADS +2.6% incl. acquired; organic ADS down ~1% YoY due to lower military volume (ex-military +0.5%); salesforce transformation still in investment phase .

Financial Results

Consolidated P&L vs prior periods and YoY

MetricQ2 2024Q4 2024Q1 2025Q2 2025
Revenue ($USD Millions)$439.5 $480.5 $478.0 $502.4
GAAP Diluted EPS ($)$0.04 $(0.55) $0.07 $0.11
Adjusted EPS ($)$0.40 $0.42 $0.31 $0.35
Operating Margin %3.2% 4.2% 4.2% 5.3%
Adjusted EBITDA ($M)$45.2 $44.9 $42.8 $48.6
Adjusted EBITDA Margin %10.3% 9.3% 9.0% 9.7%

Notes: Q2 2025 adjusted EBITDA margin was ~60 bps lower YoY driven by Source Atlantic; sequential margin +70 bps vs Q1 .

Segment breakdown (Q2 2025 vs Q2 2024)

SegmentRevenue Q2’24 ($M)Revenue Q2’25 ($M)Op Inc Q2’24 ($M)Op Inc Q2’25 ($M)Adj. EBITDA Q2’24 ($M)Adj. EBITDA Q2’25 ($M)Adj. EBITDA Margin Q2’24Adj. EBITDA Margin Q2’25
Lawson Products$121.1 $124.3 $6.1 $8.0 $16.5 $15.7 13.6% 12.6%
Canada Branch Division$14.5 $55.9 $1.5 $1.8 $2.0 $3.6 13.9% 6.5%
Gexpro Services$107.1 $127.8 $8.1 $13.9 $12.7 $17.1 11.9% 13.4%
TestEquity$197.5 $195.0 $0.7 $4.8 $15.4 $13.5 7.8% 6.9%

KPIs and balance sheet/cash flow

KPIQ1 2025Q2 2025
Organic ADS growth YoY+4.3% +3.3%
Sequential ADS growth−1.4% vs Q4’24 +2.4%
Cash from Operations ($M)$(4.8) $33.3
Total Liquidity ($M)$304.8 $314.4
Net debt leverage (x)3.6x 3.5x
Share repurchases ($M)$11.2 $8.8; $20.0 YTD
Revolver balance at quarter-end—$0
TTM FCF conversion / ROIC—~90% / ~11%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Formal financial guidance (revenue, margins, etc.)FY25/Q3’25None providedNone provided; July pacing consistent with Q2; no unusual margin factors expected; Q4 typically sees some seasonal margin compression on fewer selling daysMaintained (no formal guidance)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’24 and Q1’25)Current Period (Q2’25)Trend
Trade policy/tariffsQ1: “cautiously optimistic” and positioned to help customers with alternative sourcing as policies develop . Q4: Source Atlantic compressed margins (mix) .Pricing/cost impact managed; margin neutral; ~6% of purchases from China; proactive customer sourcing support .Stabilizing; well-managed, limited direct exposure.
Lawson salesforce transformationLess detail previously; margin expansion YoY in Q1 at Lawson (11.9%) .CRM adoption >70%; +~90 net reps YoY; new e-commerce with >10k daily visits; QoQ margin up to 12.6% .Execution maturing; near-term organic growth mixed due to military; long-term margin target higher.
Canada (Source Atlantic/Bolt)Q4: Source Atlantic mixed-profile pressured margins . Q1: ~60 bps margin compression to consolidated; early-inning synergy plan .Macro softness at Source Atlantic; sequential EBITDA margin expansion to 6.5%; Bolt standalone ~16% EBITDA; branch consolidations underway (4 targeted) .Sequential improvement; integration on track; macro still a headwind in Eastern provinces.
Gexpro Services momentumQ4: strong leverage; acquisitions (incl. TCR SE Asia) . Q1: margin 12.6% .EBITDA margin 13.4%; backlog improving in industrial power; investments in SE Asia capacity and commercial talent; tougher comps in H2 .Positive trajectory; investment-driven growth with near-term comp headwind.
TestEquity focus/leadershipQ4: acquired ConRes; integration ongoing .New CEO Barry Litwin effective July 14; pivot to higher-margin offerings (rental, used, calibration, chambers); ADS down 1.2% YoY; ~80 bps EBITDA hit from a bad-debt reserve .Strategic refocus; near-term softness, medium-term margin opportunity.
Capital allocation—$33.3M CFO; no revolver; $8.8M Q2 buybacks; ~90% TTM FCF conversion; ~11% TTM ROIC .Consistent FCF discipline and opportunistic buybacks.

