Distribution Solutions Group, Inc. · NASDAQ:DSGR
Distribution Solutions — Investor Day (September 2023)
71 slides from Distribution Solutions's investor day presentation, Sep 28, 2023
Slide 1: DSG Investor Day
NASDAQ: DSGR DSG Investor Day September 28, 2023
Slide 2: Disclaimers
Disclaimers Cautionary Note Regarding Forward-Looking Statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that involve risks and uncertainties
Slide 3: Agenda
Agenda I. DSG Overview and Investment Highlights (J. Bryan King) II. Key Accomplishments and Performance Update (Ron Knutson) III. M&A Playbook (Matt Boyce) Break IV. Business Unit CEO Panel (Moderator: Brad Wallace) V. Conclusion / Q&A 3
Slide 4: Key Takeaways for Today
Key Takeaways for Today DSG is a compelling specialty distributor at an inflection point DSG’s attractive value proposition to its customers Actions implemented and initiatives underway aiming to achieve repeatable and compounding results 4
Slide 5: Overview and Investment Highlights
Overview and Investment Highlights J. Bryan King Chairman and CEO, DSG
Slide 6: Building a Premier Specialty Distributor
Building a Premier Specialty Distributor
Slide 7: Attractive Attributes of Specialty Distributors
Attractive Attributes of Specialty Distributors ✓ Business model that extends beyond conventional distribution – repeatedly demonstrating a clear, differentiated value proposition for customers ✓ Fortified competitive moat created by robust technical knowledge, extensive service capabilities, and/or
Slide 8: Value-Added Capabilities Drive Returns
Value-Added Capabilities Drive Returns Specialty Distribution Model Value-Added Offerings…Create High Customer Retention Human capital Technology & Specialty investment (P&L) Systems (B/S) offerings Coupled with working capital investment Drive higher ROIC & higher structural margins Vendor Managed
Slide 9: Track Record of Specialty vs. Broadline Distributors
Track Record of Specialty vs. Broadline Distributors Annualized Returns over EBITDA-tripling Period1 EV / LTM EBITDA ∆ over EBITDA-Tripling Period1 Cumulative Annualized Specialty2 Broadline2 524% 18.6x Return 25% 14.0x Returns 10.2x 9.2x 159% Return 8% Returns ~12 yrs ~9 yrs 2 2 2 2 EBITDA Margin ∆
Slide 10: Why DSG?
Why DSG? SG DISTRIBUTION 2 SOLUTIONS OO
Slide 11: DSG Video
DSG Video 9SG DISTRIBUTION SOLUTIONS GROUP.
Slide 12: The Power of Three
The Power of Three Main Assembly Production Plant Maintenance Shop Valued Added Services Hardware Electrical Fabrications Fluid Fasteners Chemicals Cutting & Power Abrasives Electronics Assembly Research and Development Lab Solder Cases & Benches & Paint & Wire Tools Workstations Environmental Abras
Slide 13: DSG's Identity
DSG’s Identity DSG is a best-in-class specialty distribution company providing high-touch, value-added distribution solutions to the MRO, OEM, and Industrial Technologies verticals in a diversified set of end markets. We take a solutions-based approach to serving our customers the way they want to b
Slide 14: DSG Delivers a Unique & Attractive Specialty Distribution Platform
DSG Delivers a Unique & Attractive Specialty Distribution Platform ✓ ✓ ✓ ✓ Significant Customer, Attractive, Accretive Strong, Sticky Role Dual Pronged Supplier & End Market Returns on in the Value Chain Growth Strategy Diversity Incremental Capital Customer-Embedded Serve 10+ Industries 250+ bps Ad
Slide 15: Leading Industrial Distribution Platform
Leading Industrial Distribution Platform MRO Focus OEM Focus Industrial Technologies Focus Leading vendor managed Leading global supply chain services and Leading supplier of electronic and specialty inventory provider of C-parts C-parts provider to OEM production supplies and T&M equipment to the M
Slide 16: DSG's Operating Structure
DSG’s Operating Structure Decentralized Operations Integrated Platform Benefits: Benefits: ✓ Brand integrity ✓ Broader customer maintained access to value added products ✓ Customer experience goes undisrupted vs. 1 Specialty Distribution Company ✓ Sourcing advantages full integration around products
