Great, thanks, Tony, and good morning, everybody. So, I'm gonna give probably a 15 minutes overview of Distribution Solutions Group. We'll certainly have some time for some Q&A at the end of the presentation. Let's see here, if I can get this going.
Ah, there we go. Okay. Thanks, guys. So, as Tony mentioned, Brett Scarborough is with me, who's a portfolio manager with Luther King Capital. And, so we'll talk about their overall ownership of DSG, but currently, they own about 78%, so Brett and I typically do these presentations and Q&A sessions together.
From an overall Distribution Solutions Group perspective, for those of you that are pretty familiar with the story, you'll remember that we brought a strategic combination of three organizations together about two and a half years ago, being Lawson Products on the MRO focus, Gexpro Services with an OEM focus, representing about 23% of our sales, and the TestEquity Group, which is now about 45% of our overall revenue platform. And on a combined basis, we are about a $1.8 billion organization. We just closed out an acquisition a couple of weeks ago, which is about another $200 million USD revenue, Source Atlantic up in the Canadian market.
And when we thought about bringing these three organizations together to form DSG, really, the commonalities across all three of the companies really all hold an industry-leading position, all provide mission-critical solutions to our end customer base. Really deep customer relationships. When you look at our overall customer retention level, it's really high, and a really high touch service delivery model. I would say that we're not a typical roll-up. You know, we operate these three verticals on a standalone ba-- I wouldn't say standalone, but we are very protective of the commercial way that we go to market, given the overall delivery of each of their services to our end customers.
We do believe that the scale of the organization, and we've seen this already, within a couple of years, the scale really provides us to be a long-term compounder of overall equity value of the organization. We'll walk through some of these other stats, but we do have... We service about 180,000 customers, and those customers are really within many end markets, a very diverse... And I've got a slide on this, that we'll get to, but very diverse end market presence on, on really all three of the businesses, in particular on the Lawson MRO side of the business, about 70,000-80,000 end customers that pretty much service any end market that you can think of.
When we think about the power of three is really what we call it across the DSG platform, each of the individual companies can come with a different solution to our overall customers, and even though we may share a same customer, we will have very unique buyers within that end customer. So on the Lawson side, certainly the MRO, the maintenance and facility repair with all the many SKUs that Lawson offers to its customers, as well as the vendor-managed inventory side, certainly provide an end user with really all the solutions that they need through high-tech specialty sales force, educated specialty sales force on the technical needs of our end customers.
On the, on the Gexpro Services side, really an OEM provider, and I'll dig a little bit deeper into this as well, but, really provides into the overall manufacturing process. They are very well connected with their end customers in terms of their overall purchasing needs, provides VMI solutions as well. So really, when you look across the entire platform, we provide a really, high-level solutions to, to all of our end customers. And on a combined basis, we can really service the needs of, of our end customers, really across, all of their needs within an existing infrastructure.
In terms of what we offer, from a distribution center, distribution platform, really a specialty distribution, really well embedded into our customer base, as I mentioned, over 180,000 customers, best-in-class services. We have very high revenue retention, greater than 92%. In fact, Gexpro Services is probably closer to 98%, and Lawson is north of 90%. So, really what we provide to our customers is that the sales force and the connection with our customers, they value the services that we provide, the high-value services that we provide, and there's really a long-term stability of that customer relationship. They keep coming back to us for additional needs. We have a diverse end market.
We service over 10 end markets, over 180,000 customers. We have 7,000 + suppliers. None of those suppliers represent more than about 6% of our overall purchase volume. And as you can see from a return perspective, when we prior to bringing the organization together, our overall EBITDA margins were about 8%. We quickly jumped up to 10% within the first year. On a trailing 12 basis, we're sitting at about 9.3%, with our most recent quarter being the Q2 , we finished at about 10.3%. From an overall growth strategy perspective, from a top-line perspective, we have many initiatives taking place within each of the three operating companies to drive organic revenues.
And then the M&A piece of it is a big piece of our overall strategy as well. During the last, call it two and a half years, we've made about nine acquisitions. We have made nine acquisitions. The purchase price of those on a weighted basis is about 8.8, but that ranges anywhere from about 4.7 up to about 9.4 times. We've completed three acquisitions so far in 2024, really under the Lawson umbrella. And then we acquired Hisco, Houston Industrial Supply Company last year, and prior to that, we had some other purchases within the TestEquity group. I've mentioned this a couple of times.
