Distribution Solutions Group Inc (DSGR) 2024 Q4 法說會逐字稿

Greetings.

Welcome to the Distribution Solutions Group 4th 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.

If anyone should require operator assistance during the conference, please press 0 on your telephone keypad.

Please note this conference is being recorded.

I will now turn the conference over to your host Stephen Hoosier.

You may begin.

Good morning everyone and welcome to the Distribution Solution Group's 4th quarter and full year 2024 earnings call.

Joining me on the call are DSG's Chairman and Chief Executive Officer Brian King and executive Vice President and Chief Financial Officer Ron Knuson.

In conjunction with today's call, we have provided a financial results slide deck posted on the company's IR website at investor.distributionsolutionssgroup.com.

Please note the 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 that 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-gap measures, and reconciliations to the nearest GAAP measures 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 8K filed with the SEC.

Lastly, this 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 20 of 2025.

With that, I would now like to turn the call over to Brian King.

Brian?

Thanks, Stephen, and good morning everyone.

Thank you all for joining us.

Let's start on slide 4 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 12 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 IBEA less cap X, less working capital investments, including pre acquisition trailing 12 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 IBEA of $75 million which included 12 months of financial results for Lawson, Jexpro Services, and test equity.

Comparing fiscal 2024 to the 2021 pre-merger results for consolidated DSG, we have doubled DSG's revenues and generated an incremental $100 million of adjusted IBEDA in three fiscal years, unlocking some additional earnings leverage while making key strategic acquisitions for continuing 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 industry, as evidenced by the manufacturing PMI remaining in 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 5 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 a creative way through leveraging our well defined M&A resources and playbook as well as our collective resources lens on how our strategic objectives should be prioritized relative to the expansive actionableop 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 recentOres acquisition, balanced out our geographic footprint, and expanded dramatically our customer engagements in Canada to leverage our large investment in Lawson and Kent VMI 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 SNS acquisition, and lastly addressed a high priority to drive high growth opportunities in Southeast Asia being presented to Jex Pro Services by buying a small platform that we are now aggressively adding capabilities and 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 and 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 we expect we will have a compounding effect to profitability and long term position in the marketplace, and importantly to us as shareholders will be engines that 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 the near-term earnings, ROIC, and EEA 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, as 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 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 HSCO 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 5, I will provide updates on some of our initiatives and the 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 we're 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 73 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 and 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 18 months, Lost in Salesforce initiative required EBITA compression for 2024 as we invested in additional capabilities and selling tools and compensation, as well as began the journey to fill.

Well over 100 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 Salesforce team from about 10,020 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 of 2024 subside appreciably over the last five months.

We are targeting to build up to 1,000 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 loss and 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 loss and sellers' ability to drive a better customer experience.

And for us to create better sales force opportunities for future generations of top selling candidates, 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 NPV 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 on boarding 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 in the value channel's efficiency.

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, an account service field sales support resources, and now a robust digital customer interface platform that 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 SNS 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 Janke 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 14 years of 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 26 distribution facilities throughout Western Canada.

As our new Canada division President, Jared's immediate priority is to align the leadership teams of Source Atlantic and Bolt to ensure collaboration and success of DSG's growth strategy in Canada.

Our Canadian ranch 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 margins.

At the same time, we continue to work to realize defin synergy opportunities, so this segment's 4th quarter IEDA margins are no surprise.

We know that Source Atlantic had a 50 basis point impact on DSG's consolidated margin profile in the 4th quarter.

We are marching toward margin enhancements to return to double digit margins for the Canada branch business, as we remember when we bought Volt supply House, and it was a below 10% 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 3 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 and revenue growth as we go into 2025 and through 2026.

One area of particular headwind for Lawson during 2024 was our military business.

For the full year 2024 results, military sales were down over 50%, placing significant pressure on Lawson's total sales and not explained at all by our deliberate compression initiatives or the weaker CPI we all fought 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 declined 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.