Slide 17: Highly Aligned Leadership / Governance
Highly Aligned Leadership / Governance J. Bryan King Ron Knutson DSG Chairman & CEO EVP and CFO Dedicated LKCM Headwater team LKCM HW Managing Partner Lawson and DSG investing significant time, resources and well aligned capital LAWSON PRODUCTS GEXPRO SERVICES TESTEQUITY GROUP Cesar Lanuza Bob Conno
Slide 18: LKCM Headwater's Role within DSG
LKCM Headwater’s Role within DSG Drive accountability across the operating companies Align management teams through incentive structures and value creation Project-manage organizational initiatives Provide capital allocation decision-making support Offer M&A sourcing and execution support Draw on de
Slide 19: Investment Highlights
Investment Highlights SG DISTRIBUTION 2 SOLUTIONS OO
Slide 20: Value Creation Themes: Revenue and End Market Diversification
Value Creation Themes Spotlight: Revenue and End Market Diversification A&D Industry – example of how DSG serves >170,000 customers customers up and down the value chain within various end markets: in a robust set of end markets R&D - TE | OEM - GS/TE/Hisco | MRO - Lawson/Hisco ✓ Sticky customer rel
Slide 21: Value Creation Themes: Embedded Growth Opportunities
Value Creation Themes Spotlight: Embedded Growth Opportunities Leverage Platform Across Customer Base Strong Secular Tailwinds Unique total customer value proposition + Onshoring / Infrastructure Monetize distinct capabilities across the platform Nearshoring (CHIPS Act) + Collaborative selling acros
Slide 22: Value Creation Themes: Cross-Company Collaboration
Value Creation Themes Spotlight: Cross-Company Collaboration Best Practices Capabilities Strategic Leverage Cross-Selling Sharing Extension Sourcing Indirect Spend 22
Slide 23: Compounding Value
Compounding Value Value-Added Disciplined Compounding Strong Free Cash Layering on Services Driving Capital Allocation Outcomes of DSG Margins Philosophy Flow Conversion Accretive M&A Compelling Business Model and Strategic Approach Proven acquisition playbook for follow- on investments Attractive r
Slide 24: Compounding Effect of Cash Flow Reinvestment
Compounding Effect of Cash Flow Reinvestment Goal of >100% conversion1 Free Cash Flow Reinvesting in the Strategic M&A and bolt- business, balance sheet, on acquisitions and working capital Opportunistic buybacks Debt reduction and potential dividends Disciplined Capital Allocation Framework with a
Slide 25: Where DSG is Currently
Where DSG is Currently Trailing 4Q’s Average YoY Organic Revenue Growth (%)1,3 LTM EBITDA Margins (%)1 Return on Net Working Capital (%)2 EV / LTM EBITDA1 Note: DSG represents June 2023 TTM Adjusted EBITDA margins from continuing operations plus results prior to acquisition dates. See appendix for r
Slide 26: Where DSG is Headed
Where DSG is Headed Adjusted Revenue ($Bn) 5 Year Goals + ❑ Mid-to-high single-digit Annual Organic Revenue Growth ❑ 25 – 50 bps Annual GM % Expansion $3.3+Bn Revenue 3 4 Adjusted EBITDA Margin ❑ 50+ bps Annual SG&A as % of Sales Improvement + ❑ 20%+ EBITDA CAGR $450+mm Adjusted EBITDA ❑ $5+ per sha
Slide 27: Bridging to a Structurally Higher Margin
Bridging to a Structurally Higher Margin Significant “Margin-driving Process & Structure Optimization Levers” being Pulled… 13.5+% Leverage Commercial Growth Initiatives Spend & Hisco Other Opex Integration Initiatives Go-to-market Transformation Digital Acceleration Private Label Acceleration Value
Slide 28: DSG Performance
DSG Performance Ron Knutson CFO, DSG
Slide 29: Recent Financial Highlights – Q2 2023
Recent Financial Highlights – Q2 2023 ✓ Revenue of $378.0mm at June 30, 2023, an increase of $56.6mm or +17.6% over year ago quarter; organic growth of +4.8% ✓ Adjusted EBITDA of $40.1mm with 10.6% margin; up 26.7% from Adjusted EBITDA of $31.7mm with 9.9% margin a year ago quarter ✓ Adjusted EPS of
Slide 30: DSG Post-Merger Year in Review
DSG Post-Merger Year in Review Significant Progress Made Since April 1, 2022 Merger forming DSG ✓ ✓ ✓ Execution of M&A Playbook Strong Commercial Collaboration Indirect Spend Consolidation 4 acquisitions closed since merger Early wins achieved and continuous $5mm+ in annual realized close, represent