Here are really our end markets that we service across all three verticals. You can see that really no, you know, real heavy concentration within any one end market. Again, world-class supply chain capabilities. I'll dig into this a little bit when we talk about the individual companies here in a minute. But great customer relationships that we have that provide us for a lot of growth in the future, given our support to those end customers. You know, one thing that's really nice with having a 180,000 customers, certainly it ebbs and flows in some of those end markets as some are up or down.
We saw a little bit of that in 2023, where within Gexpro Services, for example, the tech market had slowed on us. That now is in a recovery mode over the last couple of quarters. Saw the same thing on the test and measurement side of the business within the TestEquity business, and now that is on an upswing over the last couple of quarters as well. So we believe that this diversity among our customer base places us in a really good position, really from an overall risk perspective. When we think about kind of the overall overarching theme in terms of more macroeconomic areas that are helping drive DSG, I would really point to a couple of items.
One is the current tightness of the labor market. As everyone's aware, you know, finding good, solid labor today is a real challenge. It is for many of our customers as well. And the solutions that we provide in particular on the Lawson side and the Gexpro Services side provide really an ability for our customers to effectively outsource that labor need to either Lawson Products or Gexpro Services, given the fact that we provide, you know, a big piece of their vendor-managed inventory for either OEM parts, typically Class C parts supporting the OEM process or Class C parts supporting the MRO needs of our end customer. The other point I would make on this slide is the onshoring and nearshoring.
We believe that that places DSG in a really good position on a go-forward basis to support those operations as those are being brought back to the States. And then certainly the IoT, the technology, everything technology that's happening out there, TestEquity really supports the industrial technology space. You think about oscilloscopes and other measurement equipment as well as production products such as solder tools, safety items, and so forth, adhesives, tapes, that support a lot of the technology production process, places the TestEquity group in a great position going forward as well. So, I'll just take a couple of minutes and dig just a little bit deeper on each of the end verticals.
As I mentioned, we brought the three verticals together about two and a half years ago. Lawson Products is a 72-year-old organization, really supported through about 900 field sales reps. We provide vendor-managed inventory to the MRO space. So Lawson's 80,000+ customers really pay us for coming in, having a sales rep show up every week to 10 days, putting away MRO product, tightening up the bins. We gain real estate inside of our customers' locations from bins and cabinets that we place there. Our sales reps show up every week to 10 days, put product away, reorder on behalf of our customers, really outsource the entire process for those lower-cost items. Lawson's average piece price is $1.23.
So our customers would really want their end users of those products, their mechanics and so forth, when they reach into the bin, they want the product there. They don't want their mechanic out trying to source that product. They'd rather have their mechanic turning wrenches or somebody keeping a facility line up and going. As I mentioned, we did make three acquisitions during 2024 so far. All three of those, Emergent Safety Supply, Source Atlantic, and S&S Automotive, all fit within the Lawson vertical, and on a combined basis of about $250 million of revenues, that'll be added to the Lawson platform here in 2024. On the OEM side, really Gexpro Services provides Class C parts to the OEM process.
They have about 2,500 customers, operate in six very diverse end markets. Trailing 12 revenue of about $400 million. A really, you know, I would call it really stable, really, you know, high-touch supply chain solution for our end customers. So our customers will come to Gexpro Services and really outsource the entire process for Class C parts. Most of those, about 70% of those, are specced to our end customer needs. And so what the customer will do is they'll focus on the more expensive items going into the production environment, whereas the Class C parts may make up 70% of the parts, but may only be 5% or 8% of the overall cost. They'll outsource that entire process to Gexpro Services.
Gexpro Services will come in. They'll find a manufacturer to make those products on behalf of the customer, and then take over the entire supply chain side. They have tremendous insight into the customer's production cycle. It's really almost on a just-in-time basis, where they're delivering product to the end customer needs based upon their overall production schedule. On the industrial technology vertical, really making up TestEquity Group as well as Hisco, the acquisition that we made in mid-2023. You know, this vertical is about 45% of our overall revenues. You know, we think about TestEquity Group. Their business is really broken up into two areas.