But over the last 6 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 Chex Pro Services, we drove sequentially higher quarterly sales for aerospace and defense, technology and renewables in markets in the 4th quarter as these in markets continue to rebound.

These in markets also continued to grow sequentially from Q3 to Q4, and our activity in book to build continues to be strong in the 1st quarter.

As I look across our end markets at both sales and book the bill.

The CNI at about 11% of current average daily sales volume is the only area where we are seeing more consistent cautionary book to bills and revenue trends, and the aerospace and defense technology and renewables verticals that collectively represent over half of our current daily sales volume continue to lead the momentum that Jax Pro Services continues to enjoy.

During the 4th quarter, we announced the acquisition of tech component resources, providing us a platform to grow in the expanding Southeast Asia market.

Since that acquisition, our Jex Pro 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 who are inquiring about our ability to serve them as we can currently add supporting locations.

We are very pleased with the full year IBEA margin expansion for Jex Pro Services of 160 basis points and the fourth quarter expansion of 380 basis points, which was primarily driven by leveraging our fixed cost structure across growing in markets.

Our initiatives from 2023 and our acquisition from 2022 contribute significantly to the momentum and margin increase Jex Pro 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, were implemented in 2024 to make investments and to recruit additional leadership talent to grow and scale as the leading global supply chain services and C 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 ALL9 of the vertical slices on the business, after two years of challenging in market backdrops, we are 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.

In market expansion aligns with improving aerospace and defense, technology, and R&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 backdrops.

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 Hisco.

Having reworked our go to market strategy and Salesforce, bringing both sets of resources together on our production supply effort, the test equity and HisO 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 as 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 18 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 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, TI, and HSCO, as well as the key techin 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 tuckins around how they will inform the total profitability, acceleration, and 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 in markets return.

With that, I'll turn it over to Ron to give a broader review of our financials, Ron.

Thank you, Brian, and good morning everyone.

Turning to slide 6, 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 3rd quarter by 2.7% 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 Ibida of 44.9 million or 9.3% of sales of 90 bits compared to last year's quarter.

The sequential compression from Q3 and consolidated margins of 120 bis was expected primarily due to margin pressure related to the sales force 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 intangible amortization expenses and $4.7 million from acquisition-related costs, non-cash stock compensation, non-recurring charges, and other one-time items.

Adjusted operating income improved at 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 $0.42 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 7, 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 were 111.8 million, and the average daily sales were up 1.8% on acquired revenue.

Organic sales were down 10.9% on a soft December lower rep count and a decline in military sales.

Repcounts rebuilding efforts are well underway and progressing nicely as Brian 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 IAA 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 can press 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 EEA margins for the month of January.

Turning to slide 8, 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 segments 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 increased 1.4% from the year ago quarter at Bolt supply.

Key operational initiatives are focused on acquisition integration, including pricing disciplines, sales force optimization, brands consolidation, and cost management.

Q4 adjusted IADA for the Canada Branch segment in USD was 4.2 million or 7.2% of sales, excluding Source Atlantic, Q4 adjusted IBEA for this segment would have been 14.8% being bull supplied as compared to 12.9% a year ago.

Although we are in the early stages of integrating bolt supply in Source Atlantic, we continue to target double digit margins for Source Atlantic, driven by expected growth and the realization of planned synergies.

Turning to Jex for Services and slide 9, 4th 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 Q3.

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.

Jacksboro Services adjusted IIA was 15.8 million 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 Jexro Services continues to cross-sell realize acquisition synergies with a growing book to build as end markets strengthen compared to a year ago period.

Lastly, I will turn to Test Equity Group on slide 10. 3rd 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 and market offset by improvements in our test and measurement chambers and rental businesses.

Test equities adjusted EEA for the quarter was 14.8 million, or 7.8% of sales, up from 6.2% as 8% of sales in the prior year quarter and also up 40 basis points compared to the third quarter.

Moving to slide 11, our balance sheet remains strong.

We ended the quarter with approximately 473 million in networking 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 3 to 4 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 capX to be in the range of 20 to 25 million or approximately 1% of our revenues.