Slide 31: DSG Post-Merger Year in Review
DSG Post-Merger Year in Review Financial Progress Made Since April 1, 2022 Merger $ in mm ✓ Adjusted Revenue Adjusted EBITDA 71% Growth Industrial Technologies 80% Industrial Growth Technologies OEM OEM MRO MRO 1 2 1 2 (1) Represents March 2022 TTM Adjusted Revenue and Adjusted EBITDA from continuin
Slide 32: Other Financial Highlights
Other Financial Highlights Robust Net Working Capital Investment Rapid Deleveraging via Earnings Amended Credit Agreement: Growth and Free Cash Flow Generation $805mm Total Facility $476mm ~$250mm 3.6x 1 Accounts Receivable Leverage at April 1, 2022 Merger Close ~$100mm Inventory 3.1x 1 Accounts Pay
Slide 33: Key Highlights Revisited
Key Highlights Revisited ➢ Unique customer value proposition and best-in-class service models Leading Value-Added Distributor ➢ Proven, aligned management team with clear vision of value creation ➢ Attractive mix of end markets and customer types (MRO vs. OEM) Diversified End Markets ➢ Substantial a
Slide 34: Pursuit of Accretive M&A
Pursuit of Accretive M&A Matt Boyce SVP of Corporate Development, DSG
Slide 35: Corporate Development at DSG
Corporate Development at DSG Invested in corporate DSG team to create and implement a standardized, repeatable M&A process Team Overview Roles & Responsibilities Develop and manage a robust acquisition pipeline Lead full-scope acquisition due diligence process Matt Boyce Melanie Nix Brent Pearlstein
Slide 36: Historical Acquisitions – Track Record
Historical Acquisitions – Track Record Product Offering Targeting 14 Acquisitions Since 2017: alignment around 5 key attributes for acquisition Expand criteria… Geographic End Market Coverage Strategic Rationale ...that drive Enhance accretion to and ~$900M ~$600M enhance the Acquired Revenue Purcha
Slide 37: Acquisition Discipline
Acquisition Discipline DSG targets acquisitions that strengthen the demand drivers and financial profile across the platform Markets Targets Value Creation ✓ Highly fragmented ✓ Complementary offerings ✓ Financially accretive ✓ Strong secular tailwinds ✓ Sales channel expansion ✓ Synergy opportuniti
Slide 38: Approach to Integration
Approach to Integration Unlock opportunities to accelerate growth and aggressively target value-enhancement levers Approach & Structure Measuring Success - Execute core strategic rationale elements of deal thesis and model - Support target company management team - Provide resources (human & capital
Slide 39: Recent Acquisition Success Stories
Recent Acquisition Success Stories Acquired: Q2 2022 Acquired: Q1 2022 TEquipment (Industrial Technologies) Resolux Group (OEM) Strategic ✓ Product Expansion ✓ Digital Extension ✓ Shared Services Strategic ✓ Expansion into Europe, Asia, & South America Rationale ✓ Margin Uplift Opportunity ✓ Access
Slide 40: Hisco Acquisition Update
Hisco Acquisition Update Transaction accelerates the growth trajectory of the DSG platform, bolstering its world-class industrial distribution business Strategic Rationale & Acquisition Benefits Growing Appreciation for Broader Benefits ✓ Significant ✓ Meaningfully enhances DSG’s scale and footprint
Slide 41: Business Unit CEO Panel
Business Unit CEO Panel DISTRIBUTION ry SOLUTIONS GROUPS”
Slide 42: Panel: DSG Operating Company CEOs
Panel: DSG Operating Company CEOs MODERATOR Brad Wallace Partner, LKCM Headwater & Board Member, DSG PANELISTS MRO FOCUS OEM FOCUS INDUSTRIAL TECHNOLOGIES FOCUS Cesar Lanuza Bob Connors Russ Frazee CEO CEO CEO Lawson Products Gexpro Services TestEquity Group 42
Slide 43: MRO Focus: Overview
MRO Focus: Overview Business Unit Snapshot Products ▪ Fasteners ▪ Hydraulics MRO Focus 29% of Total Revenue ▪ Chemicals ▪ Other broad offerings and C-Parts ▪ Cutting tools OEM Focus Services ▪ Managed inventory ▪ Product recommendations ▪ Industrial vending ▪ Application advice Industrial Technologi
Slide 44: MRO Focus: Overview