Test and measurement business, which are items such as oscilloscopes. Those measure voltage, wattage, noise interference. Really, everything that takes place from a production standpoint on the technology side typically gets tested through, you know, through an oscilloscope kinda towards the end of the production cycle. That makes up about 20% of their overall revenues. The other 80% of the revenues really come from the acquisition of Hisco a year ago, and then also the electronic production supplies. So those are items such as solder, tapes, adhesives, you know, tools, safety items, all of those pieces and parts that are necessary for the production really in the industrial technology space. From an overall cash flow perspective, you know, we really you know...
The one of the reasons we love the platform that we've established is really the overall high free cash flows that we can create from a cash flow conversion standpoint. Our goal as we define it is EBITDA minus CapEx minus net working capital really should be about 100% conversion from a cash flow perspective. You know, we are currently on a run rate of. You know, I had on a previous slide, when you look at our trailing 12 from an EBITDA perspective, you know, about $180 million. We have the ability to throw off, you know, a significant amount of cash flow to reinvest back in the acquisitions that we've made.
In fact, if we look at even over the last couple of years with the acquisitions we've made, really have put out about $400 million in purchase price. So the free cash flow creation from our overall model works really well to support not only the organic growth initiatives that we have going on within the organization, but also helps fund you know the acquisitions that we're making as well. On the overall M&A strategy, I think I've hit this quite a bit. Nine acquisitions over the last couple of years. When we look at acquisitions, what we're not looking at are turnarounds.
We like to buy organizations that are really well-run, that we see that can fit within one of the three verticals that we currently have established, but also will provide a platform for growth for the entire DSG organization as well. One great example of that is the Hisco acquisition that we made last year. They have a piece of their business in Mexico, and today, Lawson Products does not service any customers in Mexico. So Lawson will be able to utilize that infrastructure that Hisco has to start hiring sales reps and start servicing some of those customer relationships that we already have throughout the DSG platform on the MRO side.
So that's one example of where we feel like making those types of strategic acquisitions not only help the vertical itself that we'll roll them into, but also help strengthen the overall, DSG organization. So, real quick on our most recent, Q2 financial results, you'll see here, we created EBITDA as a percent of sales of about 10.3%, about $45 million. A nice increase, versus the Q1 of about $9 million. About a 1,500,000 of that was from the acquired companies that we made earlier in the year. But we are seeing, you know, some nice overall margin lift, coming off of Q4 and Q1 of this year, into the Q2 .
While organic sales were down about 5%, you know, it's primarily driven by some of the strong comps that we were up against from a year ago, and then also some of the end markets that I mentioned previously, even though some of those end markets are seeing some nice sequential growth, we're still up against some pretty tough comps within those markets from a couple years ago or from last year. We did see margin expansion within all three of our verticals. Lawson Products ended the Q2 at about 13.5%, up from about 11.5% in the Q1 . The TestEquity Group went from about 6.2 up to 7.8.
And our Gexpro Services segment or vertical went from about 11% up to 11.9%. So we saw a nice margin expansion, really within all three of our verticals. From an overall balance sheet and leverage perspective, when we brought the three companies together, our leverage was at about 3.6 times. We ended the most recent quarter at 3.2. When we made the acquisition of Source Atlantic a couple of weeks ago, we also expanded our credit facility. So when we brought the three companies together, a couple of years ago, we had about a $500 million credit facility.
When we made the Hisco acquisition, we increased that capacity up to about $800 million, even though about $100 million of the Hisco acquisition we did through a rights offering to our existing shareholders, and then in this most recent round, we upped it by another about $250 million. So right now, we have a group of banks that support us through about $1.1 billion of credit. As we sit today, we have about $270 million of dry powder, of that primarily within the revolver, which gives us a great opportunity to go out and continue to make the acquisitions that we're looking for. Our net working capital, about $450 million.
As a percent of sales, it runs, you know, about 23%-24%. We have initiatives within all three of the verticals to continue to drive that down and to drive, you know, operating and free cash flows back into the organization. With that, I think we've got five or six, seven minutes remaining. We can certainly answer any questions that anybody may have. Yep.