We also realized a trailing 12 month cash flow conversion of approximately 100% defined as adjusted Ida, less working capital investments, less cap backs.

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 repurchase $2.6 million of stock at an average price of $30.13 during fiscal 2024.

I'll now turn the call back over to Brian.

Thank you, Ron.

Moving to slide 12, 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 Headwater team continuously work to improve our customer intimacy and value proposition, our strategic direction objectives, but also strive to make our special 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 continuously working.

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&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 for management's allocation of capital and the performance expected from that capital and capability allocation to enhance the compounding engine.

We and they are measured against our ability to convert that capital and to find 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 markets, we will be better positioned to earn more.

The last months have not been without some uncertainty as to how our in 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 will 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 turning over 50 for the first couple of months, which signals better expansion than we have seen in many quarters.

Given this.

And potentially lower regulatory and DOG deal interference, we believe companies will be spending more as they settle in with the new administration, and 2024 pent up demand will continue to create sales momentum for our platform in 2025.

Positive comparisons are demonstrated in Chex Pro 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 in-market diversification, as well as diversification and we're in that in-market, we engage with our customers with value added services and products, so we are always preparing for choppiness in the demand environment for certain in markets.

We are encouraged and know that other in markets will recover further if global tensions ease as expected this year.

In closing, thank you for your interest in DSG.

We are fortunate to operate within a large, combined, addressable market across diverse in markets in the MRO, OEM, and industrial technologies areas that focus on specialty distribution categories that 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-like 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 the 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.

(Operator Instructions)

Zach Marriott, Stephens.

Good morning and thank you for taking my question.

Hey, 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 you're asking about the the first quarter, correct?

Yes sir.

Yeah, so, yeah, I think, I mentioned this in some of my prepared remarks that that Lawson has gotten off to a stronger start here in the in the first quarter, if you exclude the acquisition, certainly that came through in 2024 if you if you if you back that out of the out of the conversation here for a minute.

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 into into the first couple of months of of of 2025.

Great, thank you for that.

And then also on a sequential basis, how have consolidated margins trended in Q1 versus Q4 and any noteworthy factors in March that may change that?

Yeah, I would say.

Nothing really noteworthy in March.

So, in February, we're still working to getting everything finalized and so forth, January again, I would say pretty consistent with, where we were in the in the 4th quarter from an overall margin perspective.

What I would say is that, and, Brian alluded to this a little bit in his comments as well as 2025 develops, especially as we, work, continue to work on a lot of the synergies.

In opportunities within the acquisitions that we made in 2024, our expectation is that is that the margin profile will lift as 2025 develops.

So, especially on the on the Source Atlantic acquisition that we've made.

And then also certainly with with S&S that we made in 2024 as well.

So 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 to starting to see some realization there, but that'll happen more in the in the second half of the year than the first half of the year.

Yeah, let me just add a couple of things, Zach, thank you, Ron.

Ron talked about at the beginning on sales momentum he alluded to loss and to kind of add color to test equities vertical or to Jax for services.

I tried to, in both of us tried in our prepared remarks to indicate that book the bills and revenue, certainly on the Jax services side.

And also in most of the categories, certainly the capital asset categories of test equity has continued to show good strength like we enjoyed in the 4th quarter.

March is an important month in the 1st quarter always.

So even though January and February are feeling relatively better, both from a year ago and the trend of the 4th quarter feels good.

That doesn't mean that we have seen in March yet, so, we're always respectful that we're not through the quarter yet.

Margins are key to us, and, 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, we call 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 the rest of the the key area and market areas other than CNI which we called out, feel like they're directionally heading the right direction.

Mexico, it's got some choppiness still to it.

We saw that in the first half of last year and and it persisted during last year for HCO 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.

Kevin Steinke, Barrington.

Good morning.

I wanted to ask about the fourth quarter organic revenue growth of 3.5% in your earnings release, you noted that was in line with expectations, although, on your previous conference call you've been talking about kind of a flattish outlook, so, I was wondering if you felt like the the organic sales trend was a bit of a positive surprise for you in the 4th quarter, and you know just just relative to.

