Greetings. Welcome to the Distribution Solutions Group Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Steven Hooser, you may begin.

Good morning, everyone, and welcome to the Distribution Solutions Group's fourth quarter and full year 2024 earnings call. Joining me on the call are DSG's Chairman and Chief Executive Officer, Bryan King, Executive Vice President and Chief Financial Officer, Ron Knutson. In conjunction with today's call, we have provided a financial results slide deck posted on the company's IR website at investors.distributionsolutionsgroup.com. 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, are subject to risks and uncertainties that could cause actual results to differ materially from those described. In addition, statements made during this call are based on the company's views as of today. The company anticipates that future developments may cause those views to change and we may elect to update the forward-looking statements made today but disclaim any obligation to do so. Management will also refer to non-GAAP measures, and reconciliations to the nearest GAAP measure can be found at the end of the earnings release. The earnings release issued earlier today was posted on the Investor Relations section of our website. A copy of the release has also been included in a current report on Form 8-K filed with the SEC. Lastly, the call is being webcast on the Internet via the Distribution Solutions Group investor page on the company website. A replay of the teleconference will be available through March 20th of 2025. With that, I would now like to turn the call over to Bryan King. Bryan?

Thanks, Steven, and good morning, everyone. Thank you all for joining us. Let's start on Slide four with a brief review of fiscal 2024. We ended the year with reported revenue of $1.8 billion, up almost 15% primarily driven by highly strategic acquisitions completed over the past 24 months. DSG's trailing twelve-month total revenues, including pre-acquisition revenues for all periods during 2024, were approximately $1.95 billion. Adjusted free cash flow, defined as adjusted Reg G EBITDA less CapEx less working capital investments, including pre-acquisition trailing twelve-month results, grew to $175 million. Ahead of the 2022 strategic merger, we disclosed comparative DSG results for the combined fiscal 2021 pre-merger results of adjusted revenue totaling $938 million and adjusted EBITDA of $75 million, which included twelve months of financial results for Lawson, Jesper Services, and Test Equity. Comparing fiscal 2024 to the 2021 pre-merger results, we have doubled DSG's revenues and generated an incremental $100 million of adjusted EBITDA in three fiscal years, unlocking some additional earnings leverage while making key strategic acquisitions to continue to drive the value of our offering to our customers and our equity value for our shareholders. All while keeping leverage ratios flat. Keep in mind that this expansion was made despite persistent macro headwinds throughout 2024 and much of 2023, across our business units. And still in early innings of our internal initiatives to unlock a structurally more profitable and valuable platform from which we can use our accelerating cash flows to drive even more valuable growth well into the future. Last year was challenging for our entire contraction territory for all but one month during 2024. Following market challenges that started across many of our end markets in 2023. Notwithstanding these macro challenges, we successfully expanded revenue during the year both organically and by closing on five highly strategic acquisitions to selectively broaden our scale, geographic footprint, and customer base. We added valuable offerings by targeting key capability areas where we strategically wanted more customer engagement and service capability and or product depth to drive our market position and financial return opportunities longer term. But by doing it in an accretive way through leveraging our well-defined M and A resources and playbook, as well as our collective resource lens on how our strategic objectives should be prioritized relative to the expansive actionable opportunity set we are constantly evaluating. This past year, we acted on priorities through opportunities that allowed us to triple our safety product offering at Lawson, by acquiring ESS. Expanded our test and measurement calibration services, through the most recent CONRES acquisition balanced out our geographic footprint and expanded dramatically our engagements in Canada to leverage our large investment in Lawson and Kent BMI sellers there expanded our product and service offerings for our Kent VMI automotive customers, and expanded the type of customers we were best geared to serve with the S and S acquisition. And lastly, address the high priority to drive high growth opportunities in Southeast Asia being presented to Gexpro Services by buying a small platform that we are now aggressively adding capabilities geographic presence around in Southeast Asia to address specific customer organic growth opportunities. As we deployed the resources to develop the relationship with these sellers, accomplished closing and managing these acquisitions, we were also prioritizing recruiting internal and external talent and consultative resources to thoughtfully integrate or not while tackling a litany of key value accelerating internal initiatives. Some of which are so intense and transformative that they require margin contracting investments on the income statement similar to the capital outlay of an acquisition but where those land on the balance sheet and will take multiple years to really have the desired impact, but at that point, expect we'll have a compounding effect to profitability and long-term position in the marketplace and importantly to us as shareholders will be engines to drive our return on invested capital to structurally much higher levels. Making acquisitions on the balance sheet and on the income statement require me to process the noisiness it creates to near-term earnings, ROIC, and EBITDA margins but as we pour analysis and emotions over and over on evaluating these projects, and then commit to executing on them, we have tremendous confidence that each has an extremely large net present economic value for us as shareholders well as a real benefit to our customers and colleagues. A big thank you to all our teams that we are pushing hard on all these initiatives. While juggling all that they are doing to build the DSG of the future, they still demonstrated strong forward progress across those disciplined sets of critical initiatives in each of our verticals while collaborating with each other debated and allocated capital to buy key engines to drive long-term free cash flow, all while driving very strong current financial outcomes. In a less forgiving backdrop around many of their end markets. Like for many other ambitious and success-driven leaders in the recent industrial marketplace it was quite the fatiguing year for much of our team. Thank you. We still have much to do, but we are pleased with the progress toward our strategic goals