Distribution Solutions Group — Q3 2026 Earnings Summary

Financial Performance:

• Revenue increased 10.7% year-over-year to $573.6 million for the quarter ended September 30, 2026, driven by 9.2% organic sales growth and $3.8 million from the American Fasteners acquisition; sequential revenue grew 2.8% over Q2 2026.
• Operating income rose 6.9% year-over-year to $25.2 million, while operating income margin decreased 20 basis points to 4.4% from 4.6% in the prior year quarter.
• Non-GAAP Adjusted operating income increased 19.7% year-over-year to $47.9 million.
• Net income increased 37.8% year-over-year to $8.9 million.
• Diluted GAAP earnings per share improved to $0.19 from $0.14 in the prior year quarter.
• Non-GAAP Adjusted diluted earnings per share increased to $0.58 from $0.40 year-over-year.
• Non-GAAP Adjusted EBITDA grew 17.3% year-over-year to $56.8 million, representing a 9.9% margin compared to 9.4% in the prior year quarter.
• Cash flow from operations was $18.7 million for the quarter and $20.4 million for the nine-month period.
• Net capital expenditures were $5.9 million for the quarter.
• Total liquidity ended the quarter at $378.0 million, consisting of $72.3 million in cash and $305.7 million available under the credit facility.
• Net debt leverage was 3.4x at quarter-end.
• Gross margin decreased to 32.0% from 32.9% year-over-year due to customer sales mix shifts and higher tariff rates, partially offset by pricing benefits.

Guidance and Future Outlook:

• No specific forward financial guidance or long-term growth targets were provided in the press release.

Business Segments and Product Lines:

• TestEquity: Generated $242.3 million in revenue with $8.3 million in operating income.
• Gexpro Services: Generated $139.8 million in revenue with $13.6 million in operating income.
• Lawson Products: Generated $130.3 million in revenue with $5.8 million in operating income.
• Canada Branch Division: Generated $62.1 million in revenue with $3.9 million in operating income.
• All Other: Reported a loss of $6.4 million in operating income.
• Completed the acquisition of American Fasteners Corp. in the third quarter.
• Closed the acquisition of GradeEight Holdings, LLC subsequent to the third quarter.

Market and Competitive Landscape:

• No specific market share data, competitor names, or detailed market trend analysis was provided beyond general references to MRO, OEM, and industrial technologies markets.

Risks and Challenges:

• Gross margin pressure caused by customer sales mix shifts and higher tariff rates on inbound shipments.
• The proposed merger with LKCM Headwater and its affiliates is subject to risks including failure to obtain stockholder approval, regulatory conditions, or termination of the agreement.
• Potential diversion of management attention from ongoing business operations due to the merger.
• Risks related to integrating acquired businesses and the possibility of competing offers or acquisition proposals.
• Potential litigation related to the merger.

Management Commentary and Tone:

• Management highlighted improved profitability and working capital management as drivers for the quarter's cash flow.
• The Board unanimously approved the merger following a recommendation from a special committee of disinterested directors.
• The proposed transaction price of $35.00 per share represents an 81% premium to the closing price on March 13, 2026.

Other Key Points:

• The Company entered into a Merger Agreement on July 15, 2026, to become a privately held company 100% controlled by LKCM Headwater and its affiliates.
• The transaction is not subject to a financing condition, though proceeds from the credit facility may be used to finance the merger.
• The HSR Act waiting period was terminated on August 20, 2026.
• A definitive proxy statement (Schedule 14A) and transaction statement (Schedule 13E-3) were filed with the SEC on October 28, 2026.
• LKCM Headwater and its affiliates beneficially own approximately 79% of the Company's outstanding common stock.
• J. Bryan King serves as CEO, Chairman of the Board, and Managing Partner of LKCM Headwater.