To, the the improvement and markets that that you referenced.

Yeah, I mean, in Ron Paul some specifics on this, but just to Kevin, I would say that we were respectful going into the 4th quarter and certainly how you know the 4th quarter can taper off.

We've had some tough Decembers in years past around pur purchasing behavior and what we ended up with was was a bit more firm 4th quarter that reflects kind of the way we feel about the 1st quarter and you know that that flowed through two of the The verticals at levels that were kind of above, maybe where we had confidence to the forecast or, kind of message at the end of the third quarter and that was, obviously the services vertical sustain the momentum that it is sustaining the momentum it's been enjoying.

And and more of its in markets are cooperating than are not cooperating right now and those those in markets are you know a lot more of the revenue there than the ones that are softer, Hungary, power and CNI are the two areas that we've got our eyes on.

I do think that the, we've got a meaningful power.

Exposure there or set of relationships and a bow on electricity or or power needs.

I think many of us are so that super cycle we think will ultimately help us in in.

Then the other and we've got some renewed customer opportunities there.

The the test and measurement side of the business, we saw indications we spoke towards book the bill or order flow being positive, I think in the 3rd quarter conference call there, but it started to translate into the dollars more during the 4th quarter.

We still have a few areas where we're working through filling orders but.

But you know the revenue side of the 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 Jex Pro Services are really helping the total margin profile of the business that's part of our deliberate objective to add some specific.

Capabilities that are higher value add that blend the margin profile of these businesses higher over time, but we've got to got to get the footprint right, which is why you've seen us do some things that may require us to, have areas like Source Atlantic where we start off with a lower margin before we can kind of TRY and work it higher.

So that's I don't know if that's helpful or not.

No, it definitely is, yeah, thanks for all the additional color.

I wanted to also ask about Lawson and the margin trajectory there.

You noted that the first quarter started off pretty pretty well with.

Getting back to a double digit margin and a bit more sales momentum there, just as we think of the progression of margins for loss as we move throughout 2025, you said you're kind of past the near term pain and you know the sales force initiatives, but at the same time you also I guess we'll have some compression from ramping up that sales force and also the.

Continued software military sales.

I'm just trying to think about how all those factors play into the margin outlook for Austin.

Really super fair in an area that that all of us are.

Acutely focused on, the law said we got the benefit of some margin left in 2020.

3 I guess it was as our compression started, but our sales momentum was still being, we're still enjoying good relative momentum there and then the markets turned tougher, our 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 18 months.

And so we knew that we were putting over $10 million of investment back into the business on the income statement, and then, if you think about also the hiring of capabilities, I mean hiring more feet on the street, the 100 sellers for us typically costs about $5 million in the 1st year that we've got them.

And so that was, a real investment that we, started staging through last year and we were planning on our staging more of that through this year, so that that number kind of straddles the year sum, but we, the benefit of it is that we are starting to see some better productivity and get some lift out of the first wave of sellers that we've hired.

And then the other challenge that Lawson's always had has been, turnover and we've been talking about this as long as, long before I went on the board of Lawson, the real cost of having, 20 over 20% of your sales force turnover every year, which is the historic numbers, metrics are in excess of that for Lawton over the last decade.

And so seeing that trend down over the last 5 months is something that should help, the margin because it's it's been, in our estimation it's been an over $20 million dollar even down drag a year of kind of trying to manage through that 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 the lead time before your salesforce its profitability or is productive for you.

So that 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, 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 of loss and which is to get it up into the high 10s and higher.

We don't know, we don't think that that's going to happen, overnight.

It's not a dramatic move.

We do think we'll see good progression there this year, but it's going to take a couple of years to really get that back to the levels that we enjoyed probably in 2022.

It also is going to take just in markets being more firm.

Ron, if there are elements that I missed there.

