Distribution Solutions Group, Inc.

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. If anyone should require operator assistance during the conference, please press star zero 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 Solutions Group fourth 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 Knudson. In conjunction with today's call, we have provided a financial results slide deck posted on the company's IR website at .distributionsolutionsgroup.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 GAP 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 20th 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 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 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 EBITDA 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 EBITDA of $75 million, which included 12 months of financial results for loss and Jex Pro 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 EBITDA 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 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 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 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 Conrez 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 product that we have in our market. By the time we were at the top of customers, we were best geared to serve with the S&S acquisition and lastly addressed a high priority to drive high growth opportunities in Southeast Asia being presented to JexPro 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 accomplish 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'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, 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 discipline 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 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 sales force 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, Lawson sales force initiative required EBITDA 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 technologies. We are now focusing on improving our sales resources, our sales 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 and the first half of 2024 subside appreciably over the last five months. We are targeting to build up to 1000 sales reps by the second half of 2025 and 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 generation 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 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 in the value channels efficiency. The Omni channel 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 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 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 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 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 margins. At the same time, we continue to work to realize defined synergy opportunities, so this segment's fourth quarter EBITDAO margins are no surprise. We know that Source Atlantic had a 50 basis point impact on DSG's consolidated 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's 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 have 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 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 of 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 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, but 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 JexPro services, we drove sequentially higher quarterly sales for aerospace and defense, technology and renewables in markets in the fourth 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 bill continues to be strong in the first quarter. As I look across our in markets at both sales and book to 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 JexPro services continues to enjoy. During the fourth 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 JexPro 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 concurrently add supporting locations. We are very pleased with the full year EBITDA margin expansion for JexPro 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 contributes significantly to the momentum and margin increase JexPro 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 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 and creative 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 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 -to-market strategy and sales force, bringing both sets of resources together on our production supply effort, the test equity and Hisco teams and separating our technical resources around test and measurement sales and services has led to better accountability in the market. We are also seeing a significant increase in the market share of our technology and 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, T-Equip and Hisco, 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 groups 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 and stabilization of the revenue in this vertical. At test 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. Ron?

Thank you, Brian, 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 .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 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 EBITDA of $44.9 million or .3% of sales, up 90 bips compared to last year's quarter. The sequential compression from Q3 and consolidated margins of 120 bips was expected, 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 and tangible 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 to $37.3 million or .8% of sales compared to $28 million or .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 gap loss per diluted share of $0.55 for the quarter versus a gap 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 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 were $111.8 million and average daily sales were up .8% on acquired revenue. Organic sales were down .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 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 EBITDA of $11 million, or .8% of sales, down from .3% a year ago and .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 bold 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 U.S. 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 .4% from the year-ago quarter at bold supply. Key operational initiatives are focused on acquisition integration, including pricing disciplines, sales force optimization, branch consolidation, and cost management. Q4 adjusted EBITDA for the Canada branch segment in USD was $4.2 million, or .2% of sales. Excluding Source Atlantic, Q4 adjusted EBITDA for this segment would have been .8% being bold supply as compared to .9% a year ago. Although we are in the early stages of integrating bold supply in Source Atlantic, we continue to target double-digit EBITDA margins for Source Atlantic, driven by expected growth and the realization of planned synergies. Turning to Jexpro services on slide 9, fourth quarter revenue grew by .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 .8% from the year-ago quarter and up .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. Jexpro services adjusted EBITDA was $15.8 million, or .3% of sales, up from .5% a year ago and compared to .1% in the third quarter. Operating leverage continues to be strong and Jexpro services continues to cross-sell, realize acquisition synergies with a growing -to-bill as end markets strengthen compared to a year-ago period. Lastly, I will turn to test equity group on slide 10. 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 testing measurement chambers and rental businesses. Test equities adjusted EBITDA for the quarter was $14.8 million, or .8% of sales, up from .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 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 cap acts 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 EBITDA, less working capital investments, less cap acts, 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 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 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 continuously working to help improve operational performance with a daily focus on driving profitability and return metrics. We have a number of initiatives 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 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 laughing 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 a 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 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 US PMI numbers this year in 2025 are trending 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 pinup demand will continue to create sales momentum for our platform in 2025. Positive comparisons are demonstrated in JEXPROS 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 of where in that end 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 end markets. We are encouraged and know that other end 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 end 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 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 our 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. If you would like to ask a question, please press star one on your telephone key. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys. One moment, please. While we pull for questions. Your first question for today is from Zach Marriott with Stevens.