Just within the 8%, I guess, turnover, you know, 92% retention-
Yeah, on the customer side.
You know, when you lose business, why? And, in addition to that, in TestEquity, it seems like it's a bit lower margin, and it also seems like it's a bit lower retention. What are the opportunities in that business?
Yeah. So, on the overall TestEquity group, there is. You know, we, our retention is still, you know, pretty high within TestEquity group. You would see more turnover, typically, probably within the Lawson smaller customers, that would drive more of that 8%. And so when we look back at our overall customer relationships that we have, especially if you look at Gexpro Services or if you look at the larger, more strategic relationships that we have with many of the customers, both on the Lawson side and the Gexpro Services side, really high retention rates there.
And so, you know, when we lose customers, it may be that a customer decides to go back and handle some of that internally, or that we, you know, may not have the capacity within a certain region in order to provide the service to the end customers.
On the TestEquity margins?
Yeah, so TestEquity margins, so this. The net margins this most recent quarter was 7.8%. They had gotten up to close to 10%, you know, in late 2022 and into early 2023. They did see some headwinds in some of their end markets, which drove their overall margin profile down a little bit. We were down to about 6.2%. We do see a path there, through integration of Hisco in with the legacy TestEquity business, to drive those margins back up to that 10%. You know, it's probably six months ago, if you asked me that, or nine months ago, we were looking at that towards the end of this current year.
But I would say that that's been pushed a little bit, just given kind of the continuation of some of the, you know, some of the end market headwinds, probably into end of mid-year next year. But we do see a path of getting that back to the 10% profile.
... Hi, could you just-
Yeah
kind of break down your kind of longer-term organic growth, kind of, algorithm? And I guess, you know-
Sure
Recently, you've had some weakness just 'cause of end markets, and, you know, you kinda talked about that a little, but when does that kind of start to subside, I guess?
Yep. Yeah, so we had an Investor Day last September, about a year or so ago, and in that overall, in those overall goals that we set forth, it was in the mid-single-digit range. So we, you know, we view our business as GDP + a point or two, really given the end solutions that we provide to our end customers, as well as a lot of the initiatives that we have, you know, going on within each of the end verticals. So you know, generally...
And then the other part of that, getting us up to really $3.3 billion is really what we set as a target that we laid out about a year ago over the next five years, so call it four years out at this point. About half of that was driven through organic growth assumptions, and the other was through the M&A side. The overall margin profile that we put out there a year ago was to get to 13.5%, so it's about $450 million of EBITDA on a base of about $3.3 billion. So yeah, I...
You know, so I think, you know, one of the nice things about our diverse customer base is, you know, we will see some end markets, you know, move around on us a little bit. I think we've been able to, you know, for the most part, you know, start seeing recovery of some of those headwinds now. And even though this most recent quarter we were still down on an organic basis, our two-year stacked this most recent quarter was pretty much flat.
Hi, could you just sort of walk us through the puts and takes? You're obviously in a, you know, very diversified bunch of markets-
Yeah.
but we're in a world where industrial's been tough for a little while.
Yeah.
If you could just walk us through what's been surprisingly strong, surprisingly weak, and any areas where you're sort of seeing green shoots or worsening?
Yeah. So, I would say, so the areas that I would say that were weaker in 2023 would've been the test and measurement piece of the TestEquity Group, which is really more tied to capital expansion. So a lot of the larger pieces of equipment that can run $30,000-$40,000 per piece of equipment, those are generally tied towards either capital projects or new projects or renovations. So there was some weakness there. We are gaining market share there, so we've seen some decent growth in that end market over the last quarter or two. The tech space on Gexpro Services was weak for us in 2023.
In fact, if we look at 2023, their sales into that end market were about 50% of where they were in 2022. I think the good news there is we've seen some recovery of that over the last couple of quarters. In the last couple of quarters, we've seen sequential improvement there within that tech end market. Aerospace and defense remains you know strong for us. That's a really nice end market for us on the Gexpro Services side. And then on the renewables side, which is primarily wind for us, and again, within Gexpro Services, that's seeing some uplift here in 2024 as well. Yep. Anything else? Great. Thank you.