No, I think you hit it, Brian, especially around the rep turnover when we look at what we call impacted revenues from the rep turnover, more of that we've seen some positive movement here as Brian mentioned over the last 3 to 4 months.

In terms of those dollars, being, back in the, where we were, back in, call it 2022, 2023 when we started the compression, we did see a speak and again those impacted revenues that are connected to a sales rep.

Continue to get, progressively better throughout 2024 and then the last few months is seen, has seen a marked improvement versus where we were in the last couple of years.

So that plus.

Being at, call it 920 sales reps today, our low point in 2024 was about about 8:30 at the end of the second quarter.

So having, 90 more individuals on the street now certainly help us in that ADS number which is, we can drop. 30 to $0.40 of every incremental sales dollar into loss and.tline. So and then certainly building that out to, 1,000 sales reps, here, by the second half of 2025.

So still some investments to be made relative to the sales reps, but we're excited about a lot of the areas and a lot of the data that we're now receiving through our CRM tool and then also the roll out of our new website which will take place here.

Later yet here in the 1st quarter, and we think that those are two areas that really can help the productivity of our reps.

Okay, great, that's helpful.

I also wanted to ask about with regard to loss and you you said there were some positive.

Signs initially around the military orders, but now your your outlook is a little more subdued is is how do you think about that is the And your progresses is.

Probably.

Difficult to pinpoint.

But it's it's, any government spend anything tied to government spending, federal government spending or or the military specifically right now it's been an enigma.

It was an enigma for me as they changed their ordering, program, if you will, or the way the way that you had to be on their federal supply schedule last year and it.

Some of the bunch of the kits that we, MRO kits that we put together for them for keeping equipment up and running, got those orders got held, and so you know I just hope that all of our equipment's running out there.

I'm more worried about the military than I am worried about our revenue associated with it, although I guess I'm worried about both of them.

We're hearing that those orders have been held.

They went through a process, if you will, and then we started to see and hear that those orders are going to be released and then, there's been a more austere element of force in Washington to TRY and drive.

Holding down spending and so I don't know whether or not it's holding down or delaying at this point, but we're just being subdued in our expectation on when those dollars are going to get released to us and so that could create some noisiness.

It was, it's a big number when you look at our total revenue that was down in the 4th quarter or what the drag that we had for all of last year.

That federal government spending line, we won some contracts last year on local and state.

So we had some benefits that we expect to flow through this year on organically growing our government business, but it's all at the local and state level and then we had these federal relationships that were well over, we're down well over 50%.

I mean, I think our military is down 75% or something crazy in the fourth quarter and so.

It's anybody's guess as to the timing of when that comes back.

Our sales force that covers it has been our key people to our organization that have stayed steady even though they've seen their book of business contract.

We appreciate their commitment to their customers during this tough period of their for themselves on their own income from a commission perspective, so.

We're not hearing that we're losing that business.

We're just hearing that it's stuck on somebody's desk and it's not being released, so.

I wish I had a better answer for you.

We just kind of, we modeled and forecasted our year without making bold assumptions around that at all.

And so, we just felt like it was out of our control.

Is that fair.

It is Brian.

It feels like we've been kind of whipsawed on this throughout the second half or maybe even the last the last three quarters of 2024 where we thought, we're going to see some of this come through and then it seems like we get some positive news and then and then, some news that things are going to continue to get held so to Brian's point, we're just being, just really.

It's hard to make a prediction as to when it's ultimately going to 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 us a little more conservative on trying to commit as to when they may come through in 205.

Okay, it totally makes sense.

I just lastly, I wanted to ask, could you remind us about.

If you have a certain time frame in mind for ramping source Atlantic's margins up to that that double digit level.

Not fast enough.

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, that Source Atlantic has a great organizational structure, some great employees.

A wonderful commercial leader.

We have great people over at the Bolt supply house.

We're very 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 in their you know bringing two different Canadian organizations together on either side of the country and so.

We wanted to, make sure that we had strong cultural buy-in and strong cultural leadership there to TRY and bridge that process.