and financial targets for 2024. We enjoyed 2024 cash flows from operations of over $100 million before the Hisco retention payment and acquisition costs. With market conditions improving sequentially across most of our end markets during the second half of 2024, and early in 2025, particularly within our OEM vertical, we remain confident that DSG is very well positioned for record performance in 2025 as some of the most recent headwinds subside. As Ron will discuss in a moment, we continue to show excellent operational traction on initiatives within each of our operating units for the year that should improve earnings leverage for this year. Turning to slide five. I will provide updates on some of our initiatives and outlook across our three business platforms. At Lawson Products, we continue to focus on building a world-class sales force, and it's required a large investment of dollars as well as some commitment to choppiness in our earnings engine as we compress our sales force during the overhaul of our sales tools and disciplines, and now are back focused on growing the team with like-minded additional sales resources. We are still in the early innings of this transformation, which is changing the seventy-three-year history of that company. This includes cultivating a strong culture that embraces tools and technology and providing more attractive incentives mostly aligned around customer connectivity and sales growth, for our employees. These initiatives in time will take Lawson to the next level of customer engagement, growth, and profitability. We fully implemented our Salesforce CRM last year plan to go live with our completely rebuilt digital platform in the first quarter of this year. As discussed in investor calls over the last eighteen months, Lawson's sales force initiative required EBITDA compression for 2024 as we began the journey to fill well over a hundred new territories as well as open territories by prioritizing hiring new sales reps with a refined and improving lens on what capability sets will offer them the greatest success with these new tools and capabilities and putting them in the right markets. This is vital to our long-term growth plans as we position the right people to drive the right book of business with the right technology to produce long-term strength and value in the marketplace. From the 2022 announcement, and through the compression needed to rework our tools and territories, we reduced our sales force team from about 1,020 to approximately 830 by mid-2024, which we've now grown back to approximately 920. We saw the increased rep retirement and turnover that took place as we announced the rolling out of a significant set of new tools. The CRM and selling resources to support our field sales reps' efforts to improve customer connectivity, and coverage that initially took place in 2023 in the first half subside appreciably over the last five months. We are targeting to build up to a thousand sales reps by the second half of 2025 in an informed lens of better and more territories than we had defined prior to tackling this very transformative set of initiatives. We enjoy some exceptional Lawson field sales representatives. But we knew we needed to build a more consistent experience to recruit more to join them. And it's critically make sure that we enhanced all those lost and sellers ability to drive a better customer experience. And for us to create better Salesforce opportunities, we hope to recruit and retain all of which should drive a high return on the significant investment as sales productivity benefits and a larger sales force are in place as 2025 plays out. But we made this investment that we believe has an exceptionally high net present value but required near-term pain that we are largely through where we all along were not expecting the real benefits to more likely be fully realized not until 2026 and beyond. Other elements of the investments are we've enhanced our sales reps onboarding by improving recruitment, training, and leveraging collaborative technologies between sellers, and continue to build and drive our predictive analytics tools out to the sales force and our customers to enhance everyone's efficiency in the value channel. The omnichannel platform of tools includes and is centered around a large outside sales team but now includes a nimble and resourceful inside team an expanded set of technical sales specialists, and account service field sales support resources and now a robust digital customer interface platform with expanded enhancements and is currently being rolled out that will further support our new and existing customers in whatever manner they prefer to engage. Additionally, we've invested in expanded customer acquisition and retention teams to enhance sales productivity and growth. For Lawson's core acquisitions completed in 2024, we are well underway and in most cases complete with integrating products from emergent safety supply into Lawson's offerings, and combining S and S Automotive with the Kent Automotive division. Under our MRO focus for the Canada branch division, we are executing initiatives to integrate Source Atlantic with our Bolt supply house business across Eastern and Western Canada. Notably, we recently hired Jared Jenke as the Canada division president. Jared has a proven track record of transformational leadership implementing business strategies and building organizational capabilities through positive winning cultures. Jared joined DSG after fourteen years progressively larger leadership roles at Applied Industrial Technologies. Most recently, he was vice president of distribution, responsible for $280 million of revenue by leading the sales and operations teams of twenty-six distribution facilities throughout Western Canada. As our new Canada division President, Jared's immediate priority is to align leadership teams of Source Atlantic and Bolt to ensure collaboration and success of DSG's growth strategy in Canada. Our Canadian branch division positions us as the leading wholesale distributor of MRO supplies, safety products, fasteners, and services to the large and diverse Canadian markets. As we discussed last quarter, we signaled our expectation that this acquisition would compress our overall DSG margin. At the same time, we continue to work to realize defined synergy opportunities so this segment's fourth quarter EBITDA margins are no surprise. We know that Source Atlantic had a fifty basis point impact on DSG's margin profile in the fourth quarter. We are marching toward margin enhancements to return to double-digit margins for the Canada branch business as we remember when we bought Bolt Supply House and it was a below ten percent margin business also. We are actively working on ERP integrations for the Canadian branch business, and the consolidation of four separate branches will be completed by the summer. We have excellent employees in Canada. And are excited about some of the additional resources we've recruited to join their team. We are excited about each of Lawson's three acquisitions in 2024 and how they address real strategic objectives and together with Lawson