MRO Focus: Overview How We Serve Our Customer Value-added, High-touch, Vendor Managed Inventory…Solving Customers’ MRO Needs 44
Slide 45: MRO Focus: Overview
MRO Focus: Overview How We Serve Our Customer MRO Products Value-added Services High Touch - VMI Service Fasteners Chemicals On-site safety & Self-service Managed product usage inventory Inventory training management Cutting tools Product Application Industrial recommendations advice vending Hydraul
Slide 46: OEM Focus: Overview
OEM Focus: Overview Business Unit Snapshot Comprehensive Supply Chain Solutions MRO Focus OEM Focus 23% of Total Revenue Vendor Managed Kitting & Aftermarket / Technology Industrial Technologies Focus Inventory (VMI) Assembly Installation Diverse End Markets Renewables Technology Aerospace & Defense
Slide 47: OEM Focus: Overview
OEM Focus: Overview How We Serve Our Customer Supply Chain & B and C-Parts Solutions… Highly Engineered Products Extensive Value-Added Services ~70% of sales include onsite ~70% Fasteners Fabrications/ Electrical/ inventory & logistics management of products Vendor Managed Packaging Value Machine Pa
Slide 48: OEM Focus: Improving Customers' Total Cost of Ownership
OEM Focus: Overview How We Serve Our Customer Improving Customers’ Total Cost of Ownership …Coupled with Manufacturing Efficiency & Quantifiable Average New Program Cost Savings Opportunities… Uptime Opportunities ◼ SKU management 25-30% Estimated Annual Program ◼ Reporting Cost Savings Management ◼
Slide 49: OEM Focus: Serving the OEM Product Life Cycle
OEM Focus: Overview How We Serve Our Customer Serving the OEM Product Life Cycle • Vendor Consolidation • Aftermarket Support • VMI & Kitting • End of Life Buys • Technology • Fulfillment • Cost Deflation • NPI Support • Inventory Reduction • Value Engineering • Consignment • Qualification Support •
Slide 50: Industrial Technologies Focus: Overview
Industrial Technologies Focus: Overview Business Unit Snapshot Products ▪ Electronic Production ▪ Environmental Test MRO Focus Supplies Chambers ▪ Test & Measurement ▪ Chemicals & Adhesives OEM Focus Instrumentation ▪ Labels and Printing Services ▪ VMI ▪ Asset Management Industrial Technologies Focu
Slide 51: Industrial Technologies Focus: Supporting the Full Electronics Cycle
Industrial Technologies Focus: Overview How We Serve Our Customer Supporting the Full Electronics Cycle ✓ High Margin ✓ Recurring and Sticky VOLUME ✓ Massive Pull-through Potential Electronics Research & Design Electronics Assembly Electronics Maintenance & Repair • Design Engineer • Production Mana
Slide 52: Case Study: Rocket Propulsion Solutions for Large Customer
Industrial Technologies Focus: Overview How We Serve Our Customer Case Study: Rocket Propulsion Solutions for Large Customer Broader DSG Pull-through Potential Personal Protective VOLUME Chemicals Solder Flux Equipment Rocket & Environmental Components Dispensing Chamber System Solder Wire Solder St
Slide 53: Initiatives Spotlight
Initiatives Spotlight MRO FOCUS OEM FOCUS INDUSTRIAL TECHNOLOGIES FOCUS Key Initiative: Key Initiative: Key Initiative: Salesforce Transformation: Driving towards Upstream & Downstream Project Evolve Double-digit Synergies EBITDA Margins 53
Slide 54: Initiatives Spotlight
Initiatives Spotlight MRO FOCUS OEM FOCUS INDUSTRIAL TECHNOLOGIES FOCUS Key Initiative: Key Initiative: Key Initiative: Salesforce Transformation: Driving towards Upstream & Downstream Project Evolve Double-digit Synergies EBITDA Margins 54
Slide 55: Initiatives Spotlight: MRO Focus
Initiatives Spotlight MRO Focus Small job sites Large Multi-Site Large Single-Site …low complexity …higher complexity Construction Manufacturing Equipment Rental Automotive – Fleet Construction – Civil Eng Collision/Dealership Automotive - Collision Trucking & Transportation Heavy Manufacturing 55
Slide 56: Initiatives Spotlight: MRO Go-to-market
Initiatives Spotlight MRO Focus Current Go-to-market Evolving Go-to-market Future Go-to-market Revenue $ 1.2 1.2 Revenue $ Accounts Strategic Field Sales Reps 1 1 (Large Single Site) Field Sales Rep. Tech Specialist 0.8 0.8 Service Rep. Web / e-commerce 0.6 0.6 0.4 Inside Sales Team 0.4 (Small/Mid-S