We have 4 facilities that are in the process of being 4 locations where we're consolidating facilities and so that is going to release some dollars, 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 very modest air all over.

Real estate and working capital values and that modest air ball, collectively the total purchase price was, 10% or right at 10 times multiple, but when we looked at the specific dollar loss that we could 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 10%, 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 2nd quarter.

So it's going to take us 2 quarters to get through the consolidation piece and then then we've got, some work to do on how we manage our margin structure there but all that, and it's easier to do that.

A number of our customers operate up there 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 more seasonality in that book of business.

Maybe we communicated well to the street just because, 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 swath of Canada.

There's not a lot of activity during these winter months and so 4th quarter and 1st quarter are seasonally soft months for Source Atlantic, and, that dragged our margins in the 4th quarter down more than they would have been dragged down had they been one of the, 2nd or 3rd quarter revenue months.

And we, obviously had some of that in January, February just in terms of total volume and throughput, but we're also now going to work on trying to, get that margin to where it needs to be longer term.

When you can take out expenses on a on a on a part of the business that was losing $6 million or so of IEA and you can flip that to a positive contributor, my team likes to call that a pick 6 at the goal lines, so you're kind of swinging the points in your favor and so it can happen in a pretty good hurry, but it's not going to happen here in the 1st 3 or 4 or 5 months of the year.

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

Thank you.

(Operator Instructions)

Ken Newman, Keybanc Capital Markets.

Morning.

Hey, morning guys, thanks for squeezing me in.

Morning, Ken.

I appreciate you hanging in here.

Yeah, no, of course, first one, Ron, I just wanted to go back to the lasting comments you made about January and February, I'm just trying to understand whether holiday timing was, a material impact there relative to those rebounds.

I think some of your larger peers have cited some extended customer shutdowns due to the timing of, New Year's and and Christmas.

Was that, something that kind of materially impacted, the sequential move of ADS from December to January and then I'm also wondering if, just given the moving target on tariffs, if you're seeing customers pre-buying inventory at all within that.

Business.

Yeah, so.

So typically, just by way of history, we would normally see a lift going from from December to January specifically to your point just around, some of the holiday timing and so forth.

And but I would say we saw a much almost 2 ex that normalized lift this year going from going from December into into January and and when we look at our kind of the core piece of the business, in terms of what's coming through on the on the field sales rep side we are seeing, much better results, even if I go back.

Over many months, January, was higher than.

In December it was higher than November and it was higher than October all three months.

And so, and then February sequentially was was up over where January was at as well.

So yeah, I mean, certainly, the soft December played into that a little bit, although as Brian mentioned, December is always a little bit of a wild card, especially on the Law in business.

But it feels like, we've seen some nice movement upward, beyond what we would normally expect both in January and in February.

So I think that that points to some positive sides.

Yeah, go ahead.

And one of the things that that that I'm a lot more respectful of, I always have been respectful of this as a as a public shareholder in Lawson for years.

I was, very curious about the math associated with.

About hiring and spooling up the sales force.

I mean for years in the 20, 15 to 2018 period or or you know 13 to 2017 period before I was over the wall, we talked about adding 50 sellers or 100 sellers on a net basis.

At the end of the day, feet on the street matters.

Our sales force, our outside sales force is the lifeblood in many ways of this, certainly this business and A compressing 200 sellers or 190.

Going from 1,020 down to 8:30 and then now building back up is a, no matter what's going on in your end markets with your customers, the most important thing, on a comp store basis or comp sales basis is how many feet you've got out there and how many people making sales calls you've got, working for you.

We have, a massive amount.

Of of customers that we have bins and cabinets with where we are not covering them the way that we should be because we just, we didn't have enough salespeople as we were reorganizing territories and we were going through all these sales tools that we were adding to our capabilities for our sellers trying to make them better.

And so at the end of the day, that the cost of that, if we had had a tailwind with our customers, it would have been less noisy than it was.

If we hadn't had the military spending or the federal government spending challenges last year, it would have been.