and DSG's existing and improved capabilities, together, we offer them a stronger ability to drive enhanced profitability revenue growth as we go into 2025 and through 2026. An area of particular headwind for Lawson during 2024 was our military business. For the full year 2024 results, military sales were down over fifty percent. Placing significant pressure on Lawson's total sales. Not explained at all by our deliberate compression initiatives, or the weaker CPI all thought through. As we've mentioned in previous calls, a change in the military ordering and approval process drove the vast majority of this decline, and it was a decline that our customers are telling us did not largely get redirected elsewhere. We do have open orders that have been carried over from 2024 and are beginning to be released. And until the last six weeks, we were confident there would be an additional tailwind for the first half of 2025 for Lawson, over the last six weeks, we are more subdued in our expectations about the pace of the military releasing these orders. Government has been half of the drag on Lawson's revenue contraction for 2024. At Gexpro Services, we drove sequentially higher quarterly sales for aerospace and defense, technology, and renewables end markets in the fourth quarter as these end markets continue to rebound, these end markets also continued to grow sequentially from Q3 to Q4 and our activity in book to bill continues to be strong in the first quarter. I look across our end markets at both sales and book to bill, the C and I about eleven percent of current average daily sales volume, is the only area where we are seeing more consistent cautionary book to bills and revenue trends. In aerospace and defense, technology, and renewables verticals, that collectively represent over half of our current daily sales volume, continue to lead the momentum that Gexpro Services continues to enjoy. During the fourth quarter, we announced the acquisition of Tech Component Resources providing us a platform to grow and expand in the Southeast Asia market. Since that acquisition, our Gexpro services team has only become more encouraged by the growth available to us in those Southeast Asian markets. And are rapidly hiring talent, and locking down relationships with customers, we are inquiring about our ability to serve them as we can currently add supporting locations. We are very pleased with the full year EBITDA margin expansion for Gexpro Services of one hundred and sixty basis points and the fourth quarter expansion of three eighty basis points. Which was primarily driven by leveraging our fixed cost structure across the growing end market. Our initiatives and our acquisition from 2022 contributed significantly to the momentum in margin in services is enjoying. Strategic initiatives not the least of which are our Southeast Asia investment and a focus on investing in our commercial sales pipeline we're implemented in 2024 to make investments in a recruit additional leadership talent to grow and scale as the leading global supply chain service and parts provider to OEMs. We also currently enjoy a strong lens around several additional accretive acquisition objectives we hope to successfully address during 2025. At Test Equity Group, our test and measurement business continues to show strong sequential momentum. And across all nine of the vertical slices on the business, after two years of challenging end market backdrops, we're seeing indications through sales, and bookings that all but our small European business appears to have stabilized or are improving. Core test and measurement sales, chambers and rentals and refurb are experiencing positive growth. Rental utilization rates also grew by double digits in the fourth quarter of 2024. End market expansion aligns with improving aerospace and defense, technology, R and D results, which we believe tracks with our customers' 2025 budgets. HISCO continues to face weaker sales in key supplier categories. And while our order volumes remain steady, the average order size has declined over the last two years during this contraction. We've seen some competition in the marketplace around customers as distributors and salespeople have predictably competed and shuffled less committed customers to keep volumes up during weaker backdrop. As we discussed late in 2024, bookings have continued to grow and this momentum continues into 2025. We expect increased bookings to translate to sales in the production supplies business which includes Sysco. Having reworked our go-to-market strategy in Salesforce, bringing both sets of resources together, on our production supply effort, the TestEquity and HISCO teams and separating our technical resources around test and measurement sales and services has led to better accountability in customer coverage models. We are hearing confirmation from our key vendors that support this approach is being well received by customers and vendors alike. Leading to confirmed market share gains and better channel partnerships. These efforts were disruptive over the last eighteen months, but are now allowing us to better our spending leverage better sales and technical coverage and have allowed for us to unlock key growth opportunities and renewed sales growth Pipeline. Customers appreciate the Test Equity's total value proposition. Which provides a unique set of capabilities created by combining the products and services from each of the platforms we've brought together in this vertical. Test Equity, TESQO, as well as the key tuck-in acquisitions we've completed and several we are chasing where we can bring in structurally higher margin capabilities to leverage the total network this vertical allows them. Finally, although we've taken out more costs than we identified when underwriting our acquisitions, we continue to look for additional optimization opportunities for the platform and have hired a vice president of integration to add additional leadership to Test Equity Group's full integration efforts. This business intelligence is essential as we make strategic decisions about making significant improvements in our business moving forward, and underwrite the next several tuck-ins around how they will inform the total profitability acceleration stabilization of the revenue in this vertical. At TES Equity, our strategic direction will continue to revolve around expanding wallet share with customers, driving repeatable business on the consumables and services side and optimizing digital selling capabilities to supplement and leverage our technical and field sales talent investment. We believe supply chains have mostly normalized for our key vendors, and are encouraged by many of them wanting to expand collaboration with us to expand and grow our relationships. Although business remains choppy in some areas still, we believe we are benefiting from our disciplined approach and improved platform across several strategic imperatives we tackled over the last two years. We are optimistic that we will see sales and margins build quickly as end markets return. With that, I'll turn it over to Ron to give a broader review of our financials.