Management Commentary

  • “All of our business verticals achieved sequential quarterly improvements in their respective EBITDA margins.”
  • “We ended the quarter with no outstanding borrowings under our revolving credit facility… generated $33 million of cash flow from operations for the quarter.”
  • On Lawson: “CRM adoption rates now exceeding 70%... launched a completely refurbished e-commerce platform, now realizing over 10,000 customer visits daily… margins rose to 12.6% in the second quarter.”
  • On Canada: “Source Atlantic… impacted by declines within many of its top customers… cautious business behavior due to regional economic anxieties surrounding uncertain tariffs,” but EBITDA margins for the division expanded 130 bps sequentially; Bolt “nearly 16%” standalone .
  • On Gexpro: “EBITDA margin expansion… to 13.4%… pipeline of new customer development activities… international presence expanding,” though comps tougher in H2 .
  • On TestEquity: New CEO Barry Litwin to “rapidly unlock and accelerate significant value creation,” reweighting to higher-margin services; bad-debt reserve reduced margin this quarter .

Q&A Highlights

  • Outlook/pacing: July trends “relatively consistent” with Q2; Lawson faces easier comps in H2 while Gexpro faces tougher comps; no unusual factors expected to swing margins near term; Q4 typically sees seasonal margin compression on fewer selling days .
  • Canada integration: Four branch consolidations targeted in 2025 (two done, two by year-end); synergies tracking; Bolt ~16% EBITDA margin; Source Atlantic gross margin expansion underway .
  • Lawson: Organic ADS down ~1% YoY on military, ex-military +0.5%; base “street” business showing growth as salesforce transformation progresses .
  • Tariffs/price-cost: Net margin effect expected to be neutral; only ~6% of product purchases from China; proactive sourcing/pricing model updated weekly .
  • Gexpro: EBITDA margin at 13.4%; strong end-market momentum; investments in SE Asia and commercial talent continue; contribution margin depends on mix and timing of investments .

Estimates Context

  • Wall Street consensus from S&P Global for Q2 2025 EPS, revenue, and EBITDA was unavailable at the time of this analysis; as a result, we cannot quantify beats/misses versus consensus for this quarter (S&P Global data unavailable via GetEstimates).
  • Management provides no formal guidance; near-term estimate revisions may focus on: (i) sequential EBITDA margin progress across verticals, (ii) Canada integration pacing and macro drag, (iii) TestEquity recovery trajectory under new leadership, and (iv) Gexpro H2 comp headwinds balanced by backlog and pipeline .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
All metrics (rev, margins, OpEx, OI&E, tax, segment)FY25 / Q3’25NoneNone; qualitative color only (pacing/margins) Maintained

Key Takeaways for Investors

  • Quality of earnings improved: sequential EBITDA margin expansion across all four verticals, even with continued mix headwind from Source Atlantic .
  • Cash discipline supports capital returns: $33.3M CFO, zero revolver, and continued buybacks (YTD $20M), underpinned by ~90% TTM FCF conversion and ~11% ROIC .
  • Gexpro remains the growth/margin engine with 13.4% EBITDA margin and strong pipeline/backlog, though H2 comps are tougher; sustained investment should support medium-term growth .
  • Lawson transformation is progressing (CRM, talent, e-commerce), but military order timing masks underlying improvement; management reiterates a long-term path to structurally higher margins .
  • Canada is the swing factor: integration synergies and Bolt strength offset macro softness at Source Atlantic; sequential margin progress suggests the trough is passing, but macro visibility remains limited .
  • TestEquity under new leadership is a self-help story: pivot to higher-margin service lines and portfolio optimization can lift profitability as demand normalizes; near-term noise includes channel partner credit exposure .
  • Near-term trading setup: absence of formal guidance keeps focus on monthly ADS/margin cadence; catalysts include continued sequential margin expansion, Canada synergy milestones, and TestEquity execution updates; watch for tariff headlines and H2 comp dynamics at Gexpro .

Appendix: Additional Data Points

  • Consolidated YoY organic ADS +3.3% and sequential +2.4% .
  • Source Atlantic acquisition compressed Q2 EBITDA margin by ~60 bps; excluding it, consolidated margins ~10.2% .
  • Quarter-end cash and equivalents $47.4M; restricted cash $14.3M .