More opaque to the to the public shareholder investors, but the reality of it is with the, a headwind in PPI and and with the government spending, the what really is exposed here is the fact that we had 190 less sellers at one point than we'd had, 12 or 18 months before.

And that's a massive drag to TRY to drive revenue.

And so I'm really proud of the team for having, tackled what was an initiative that we've been we start, we were talking about it from the first day I went on the board about at what point in time are we going to really roll out all these tools, how disruptive would it be to some of our sellers that were later in their careers and were closer to retirement.

And trying to protect them and not have them have to worry about the tools but making sure that we have the tools for those that we were hiring and that we were bringing on board so that they were better equipped to drive revenue faster.

And to have a better, level of accountability of this 90,000 inactive loss and bins and cabinets that we have out there in the field.

And so that's that's a lot of customers that that we have, had very active relationships with that, are that have our infrastructure that we floor plan for them.

That was another thing that was a massive surprise for me when I went on the board was how much money was buried in, our cost of sales of us giving bins and cabinets away or floor planning them for customers to put our product in those bins and cabinets.

And when you step back and you looked at whether or not you're covering them adequately with your outside sales force, we worked and so we are going to.

And we were, we're going to continue to invest.

We wanted to get it organized in a way that allowed our sellers that we're hiring to be more effective and efficient with their time and for us collectively with them to be able to have the tools to help them see where they needed to be and how they could make sure they did the best job possible for their customers and there's a lot of customers out there that are asking us to.

With the infrastructure that we have on site for them to do a better job.

Now, the customers that we're covering well.

It's not having enough feet on the street and we're back, building into that and that that's the primary driver to average daily sales.

Without a doubt.

But just to be clear, Brian, you're not seeing any indication of customer pre-buy, and the reason I ask obviously is, PMI is back above 50, the new orders is back in contraction, right?

So I'm just making sure that that's not exactly what.

We're.

Seeing.

Here.

You know what, and Ron Ron's got a great schedule.

We've spent a lot of time looking at our indirect and direct sourcing for us I don't think.

That we're seeing any indication based on the amount of revenue per invoice and the in the in those categories that we that we.

It's not jumping off the page for us if that makes sense, the.

And for Law and we don't have a ton of product that we're sourcing in a way you know you have some test and measurement equipment that's coming out of, tariff focused areas, but in total, it's $8 or $9 million of indirect and direct impact that we would see across all of our categories and all of our verticals.

That we could have tariff impact tariff impact on, but that's going all the way.

Most of that's indirect or much of it's indirect or it's large electronic, goods that are coming out of China on the test and measurement side.

Ron is help me there.

Yeah.

That's, yeah, that's that's.

Right, Brian.

Yeah.

Yeah, relatively.

Yeah, on.

The tariff side.

So if we look kind of across DSG, on the direct import and not that all of that would be impacted by by the potential tariffs, it's about 12% of our overall purchases on the direct on the straight direct imports, on the indirect, it's a little tougher to get to an all in number just because of, the raw materials that are built into some of the products that we're purchasing and so forth, but But I think, when Brian mentioned this in his prepared remarks as well, if you look back over the last couple of years, relative to us being able to work closely with our customers so that we don't see margin deterioration, I think we've proven that we've been able to do that in the past.

It's not, again, it's not a huge number for us across DSG on the impacted countries where the tariffs have been put in place.

But I would say, I mean, we're starting to receive some letters from our vendors and we're starting to have some communication with some of our end customers as well already in terms of what that means.

So we're not sitting idle around this.

We, we'll get, we'll be in front of it for sure to make sure that we don't have any margin impact on us.

And one of the the question you ask is a great one, and it's.

What I would say is that on the MRO side, the order quantities that we get and the and how distributed our customer base is really feels more like adding, an extra, now almost 100 additional sellers is more impacting.

Our ability to cover existing or kind of historic loss in customers again well with the, just having more feet on the street.

So I don't see that as it's harder to see at that granular level given how many customers they are and how small they are.