Thank you, Bryan, and good morning, everyone. Turning to Slide six, DSG's consolidated revenue for the fourth quarter was $480.5 million. This represents an increase of $75.2 million or 18.6% primarily driven by $61 million from five acquisitions in 2024 along with organic sales growth of 3.5% over the same quarter a year ago. I will provide average daily sales by operating segment in a few moments. Fourth quarter sales grew sequentially compared to third despite three fewer selling days fueled by a full quarter of Source Atlantic and two small acquisitions completed in the fourth quarter. For the quarter, we generated adjusted EBITDA of $44.9 million or 9.3% of sales up 90 bps compared to last year's quarter. The sequential compression from Q3 and consolidated margin primarily due to margin pressure related to the Salesforce transition fewer selling days and the impact of Source Atlantic on the Canadian branch for the quarter. Excluding the impact of Source Atlantic in the fourth quarter, net margins were 9.9%. We reported operating income of $20.1 million for the quarter, including $12.6 million in acquisition-related costs including $4.7 million from acquisition-related costs non-cash stock compensation, non-recurring charges, and other one-time items. Adjusted operating income improved to $37.3 million or 7.8% of sales compared to $28 million or 6.9% of sales in the prior year ago quarter. During the quarter, we generated cash flows from operations of approximately $46 million as compared to $28 million in the year-ago quarter. We reported a GAAP loss per diluted share of $0.55 for the quarter versus a GAAP loss per share of $0.35 a year ago. Adjusted earnings per share of $42 for the quarter compares favorably to EPS of $0.37 in the third quarter and $0.22 in the year-ago quarter. Turning to slide seven, I plan to discuss Q4 results and will not call out the full year highlights but they are available on the slides for your reference. Starting with Lawson, Q4 sales $111.8 million and average daily sales were up 1.8% on acquired revenue. Organic sales were down 10.9% on a soft December lower rep counts and a decline in military sales. Rep count rebuilding efforts are well underway and progressing nicely as Bryan highlighted. Net rep counts increased between Q3 and Q4 and we ended the quarter and year with approximately 900 field sales reps compared to a low point of approximately 830 at the end of the second quarter and 860 at the end of Q3. As we've communicated on past calls, new outside sales reps require a couple of years to ramp up but we continue to optimize the onboarding and the use of technology to advance the efforts in the short term. For the quarter, Lawson reported adjusted EBITDA of $11 million or 9.8% of sales down from 11.3% a year ago and 13.1% in Q3. As expected, fewer selling days slower military business, and rep investments compress our fourth quarter margins. 2025 has started strong as we've realized sequential sales growth over Q4 levels and we're back to double-digit EBITDA margins for the month of January. Turning to slide eight, as mentioned last quarter, we added a new reporting segment the Canada branch division. Which combines the Bolt Supply House that was previously included in our other segment with Source Atlantic as a separate segment. Fourth quarter sales for this new Canada segment in US dollars were $59 million, including $45.6 million from the Source Atlantic acquisition that was closed during the third quarter. Excluding the acquired revenue, organic sales from the year-ago quarter at Bolt Supply. Key operational initiatives are focused on acquisition integration, including pricing disciplines, Salesforce optimization, branch consolidation, and cost management. Q4 adjusted EBITDA for the Canada branch segment in USD was $4.2 million or 7.2% of sales, Excluding Source Atlantic, Q4 adjusted EBITDA for this segment would have been 14.8% being Bolt Supply as compared to 12.9% in the year ago. Although we are in the early stages of integrating Bold Supply, InSource Atlantic, we continue to target double-digit EBITDA margins for Source Atlantic driven by expected growth and the realization of planned synergies. Turning to Gexpro Services on slide nine. Fourth quarter revenue grew by 27.4% from $93.2 million a year ago to $118.8 million, primarily from organic expansion with a nominal amount of acquired revenue. Total organic sales for the quarter were up $24.9 million or 26.8% from the year-ago quarter and up 1.7% sequentially over three. This growth came primarily from expanding our existing customer relationships and the strengthening of many of their end markets including technology, aerospace and defense, and renewables. Gexpro Services adjusted EBITDA was $15.8 million and or 13.3% of sales up from 9.5% a year ago and compared to 14.1% in the third quarter. Operating leverage continues to be strong and JexPro Services continues to cross-sell realized acquisition synergies with a growing book to bill as end markets strengthen compared to a year ago period. Lastly, I will turn to Test Equity Group on slide ten. Third quarter sales were $191.3 million with daily organic sales essentially flat compared to a year ago due to headwinds in the electronics assembly market or our consumables, causing softness in the electronic production supplies end market offset by improvements in our test and measurement chambers, and rental businesses. TestEquity's adjusted EBITDA for the quarter $14.8 million or 7.8% of sales up from 6.2% as a percent of sales in the prior year quarter and also up 40 basis points compared to the third quarter. Moving to slide eleven, our balance sheet remains strong. We ended the quarter with approximately $473 million in net working capital and $335 million of liquidity. Which includes $82 million of cash and cash equivalents and approximately $253 million under our existing credit facility. Debt leverage at the end of Q4 was 3.5 times compared to 3.7 times at the end of Q3 our targeted debt leverage remains in the range of three to four times. Net capital expenditures including rental equipment were $3.4 million for the fourth quarter and $14.4 million for the full year. We expect our 2025 net CapEx to be in the range of $20 million to $25 million or approximately 1% of our revenues. We also realized a trailing twelve-month cash flow conversion of approximately 100% defined as adjusted EBITDA less working capital investments, less CapEx. Resulting in a ROIC of roughly 11% inclusive of our acquisitions. We expect that more mature distribution assets can generate ROIC levels in a range of 20% plus and we remain focused on driving incrementally in that direction as we scale the assets that we currently own. Finally, as part of our capital allocation strategy, we opportunistically repurchased $2.6 million of stock at an average price of $30.13 during fiscal 2024. I'll now turn the call back over to Bryan.

