Distribution Solutions Group (NASDAQ:DSGR) executives told investors that fourth-quarter and full-year 2025 results fell short of internal expectations as the company absorbed a range of headwinds and one-time costs while continuing to invest in talent, tools, and capabilities across its operating verticals.
Management frames 2025 as an investment and transition year
Chairman and CEO Bryan King described 2025 as a “critical, internally focused reinvestment, retooling, and digesting year,” marked by “dynamic pricing and supply chain” conditions and “numerous one-time cost curveballs.” He cited macro and policy-related challenges including a government shutdown, tariffs, and an ISM index that remained below 50 for all of 2025.
Full-year results: revenue up nearly 10%, profitability pressured
For full-year 2025, DSG reported total revenue of $1.98 billion, up 9.8% versus 2024, despite one less selling day. Organic average daily sales grew 3.6%, while incremental revenue from 2024 acquisitions totaled $121.5 million, according to CFO Ron Knutson.
Adjusted EBITDA was $175.2 million, or 8.9% of sales. GAAP net income per diluted share was $0.18, compared with a GAAP net loss per diluted share of $0.16 a year earlier. Non-GAAP adjusted EPS was $1.24, down from $1.44 in the prior year.
Knutson said full-year adjusted EBITDA margin of 8.9% compared with 9.7% in 2024, and he attributed the 80 basis point compression primarily to sales mix shifts, employee-related costs, and other investments. He broke the margin pressure into two buckets: approximately 20 basis points from longer-term people investments and roughly 70 basis points from timing and non-recurring items, including healthcare costs, customer-specific bad debt reserves, and lower margin on certain customer wins.
Cash generation remained a highlight. DSG generated $84 million of cash from operations in 2025, following $56 million in 2024, and free cash flow conversion (defined as adjusted EBITDA less working capital investment and CapEx) was approximately 85%.
Fourth quarter: flat organic sales and lower margin
Fourth-quarter revenue was $482 million, up 0.2% year over year, with flat organic sales versus the fourth quarter of 2024. Adjusted EBITDA for the quarter was $35.4 million, or 7.4% of sales, as each business experienced lower year-over-year EBITDA margins.
Knutson pointed to several factors affecting fourth-quarter margins, including sales mix shifts, incremental bad debt expense, and higher employee healthcare benefit costs. He also quantified a number of fourth-quarter timing and non-recurring items management discussed on the call, including healthcare impacts, bad debt, recruiting and leadership start-up costs, mix shifts within Gexpro Services, and a prior-year timing benefit.
Segment updates: Gexpro strength, Lawson focus on local accounts, TestEquity investing for mix shift
Gexpro Services delivered what management called “outstanding operating results” for 2025, supported by aerospace and defense, technology, and renewables end markets. Full-year revenue was $496.7 million, with organic average daily sales growth of 12.3% and total ADS growth of more than 13%. Adjusted EBITDA was $63.7 million, and margin expanded to 12.8% for the year. King noted that since the businesses were brought together under DSG, Gexpro Services grew from roughly $350 million in revenue to just under $500 million, mostly organically, while adjusted EBITDA increased from about $35 million to $64 million.
In the fourth quarter, however, Gexpro Services sales declined 1% on an average daily sales basis, and EBITDA margin fell to 11.7% from 13.3% a year ago, which Knutson said reflected a lower sales base, sales mix pressure tied to lower renewables, and strategic employee investments. King said renewables demand softened in North America late in 2025, prompting the company to pivot growth initiatives toward global renewables opportunities. He highlighted India as a “meaningful growth opportunity,” while Southeast Asia was progressing more gradually due to customer qualification timing.
Lawson Products posted average daily sales growth of 2.7% in the fourth quarter and 2.6% for the full year. Full-year organic average daily sales declined 1.2%, which Knutson attributed primarily to lower military customer sales. Full-year adjusted EBITDA was $51.6 million, or 10.7% of revenues. Fourth-quarter adjusted EBITDA was $7.7 million, or 6.7% of sales, with margin compression driven by sales mix, higher healthcare benefit costs, and employee costs and incentive-accrual timing.
King said Lawson’s local small-account revenue remained challenged in the fourth quarter as a multiyear sales force and selling-tools transformation “distracted our resources” from consistent service levels. Management outlined a 2026 focus on new VMI installations (ship-to locations), CRM-driven sales rigor, training, and route optimization tools intended to reduce transit time and increase selling time. Knutson said Lawson’s e-commerce revenue grew about 18% in the fourth quarter, though from a small base, and roughly one-third of customers purchasing through the site are new.