If you go over to test equity and the test and measurement side and some of the products there that that you know might be could have some risk around them with tariffs.

A, that's book the bill or our order volumes that preceded our revenue volumes there where we were saying in the 3rd quarter and early 4th quarter we were starting to see more and more RFPs and we were getting more interest in order that all predated the election in November, so we felt like that that that market was coming back the channel was cleaned up and that that market was coming back.

Just out of the normal long the cycle that we've been through since, the, kind of summer August of 2020.

I think it was maybe it was when it started really deteriorating, but it was certainly, not growing after late 2022.

And so that cycle started working back in our favor long before there was an election conversation around tariffs.

So what we're seeing on order flow there is is really coming out of the RFPs and the and the indications that we had customers that were going to be buying from us.

It it.

Now on Jack Pro Services, let's flip that, there's the in markets there, the book to Bill started building throughout last year on each of those in markets that have been strong, and the book to bill is continuing to stay consistent with the with across most all of their in markets, consistent meaning if it's a all105 the way up to a 140 or 160 to relative orders or revenue that's flowing through.

It's the CNI and it's Hungary and it's a little bit in PowerGen and where we've seen some softness or some choppiness there between where the bill is currently and where revenues have been trending and.

But the things there are seem really consistent with activity at the plant level where they're having product pulled through.

I don't know.

And they don't have a lot of if I remember Ron on looking at our schedule, I think they're the least impacted by tariffs on their on their country of origin products of the vertical.

So that's that's helpful.

But the question you ask the question you asked is going to be one that I'll be torturing myself with because what I, we're not hearing, I'm not hearing it, but the fact that I'm not hearing it or we're not talking about it, we're talking about tariffs and we're talking about how it can impact us.

But our customers, it's not getting back to our level that customers are pre-buying, but I'm going to go back and TRY and ask at the field level and the regional level to see if I can get more insights on whether or not there's something at the street level that I'm not hearing.

Yeah.

11 quick one to close this out, just the Canadian double digit margin target run rate by the end of this year.

What's the risk that tariffs kind of limit your ability to get the revenue synergies there that you need to get to that target?

Well, So most of that target to get to that target is going to be this, fixing their cost structure on the west in Western Canada and you know these consolidating the facilities and kind of, designing or kind of executing on a design that we put in place during underwriting to to make it one really strong Canadian company.

So that's the, that that's largely driven around the Canadian.

Business, the cost structure of that Canadian business and trying to line it up.

There were some revenue objectives there, but a lot of their customers are, it's not as much tied to that Ontario.

In Quebec revenue that goes back and forth across the border, it's really the business that we have at this point is an Atlantic seaboard business that has a lot of product flowing north of mines or along that coastline and has trade that's going maybe more pan-Atlantic and then it's the Calgary and West western footprint a little bit and you know kind of the the northern provinces.

In kind of the middle part of the country, so I don't have, I don't know how much of it is is flowing back this direction where it's going to be impacted and I don't know what our, we don't have a lot of product that's flowing back and forth across the border at this point that I know of.

I know that there's our our VMI business that we've had with the Kent and automotive and the Lost in business, part of the reason why we wanted to make sure we had a stronger Canadian presence was that we wanted to make sure that we built a Canadian business that also gave us more productivity benefits out of our sales channel that we had sitting on Lawson's P&L, which is the Kent and Lawson VMI sellers, and they would be the ones that maybe are, could be more impacted.

By product that we are traditionally thinking about and Ron can tell me how much of that product is moving out of a cook, from a cook to, a salesperson that's a VMI seller for Kent or Lawson, selling bins and, Ontario, but it's not the source atlantic and bolt operations that I would feel like we're most at risk there.

Yeah, that's right.

Got it.

Very helpful.

Thanks.

Yeah, thank you for the good, everybody, everybody's good questions.

Thank you.

We have reached the end of the question and answer session, and I will now turn Nicole over to Brian 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.

Take care.

This concludes today's conference, and you may disconnect your lines at this time.

Thank you for your participation.