Thank you, Ron. Moving to slide twelve, we've summarized progress on our 2024 initiatives. Which Ron and I discussed in greater detail today. Our management teams with strong collaboration from the LKCM headquarter team continuously work to improve our customer intimacy and value proposition, strategic direction objectives, but also strive to make our specialty distribution platform less complex for our investors to understand. We manage the business embracing the tension around near-term performance without sacrificing the more powerful opportunities that drive the longer-term compounding objectives we are committed to. But it all comes back to driving profitability and return metrics higher. And to drive sustained accountability across a diverse set of complementary capabilities in each vertical, and the collaboration and commitment of each leadership team around to help improve operational performance with a daily focus on driving profitability, and capability enhancements that ultimately will compound our cash flow engine. Our M and A playbook is vital to our long-term growth strategy. Profitability enhancement objectives and the real compounding engine we are building. And this framework sets high goals management's allocation of capital and the performance expected from that capital and capability allocation enhance the compounding engine. We and they are measured against our ability to convert that capital and defined opportunity into reality. Our verticals compete for capital. But also collaborate on how to best maximize shareholder value, and we deploy capital by ranking the best and highest return on initiatives and acquisitions to accomplish those long-term goals. All working on this business are enthusiastic about the reality of the opportunity as they are highly aligned with the shareholders and confident we have a clear path to generating a significant long-term shareholder value creating engine. We are lapping 2024 organic sales softness and are comparing against easier sales comparisons over the next several quarters. So relative momentum feels good. But on an absolute basis, we need to get back to our mid-2023 growth and earnings trajectory which we are confident with the recovery in our end markets we will be better positioned to earn more during. The last months have not been without some uncertainty, as to how our end markets and our own model should adjust to the new mandates from Washington. We are well positioned to enjoy a renaissance in domestic manufacturing. Concerning tariffs, and the new administration's directives, including DOGE, we are controlling the areas of our business that we can control. And we'll stay alert to necessary changes as things progress in 2025. As the narrative and negotiations around tariffs with a handful of countries threatens to impact a very modest amount of our total direct and indirect procurement we reflect on history where it indicates that we've been able to work closely with our customers to offset these potential costs. The USPMI numbers this year in 2025 are trending over fifty for the first couple of months. Which signals better expansion than we have seen in many quarters. Given this, and potentially lower regulatory and DOGE deal interference, we believe companies will be spending more as they settle in with the new administration and 2024 pent-up demand continue to create sales momentum for our platform in 2025. Positive comparisons are demonstrated in Gexpro Services and our test and measurement chambers and other equipment categories for test equity. We are seeing some in-market improvement in Lawson as well. This is a good start. DSG enjoys a tremendous portfolio of end-market diversification, as well as diversification of where in that end market, we engage with our customers, we value-added services and products. So we are always preparing for choppiness in the demand environment for certain end markets. We are encouraged and know that other end markets will recover further if global tensions ease as expected.