King also said Lawson added leadership roles, naming Jim Slomka as Chief Revenue Officer (joining January 2026) and Hillary Bryant as Chief People Officer, describing both as strategic hires to strengthen accountability, urgency, and culture.
Canadian branch division (including Source Atlantic and Bolt Supply) reported full-year sales of $221.4 million (USD), up $96.3 million primarily due to the Source Atlantic acquisition. Fourth-quarter sales were $55.1 million, reflecting seasonal softness. Knutson said market softness for projects in manufacturing end markets persisted, mostly in Eastern Canada, though current backlogs increased “meaningfully.” Full-year adjusted EBITDA was $15.6 million (7.1% margin), and fourth-quarter margin was 6.6%, with some compression attributed to items such as first-year Sarbanes-Oxley compliance work. Management said it completed four facility consolidations in 2025, with the final consolidation expected by the end of the first quarter.
TestEquity Group generated full-year sales of $783.2 million, with average daily sales growth of 2% and organic ADS growth of 1%, driven by test and measurement, rentals, and chambers. Fourth-quarter sales were $192.9 million, with ADS up 0.9%. Adjusted EBITDA margin was 6.5% for the year (down from 7.3% in 2024) and 6.4% in the fourth quarter, pressured by sales mix shift, higher bad debt, and higher employee-related expenses tied to leadership build-out, along with favorable items in the prior-year period.
King said leadership investments at TestEquity were made with an expectation of a “J-curve recovery,” where near-term transitions could weigh on performance before improving growth and profitability. He emphasized a more deliberate focus on structurally higher-margin areas and a mix shift toward more value-added offerings. Management also cited major initiatives to simplify and unify the digital ecosystem through ERP consolidation and customer service and e-commerce platform integration, along with the use of AI applications to accelerate execution. Knutson noted that growing backlog in January and February 2026 “signals momentum to come in 2026.”
Balance sheet, capital allocation, and 2026 outlook comments
DSG ended 2025 with total available liquidity of $469 million, unrestricted and restricted cash of $75.3 million, and net debt leverage of 3.5 times. Knutson said the company expanded its senior secured credit facility through 2030, including $700 million of term debt and a $400 million revolving credit arrangement (up from a prior $255 million revolver). Net CapEx in 2025 was $26.8 million, and management expects $25 million to $30 million in 2026.
On capital returns, Knutson said the board increased the stock repurchase authorization by $30 million in November 2025, bringing the total authorization to $67.5 million. DSG repurchased $23.5 million of shares in 2025 and had about $33 million remaining under the authorization.
In the Q&A, management said January and February 2026 sales were up year over year in the low single digits, with continued pressure in the Canadian branch business while other verticals showed growth. Knutson said the first quarter of 2026 has 63 selling days, consistent with the first quarter of 2025. King said he was not satisfied with profitability flow-through in January due to expense additions and changeover costs, but the company expected improvement in February and March.
Regarding margins, management said the first quarter of 2026 would remain under pressure, with improvement expected as the year progresses. Knutson noted that payroll taxes and incentive accrual resets typically weigh on first-quarter margins, and both executives indicated they expected second and third quarter margins to re-lever higher.
On tariffs, management said it was too early to determine any material impact from recent news but stated DSG was evaluating the situation and believed it could pass along most import-related costs through customer relationships, while also managing sourcing decisions. King said the company had “left some dollars on the table” last year but had largely mitigated the impact by year-end through pricing and sourcing actions.
King also discussed M&A, saying DSG recruited Sean Dwyer to lead corporate strategy and M&A efforts and that the funnel of potential opportunities has increased. He said the company expected some smaller tuck-in acquisitions in the first half of 2026 that would be margin constructive for targeted verticals.
About Distribution Solutions Group (NASDAQ:DSGR)
Distribution Solutions Group, Inc, a specialty distribution company, engages in the provision of value-added distribution solutions in North America, Europe, Asia, South America, and the Middle East. The company provides its solutions to the maintenance, repair, and operations (MRO); original equipment manufacturer (OEM); and industrial technology markets. It operates through three segments: Lawson, Gexpro Services, and TestEquity. The Lawson segment distributes of specialty products and services to the industrial, commercial, institutional, and government MRO market.