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 NAQ4? Yeah, Zach, you're asking about the

first quarter, correct? Yes, sir. Yeah, so 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. If you exclude the acquisition, certainly that came through in 2024, if you back that 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 flatish relative to Q4 trends into the first couple of months. So 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 factors 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 finalized and so forth. You know, January, again, I would say pretty consistent with, you know, where we were in the fourth quarter from an overall margin perspective. What I would say is that, and, you know, Brian alluded to this a little bit in his comments as well as 2025 develops, especially as we, you know, work, continue to work on a lot of the synergies and opportunities within the acquisitions that we made in 2024. So, you know, our expectation is that is that the margin profile will lift as 2025 develop. So, you know, especially on the on the source Atlantic acquisition that we've made and then also certainly with with SNS that we made in 2024 as well. So we're, you know, we're still I would say, you know, 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.

And let me 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 to kind of add color to test equities vertical or to Jexpro services. I tried to in both of us tried in our prepared remarks to indicate that book the bills and revenue certainly on the Jexpro 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 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 off the fourth quarter feels good. That doesn't mean that we have seen in 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 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 we called out military. There's kind of a big, you know, question mark there in terms of when that revenue really starts flowing for us again. But the 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. We saw that in the first half of last year and it persisted during last year for his go and but it's not going directionally. It's it's stable to improving since the middle of last year.

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

Yeah. Your next question is from Kevin Steinke with Barrington Research.

Good morning, Kevin. I wanted to ask about fourth quarter organic revenue growth of three and a half percent 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, you know, just just relative to to, you know, the improvement in the end markets that that you reference.

Yeah, I mean, in Grand Place, some specifics on this, but just to. Kevin, I would say that we we were respectful going into the fourth quarter. Certainly how, you know, the fourth quarter can taper off. We've had some tough December's and years passed around purchasing, purchasing behavior. And what we ended up with was a was a bit more firm fourth quarter that reflects kind of the way we feel about the first quarter. And, you know, that that flowed through two of the the verticals at levels that were kind of above, you know, maybe where we had confidence to the forecast or to, you know, kind of message at the end of the third quarter. And that was, you know, obviously the Jessica Services vertical sustained the momentum that it's it's it's sustaining the momentum it's been enjoying. And and more of its end markets are cooperating than are not cooperating right now. And those those end markets are a lot more 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 that super cycle we think will ultimately help us in another. We've got some renewed customer opportunities there. The test and measurement side of the business, you know, we saw indications we we spoke towards book to bill or order flow being 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, you know, the revenue side of the equation, there's 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 Jep's Pro Services are really helping the total margin profile of 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 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 work it higher. So that's I don't know if that's helpful or not.

It definitely is. Yeah. Thanks. Thanks for all the additional color. I wanted to also ask about Lawson and the, you know, 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. You know, just as we think of the progression of margins for Lawson as we move throughout 2025, you said you were kind of past the near term pain and the, you know, the Salesforce initiatives. But at the same time, you also, I guess, we'll have some compression from ramping up that Salesforce and also the continued softer military sales. I'm just trying to think about how all those factors play out the margin out for Lawson.

Really super fair and in an area that all of us are acutely focused on, you know, the law said. And, you know, the 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 were 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, you know, if you think about also the hiring of capabilities, I mean, hiring with more feet on the street, you know, the 100 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, you know, started staging through last year. And we were planning on our staging more of that through this year. So that number kind of straddles the year some. But we, you know, 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. You know, the real cost of having, you know, 20 over 20% 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 been, you know, in our estimation, it's been an over $20 million even down drag a year of 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 lean time before your Salesforce hits 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 scape scoped at a more attractive territory size. So all those should add to, you know, we think, you know, 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 going to happen. You know, 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 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, is there elements that I missed there?

No, I think I think you hit it, Brian, especially around the the rep turnover when we when we look at what we call impacted revenues from the rep turnover, you know, more of that. We've seen some some positive movement here, as Brian mentioned over the last three to four months in terms of those dollars, you know, being, you know, back in the, you know, where we were, you know, back in call it 2022, you know, 2023 when we started the compression, you know, 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 he's seen he's seen a marked improvement versus where we were in the last couple of years. So that, you know, that plus, you know, being at call it nine hundred and twenty sales reps today, you know, our low point in 2024 was about about eight thirty at the end of the second quarter. So, you know, having, you know, ninety more individuals on the street now certainly help us in that eighty s number, which, as you know, we, you know, we can drop, you know, thirty to forty cents of every incremental sales dollar into Lawson's EBIT dot line. So and then certainly building that out to a thousand sales reps here by the second half of twenty twenty five. 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 rollout of our new Web site, which will take place here later yet here in the first quarter. And we think that those are our two areas that really can help the productivity of our reps.

OK, great. That's helpful. I also wanted to ask about with regard to loss, and you said there are some positive signs initially around the military orders, but now your outlook is a little more subdued. How do you think about that? Is the progress is probably difficult to pinpoint.