Slide 57: Initiatives Spotlight
Initiatives Spotlight MRO FOCUS OEM FOCUS INDUSTRIAL TECHNOLOGIES FOCUS Key Initiative: Key Initiative: Key Initiative: Salesforce Transformation: Driving towards Upstream & Downstream Project Evolve Double-digit Synergies EBITDA Margins 57
Slide 58: Initiatives Spotlight: OEM Focus
Initiatives Spotlight OEM Focus Large and Diverse End Market Growth Strengthened via Organic and Inorganic Initiatives ORGANIZATIONAL COMMERCIAL VERTICALS INDUSTRIAL CONSUMER & AEROSPACE & RENEWABLES TRANSPORTATION TECHNOLOGY POWER INDUSTRIAL DEFENSE More... Customers Gas Semiconductors / SUB-VERTIC
Slide 59: Initiatives Spotlight
Initiatives Spotlight MRO FOCUS OEM FOCUS INDUSTRIAL TECHNOLOGIES FOCUS Key Initiative: Key Initiative: Key Initiative: Salesforce Transformation: Driving towards Upstream & Downstream Project Evolve Double-digit Synergies EBITDA Margins 59
Slide 60: Initiative Spotlight: Industrial Technologies Focus
Initiative Spotlight Industrial Technologies Focus Clear Path to Double-Digit EBITDA Margins and Beyond with Ongoing Initiatives ✓ ✓ ✓ Margin Improvement Strategic Cost Outs ERP Consolidation ➢ VMI pricing Improvement ➢ Offshoring of non-customer ➢ Integrate ERP systems across facing roles where app
Slide 61: Cross-company Collaboration: The Power of Three
Cross-company Collaboration The Power of Three Main Assembly Production Plant Maintenance Shop Valued Added Services Hardware Electrical Fabrications Fluid Fasteners Chemicals Cutting & Power Abrasives Electronics Assembly Research and Development Lab Solder Cases & Benches & Paint & Wire Tools Work
Slide 62: Cross-company Collaboration: Cross-selling Benefit
Cross-company Collaboration Cross-selling Benefit DSG Amplifies Sales Opportunity How we are executing… ▪ Built cross-functional teams ▪ Cross-sell incentive program ▪ Identified customer targets by focusing on Top 50 ▪ Cross-selling ▪ Leverage key suppliers ▪ Regional field training aligned by cust
Slide 63: Conclusion
Conclusion DISTRIBUTION ry SOLUTIONS GROUPS”
Slide 64: DSG is Focused on Driving Results
DSG is Focused on Driving Results ✓ We have a results-oriented culture and collaboration ✓ We are focused on long-term value creation ✓ We generate significant FCF re-investing in high ROIC opportunities DSG stands primed to amplify and accelerate value for stakeholders 64
Slide 65: Questions & Answers
Questions & Answers SG DISTRIBUTION 2 SOLUTIONS OO
Slide 66: Investor Contacts
Investor Contacts Three Part Advisors, LLC (214) 872-2710 Steven Hooser shooser@threepa.com Sandy Martin smartin@threepa.com
Slide 67: Appendix
SG DISTRIBUTION 2 SOLUTIONS OO
Slide 68: GAAP to Non-GAAP Reconciliations
GAAP to Non-GAAP Reconciliations Revenue and Adjusted EBITDA Reconciliation ($000s) (Unaudited) References to table footnotes on slide 70 Results are presented on an Adjusted (Non-GAAP) and continuing operations basis. 68
Slide 69: GAAP to Non-GAAP Reconciliations
GAAP to Non-GAAP Reconciliations Adjusted Revenue and Adjusted EBITDA Reconciliation ($000s) Results inclusive of other acquisitions – Pre-Acquisition Date (Unaudited) References to table footnotes on slide 70 Results are presented on an Adjusted (Non-GAAP) and continuing operations basis. 69
Slide 70: GAAP to Non-GAAP Reconciliations
GAAP to Non-GAAP Reconciliations Adjusted Revenue and EBITDA Reconciliation – Table Footnotes 1. Represents additional revenue and operating income of other acquisitions prior to their acquisition dates not in reported GAAP results 2. Merger transaction costs related to the negotiation, review and e
Slide 71: GAAP to Non-GAAP Reconciliations
GAAP to Non-GAAP Reconciliations Reconciliation of GAAP Net Income (Loss) and GAAP Diluted EPS to Non-GAAP Adjusted Net Income and Non- GAAP Adjusted Diluted EPS (Dollars in thousands, except per share data - Unaudited) costs (1) Tax effected at quarterly tax rate of 29.0% and 43.4% for the three mo
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