Thank you, Bryan. In closing, thank you for your interest in DSG. We are fortunate to operate within a large combined addressable market across diverse end markets in the MRO, OEM, and industrial technologies areas that focus on specialty distribution categories, include products and services and generate significant cash flow through our collective efforts. We also have a trusted proven track record of resiliency, through business cycles that benefit from our asset-light model and tight working capital management. Our teams leading these businesses and working with me on this business are exceptionally aligned with the shareholders. This business is built to generate significant free cash flow that provides us the flexibility to focus on the very best ways to efficiently reinvest at high expected returns to drive the compounding engine across this platform for all of us, or to more directly explore ways to unlock or return capital to shareholders. I want to thank our over 4,400 dedicated employees for working hard to serve our over 200,000 customers worldwide with excellence, dedication, and energy. Thank you. I also want to thank our executive team and board for their ongoing support and encouragement. My dozen or so LKCM headwater team members that are daily challenged by our executive team and me to dive into value unlocking initiatives and the confidence and patience of DSG shareholders and my partners for investing alongside of us to grow and scale our DSG business in 2024 and 2025 and for many years to come. With that operator, let's open the line for questions.

Certainly. At this time, we will be conducting a question and answer session. Your first question for today is from Zach Mariott with Stephens.

Good morning, and thank you for taking my questions.

Hey, Zach. Good morning. Is there any color you can share on quarter-to-date sales levels across DSG as compared to the end of Q4? Yeah. Zach, you're asking about the first quarter. Correct?

Yes, sir.

I think I mentioned this in some of my prepared remarks that Lawson has gotten off to a stronger start here in the first quarter. You know, if you exclude the acquisition, certainly, that came through in 2024, if you back that out of the conversation here for a minute, you know, up versus, I would say, a year ago, January, February up also versus a year ago. All in on a consolidated basis, I'd say, kind of flattish, relative to Q4 trends into the first couple of months of 2025. So.

Great. Thank you for that. And then also on a sequential basis, how have consolidated margins trended in Q1 versus Q4? And any noteworthy fact in March that may change that?

Yeah. I would say nothing really noteworthy in March. So, you know, in February, you know, we're still working through getting everything fine. You know, January, again, I would say pretty consistent with where we were in the fourth quarter from an overall margin perspective. What I would say is that in, you know, Bryan alluded to this a little bit in his comments as well. As 2025 develops, especially as we continue to work on a lot of the synergies, opportunities within the acquisitions that we made in 2024. You know, our expectation is that the margin profile will lift as 2025 develops. So, you know, especially on the Source Atlantic acquisition that we made, and then also certainly with S and S. That we made in 2024 as well. So we're, you know, we're still I would say, pretty early innings, especially around the Source Atlantic acquisition given that that took place in Q3 of last year. And now that we have Jared in place, starting to see some realization there, but that'll happen more in the second half of the year than the first half of the year.

And let me just add a couple of things. Zach, Thank you, Ron. Ron talked about at the beginning on sales momentum, he alluded to Lawson and to kind of add color to test equity's vertical or to Gexpro Services. Tried to, in both of us tried in our prepared remarks to indicate that book to bills and revenue certainly on the JetSpire services side, and also in most of the categories, certainly the capital Asset categories. Of test equity. It's continued to show good strength, like we enjoyed in the fourth quarter. March is an important month in the first quarter always. So even though January and February are feeling relatively better, both from a year ago and the trend of the fourth quarter feels good. That doesn't mean that we have seen March yet. So, you know, we're always respectful that we're not through the quarter yet. Margins are, you know, are key to us and, you know, March will influence the final margins for the quarter. Regardless of how well January and February might have felt. There's not a lot of areas that we are feeling are directionally softer which I think, you know, we called out military. There's kind of a big question mark there in terms of when that revenue really starts flowing for us again. But the rest of the key air and market areas, other than C and I, which we called out, feel like they're directionally heading the right direction. Mexico, you know, it's got some choppiness still to it. What we saw that in the first half of last year, and it persisted during last year. For Hisco, and but it's not going directionally, it's stable to improving. Since the middle of last year.