But it's you know, any government spent anything tied to government spending, federal government spending or the military specifically right now has 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 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 about our revenue associated with it. 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, you know, 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 a it's a big number when you look at our total revenue that was down in the fourth quarter or what the drag that we had for all last year that federal government spending lines. You know, we won some contracts last year on local and state. So we had some benefits that we 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 and then we had these federal relationships that were well over. You know, we're down well over 50 percent. I mean, I think our military was down 75 percent 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 on even though they've seen their book of business contract. We appreciate their commitment to their customers during this tough period of their and 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? Absolutely.

Yeah, yeah, it is. Brian, it feels like we've been kind of whipsawed on this throughout the second half or maybe even the last three the last three quarters of 2024 where we thought, you know, we were going to see some of this come through. And then it seems like we get some positive news and then and then, you know, some news that things are going to continue to get held. So to Brian's point, we're just being, you know, just really, you know, it's it's 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 heat up a little more conservative on to commit as to when they may come through in twenty five.

Okay, it 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's margins up to that double digit level? Not fast enough.

Yeah, we've got a great team in place for adding a couple more resources that we're really excited about there. We appreciate that we had, you know, the source Atlantic has a great organizational structure, some great employees, a wonderful commercial leader. We had have great people over at the bulk supply house were 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, we're bringing two different Canadian organizations together on either side of the country. And so we wanted to, you know, make sure that we had 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 going to 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 on the Western half, just as they were building it up. And so when we looked at our purchase price on on source Atlantic, it was largely working capital and real estate in a very modest airball over real estate and working capital values and that modest airball. You know, collectively, the total purchase price is, you know, a sub 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 it it significantly lifted their margins and it significantly it didn't get them all the way to 10%, but it it 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 going to take us two quarters to get through the consolidation piece. And then then we've got some work to do on how we manage our 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 that eastern seaboard swath of Canada. You know, there's not a lot of activity during these winter months. And so fourth quarter and first quarter are seasonally soft months for Source Atlantic. And, you know, that drag 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, you know, obviously had some of that in January, February, just in terms of total volume and throughput. But, you know, we're also now going to work on trying to get that margin to where it needs to be longer term. You know, when you can take out expenses on a part of the business that was losing six million dollars or so of EBITDA and you can flip that to a positive contributor, you know, my team likes to call that a pick six at the goal lines. So you're kind of swinging the points to your favor. And so it's a it can happen in a pretty good hurry, but it's not going to 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. Thank

you. As a reminder, if you would like to ask a question, please press star one. Your next question for today is from Ken Newman with KeyBank Capital Markets.

Morning, Ken. Hey, morning, guys. Thanks for squeezing me.

Morning, Ken.

Sure. Appreciate you hanging in here. Yeah, no, of course. You know, first one, Ron, I just wanted to go back to the loss and comments you made about January and February. You know, I'm just trying to understand whether holiday timing was, you know, a material impact there relative to those rebounds. I think some of your larger peers decided some extended customer shutdowns due to the timing of, you know, New Year's and and Christmas. Was that, you know, something that kind of materially impacted, you know, the sequential move of ADS from December to January? And I'm also wondering if, you know, just given the moving target on tariffs, if you're seeing customers prebuying inventory at all within that business.

Yeah, so so typically just by by way of history, we would normally see a lift going from from December to January, specifically to your point just around, you know, some of the holiday timing and so forth. And but I would say we saw a much almost to ask that normalized lift this year going from going from December into into January. And and when we look at our our kind of the core piece of the business, you know, in terms of what's coming through on the on the field sales rep side, we are seeing, you know, much better results. You know, even if I go back over many months, you know, January, you know, was, you know, was was higher than the December, it was higher than November, 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, you know, the soft December played into that a little bit, although, as Brian mentioned, December is always a little bit of a wild card, you know, especially on the loss in business. But it feels like, you know, we've seen some nice movement upward, you know, beyond what we would normally expect both in in January and in February. So I think that that points to some positive sides. Yeah, go ahead, Ron.

And one of the things that can that that I'm a lot more respectful of, I always have been respectful of this as a public shareholder in Lawson for years. I was, you know, very curious about the math associated with about hiring and spooling up the sales force. I mean, for years in the 2000, you know, 15 to 18 period or seven or 13 to 17 period before I was over the wall. You know, 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, you know, certainly this business and going compressing 200 sellers or 190 going from 1020 down to 830. And then now building back up is, you know, no matter what's going on in your end markets with your customers, the most important thing, you know, 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, you know, working for you. We have, you know, a massive amount of customers that we have bins and cabinets with where we are not covering them the way that we should be because we just, you know, 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 the end of the day, you know, 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 public shareholder investors. But the reality of it is with a headwind in PPI and with the government spending, you know, what really is exposed here is the fact that we had 190 less sellers at one point than we'd had, you know, 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, you know, tackled what was an initiative that we've been, we started, 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? You know, 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 had 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, you know, level of accountability of this 90,000 inactive loss in bins and cabinets that we have out there in the field. And so that's a lot of customers that we have, you know, had very active relationships with that, you know, that have our infrastructure that we floor plan for them. You know, that was another thing that was a massive surprise for me when I went on the board was how much money was buried in, you know, 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, you know, we're going to continue to invest. We wanted to get it organized in a way that allowed our sellers that were 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, you know, with the infrastructure that we have on site for them to do a better job. Now, the customers that we're covering, we're covering well. It's not having enough feet on the street and we're back, you know, building into that. And 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, you know,

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. You

know what? And 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 in those categories that we're, that we, that it's not jumping off the page for us, if that makes sense. You know, for Lawson, we don't have a ton of product that we're sourcing in a way, you know, where you have some testing measurement equipment that's coming out of, you know, tariff-focused areas. But in total, you know, it's eight or nine million dollars 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 deep. 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 testing measurement side. Ron, help me there.

Yeah, that's right, Brian. Yeah, yeah, relatively to the, yeah, on the tariff side. So if we look kind of across DSG, you know, on the direct import, and not that all of that would be impacted by the potential tariffs, it's about 12% of our overall purchases on the direct, on the straight direct imports. You know, on the, on the indirect, it's a little tougher to get to an all in number just because of, you know, the raw materials that are built into some of the products that we're purchasing and so forth. But, but I think, you know, and Brian mentioned this in his, in his prepared remarks as well. You know, if you look back over the last couple of years, you know, 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, 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, you know, we're not sitting idle around this. We, you know, we'll get, we'll be in front of it for sure to make sure that we don't have any margin impacted on us.

And, you know, one of the, the question you asked is a great one. And it's, what I would say is that on the MRO side, the order quantities that we get and how distributed our customer base is really feels more like adding, you know, an extra, you know, now almost a hundred additional sellers is more impacting, you know, our ability to cover existing or kind of, you know, the historic loss in customers again, well, with, you know, just having more feet on the street. So I don't, 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, you know, might be, you know, could have some risk around them with tariffs. You know, that's, you know, our, our book to bill or our order volumes that preceded our revenue volumes there, where we were saying in the third quarter and early fourth 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 market was coming back and it was, the channel was cleaned up and that that market was was coming back just out of the normal long cycle, the cycle that we've been through since, you know, the, you know, kind of summer August of 2023. I think it was maybe was when it started really deteriorating, but it was certainly, you know, 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, I, what we're seeing on order flow there 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 now on on Jax Pro Services, let's flip that, you know, there's, you know, the end markets there, the book to bill started building throughout last year on each of those end markets that have been strong and the book to bill is continuing to stay consistent with the, with across most all their end markets. Consistent meaning if it's a 105 all the way up to a 140 or 160 to relative orders or revenue that's flowing through. It's the C&I and it's hungry and it's a little bit in power gen and where we've seen some softness or some choppiness there between where book to bill is currently and where revenues have been trending. And, but, but, but 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 country of origin products.

Yeah, that's right.

Yeah. So that's

helpful. Maybe one really quick one. You asked

it, Ken, the question you asked is going to be one that I'll be torturing myself with because what 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-buy. 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. One quick one to close this out. So 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, you know, fixing their cost structure in Western Canada and, you know, these consolidating facilities and kind of, you know, designing or kind of executing on a design that we put in place during underwriting to make it one reasonable target. So that's a really strong Canadian company. So 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, you know, a lot of their customers are, it's not as much tied to that Ontario, you know, and Quebec revenue that goes back and forth across the border. It's really the, you know, 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 in kind of the northern provinces and kind of the middle part of the country. So I don't have, I don't know how much of it is flowing back this direction where it's going to be impacted. And I don't know what of 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 Lawson business. You know, 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, you know, could be more impacted by product that we are traditionally thinking about. And Ron can tell me whether how much of that product is moving out of McCook, you know, from a cook to, you know, a salesperson that's a VMI seller for Kent or Lawson, Phil and Ben's and, you know, Ontario. But it's not the source Atlantic and bolt operations that I would feel like are most at risk there. Yeah, that's right. Got it. Very helpful. Thanks. Yeah. Thank you for the questions. Everybody's good questions. Thank you.

We have reached the end of the question and answer session, and I will now turn the call 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 core results in a couple months. Thank you for your time. Have a great day and God bless. Take care.