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

Your next question is from Kevin Steinke Barrington Research.

Good morning, I wanted to ask about fourth quarter organic revenue growth. Up 3.5%. In your earnings release, you noted that was in line with expectations. Although, you know, on your previous conference call, you'd been talking about kind of a flattish outlook. So, you know, I was wondering if you felt like the organic sales trend was a bit of a positive surprise for you in the fourth quarter. And yeah, just relative to the improvement in the end markets that you referenced.

Yeah. I mean, in Graph, is some specifics on this, but just to Kevin, I would say that we were respectful going into the fourth quarter. Certainly, now you know, the fourth quarter can taper off. We've had some tough Decembers in years past. Around purchasing behavior. And what we ended up with was a bit more firm fourth quarter that reflects kind of the way we feel about the first quarter. And, you know, that flowed through two of the verticals at levels that were kind of above you know, maybe where we had confidence to forecast or to, you know, kind of message the end of the third quarter, and that was, you know, obviously, the desktop services vertical. Sustained the momentum that it's sustaining, the momentum it's been joining. And more of its end markets are cooperating then are not cooperating right now. And those end markets are touched up, you know, a lot more of our of the revenue there than the ones that are softer. Hungry, power and C and I are the two areas that we've got our eyes on. I do think that the, you know, we've got a meaningful power exposure there or set of relationships and a bull on electricity or power needs. I think many of us are. So super cycle, we think will ultimately help us. And then the other and we've got some renewed customer opportunities there. The test and measurement side of the business, you know, we saw indications. We spoke towards book to bill or order flow. Positive, I think, in the third quarter conference call there. But it's starting to translate into the dollars. More during the fourth quarter. We still have a few areas where we're working through filling orders, but the revenue side of it equation there is starting to feel better. We've got a lot of operating leverage in both of those two business models. The acquisitions that we've done at Gexpro Services are really helping total margin profile of the business. That's part of our deliberate objective to add some specific capabilities that are higher value add. Blend the margin profile of these businesses higher over time, but we've gotta get the footprint right which is why you've seen us do some things that may require us to have areas like Source Atlantic, but we start off with a lower margin before we can kind of try and work it higher. That's I don't know if that's helpful or not.

It definitely is. Yeah. Thanks for all the additional color. I wanted to also ask you about Lawson and the, you know, the margin trajectory there. You noted that first quarter started off pretty well with getting back to it. A double-digit margin and a bit of more sales momentum there. You know, just as we think of the progression of margins for losses, we move throughout 2025. You said you're kind of past the near-term pain and the, you know, the Salesforce initiatives, but at the same time, you also, I guess, will have some compression from ramping up that Salesforce and also the, you know, continued softer military sales. So I'm just trying to think about how all those factors play into the margin output per loss then.

It's really super fair in an area that is it all of us are acutely focused on. You know, the Lawson in you know, we got the benefit of some margin lift in 2023, I guess it was. As our compression started, but our sales momentum was still being, you know, we're still enjoying good relative momentum there. And then the markets turned tougher. Government business turned a lot tougher last year. And we also had a lot less feet on the street selling for us as we went through the compression cycle. And, you know, what I tried to highlight in my prepared remarks is the significant amount of dollars that we committed to this Salesforce resources and significant investment in Salesforce resources that we put into the Lawson team over the last eighteen months. And so we knew that we were putting over $10 million of investment back into the business. On the income statement. And then, you know, if you think about also the hiring, capabilities, or, I mean, hiring with more feet on the street, you know, the a hundred sellers for us typically cost about $5 million in the first year that we've got them. And so that was, you know, a real investment that we started staging through last year and we were planning on or are staging more of that through this year. So that number kind of straddles the year some. But we know the benefit of it is that we are starting to see some better productivity and get some lift out of the first wave, the sellers that we've hired. And then the, you know, the other challenge that hit well, always had has been, you know, turnover. And we've been talking about this as long before I went on the board of Lawson. You know, the real cost of having you know, twenty over twenty percent of your Salesforce turnover every year which is the historic numbers metrics, are in excess of that for Lawson over the last decade. And so seeing that trend down over the last five months is something that should help you know, the margin. Because it's a do it's been a you know, I've in my our estimation it's been an over $20 million EBITDA drag a year. Kind of trying to manage through that Salesforce turnover. Many of the tools that we're adding in the capabilities that we've added have been to try and buffer that drag that you have when you do have turnover, or to try and figure out how to shorten the lead time before your Salesforce hits profitability. Or is productive for you. So that j curve gets cut. And then also try to make sure that our territories are more profitable on day one or at least scoped at a more attractive territory size. So all those should add to, you know, we think not only getting us back to the levels of profitability that we enjoyed when we were starting the compression and still having in market momentum. But to higher levels than that, even which I've alluded to is our primary long-term objective on Lawson, which is to get it up into the high teens and higher. We don't know we don't think that that's gonna happen. You know, overnight. It's not a dramatic move. We do think we'll see good progression there this year. But it's gonna take a couple of years to really get that back to the levels that we enjoy probably in 2022. It also is gonna take just in markets being more firm. Ron, is there elements that I missed there?

Absolutely. Yes. Yeah. It is, Bryan. It feels like we've been kind of whipsawed on this. Throughout the second half or maybe even the last three quarters of 2024 where we thought, you know, we are gonna see some of this come through. And then it seems like we get some positive news, and then, you know, some news that things are gonna continue to get held. So to Bryan's point, we're just being, you know, just really you know, it's hard to make a prediction as to when it's ultimately gonna come through. Again, we feel good that the orders are still sitting in the queue. It's a matter of when they'll be released. And just the mixed messaging that we've received over the latter half of 2024 just makes this a little, you know, a little more conservative on trying to commit as to when they may come through in 2025.

Okay. It's totally makes sense. Just lastly, I wanted to ask could you remind us about if you have a certain time frame in mind, for ramping Source Atlantic margin up to that double-digit level.

It's not fast enough. You know, that we've got a great team in place. We're adding a couple more resources that we're really excited about there. We appreciate that we had. Yeah. The Source Atlantic has a great organizational structure, some great employees. A wonderful commercial leader. We had have great people over at the Bolt Supply House. We're very big. We wanted to be mindful about how we brought those organizations together and not be too abrupt just given that they both had, proud cultures and, their, you know, well, know, bringing two different Canadian organizations together on either side of the country. And so we wanted to make sure that we had, you know, strong cultural buy-in. And put strong cultural leadership there to try and bridge that process. We have four facilities that are in the process of being four locations where we're consolidating facilities. And so that is gonna release some dollars. You know, when we looked at Source Atlantic and worked through buying them, they had a fledgling western Canadian operation that had a lot of expenses associated with it. And was losing quite a bit of money on the western half just as they were building it up. And so when we looked at our purchase price on Source Atlantic, it was largely working capital and real estate and then a very modest AirBall. Over real estate and working capital values. And that modest air ball, you know, it collectively, the total purchase price was, you know, sub ten percent or right at ten times multiple. But when we looked at the specific dollar loss that we could reverse by consolidating facilities in Western Canada. It significantly lifted their margins and it significantly it didn't get them all the way to ten percent, but it made a big dent to getting them there. And so we're in the process of doing that. It will happen I think, between now and the end of the second quarter. So it's gonna take us two quarters to get through the consolidation piece. And then we've got, you know, some work to do on how we manage our margin structure there. But all that, you know, and it's easier to do that, you know, the number of our customers operate up there and in pretty harsh weather environments this time of the year. And so it's easier to try and work through the volumes that we get. There's a lot of more seasonality in that book of business than maybe we communicated well to the street. Just because, you know, when you get to mining mines and large infrastructure investments that are going on or large companies with significant infrastructure that's pretty far north. Especially on that eastern seaboard swathe of Canada, you know, there's not a lot of activity during these winter months. So fourth quarter and first quarter are seasonally soft months for Source Atlantic. And you know, that dragged our margins in the fourth quarter. Down more than they would have been dragged down had they been one of the second or third quarter revenue months. And we know, obviously, had some of that in January and February just in terms of total volume and throughput. But, you know, we're also now going to work. I'm trying to know, get that margin to where it needs to be longer term. You know, when you can take out expenses and on a part of the business that was losing $6 million or so of EBITDA you can flip that to a positive contributor. You know, my team, you know, likes to call that pick six at the goal line. So you're kind of swinging the points your favor. And so it can happen in a pretty good hurry. But it's not gonna happen here in the first three or four or five months of the year.

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

We have reached the end of the question and answer session, and I will now turn the call over to Bryan for closing remarks.

Thank you, operator. Thank you, everyone, for engaging with us today. We appreciate your interest in DSG. We are excited about being aligned with you as shareholders. And we look forward to speaking with you again when we report our first quarter results in a couple of months. Thank you for your time. Have a great day, and God bless.

This concludes today's conference. And you may disconnect your lines at this time. Thank you for your participation.