Q4 2023 Distribution Solutions Group Inc Earnings Call

Participants

Steven Hooser; IR; Three Part Advisors, LLC

Bryan King; Chairman & CEO; Distribution Solutions Group, Inc.

Ron Knutson; EVP & CFO; Distribution Solutions Group, Inc.

[Max Cain]; Analyst; [Stephens Inc]

Kevin Steinke; Analyst; Barrington Research

Ken Newman; Analyst; KeyBanc Capital Markets

Brad Hathaway; Analyst; Far View Capital Management

John Krueger; Analyst; JAG Capital Management

Presentation

Operator

Yes, greetings. Welcome to the Distribution Solutions Group Fourth Quarter 2023 earnings conference call. (Operator Instructions) Please note this conference is being recorded. I will now turn the conference over to your host, Stephen Hu. Sir, you may begin.

Steven Hooser

Good morning, everyone, and welcome to the Distribution Solutions Group Fiscal Year 2023 and fourth quarter earnings conference call. Joining me on today's call are DSG.'s Chairman and Chief Executive Officer, Brian Kane, and Executive Vice President and Chief Financial Officer, Ron Knutson.
In conjunction with today's call, we have provided a 2023 financial results. Slide deck posted on the company's Investor Relations website at investor dot Distribution Solutions group.com.
Please note that statements on this call and in today's press release contain forward-looking statements concerning goals, beliefs, expectations, strategies, plans, future operating results, an underlying assumptions that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied. 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 no obligation to do so. Management will also refer to non-GAAP measures and reconciliations to the nearest GAAP measures can be found at the end of the earnings release. The earnings press 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 eight K filed with the SEC.
Lastly, this call is being webcast on the Internet via the Distribution Solutions Group Investor Relations page on the company's website. A replay of this teleconference will be available through March 21st, 2024.
I will now turn the call over to Bryan Keane. Brian?

Bryan King

Thanks, Steven, and thank you all for joining us to review our 2023 annual and fourth quarter results.
Let's begin with Slide 5 to review top-level financial results. Our 2023 annual sales totaled $1.6 billion, up more than 36% and comparable sales increased by almost 24% despite ending the year with a choppier sales environment in a few important end markets, most notably technology and renewables we did see some destocking of inventory by our customers mirroring our own efforts to optimize working capital within the channel collectively, which contributed to a 6% decline in organic sales for Q4. While this backdrop did not meet our expectation in the near term, our two year organic stack sales increased almost 17% for the full year. Our marketplace traction around expanded value added capabilities offers us confidence that we assembled a platform of complementary specialty capabilities that will enjoy sustained market share growth.
We ended 2023 with 157 million in adjusted EBITDA, up nearly 28% and an EBITDA margin of 10%.
During 2023, we generated significant cash from operations of $102 million, translating to a strong free cash flow conversion. 2023 was a successful year for Distribution Solutions group with tremendous work to drive long term value balanced with a mindfulness towards current profitability and cash generation. I congratulate our team on a job well done in what became a more choppy marketplace environment in September. Throughout the year, we invested with confidence in key long-term initiatives while adding critical talent and depth to our leadership team, our employees have fostered a culture of collaborative accountability, essential for driving revenue growth and achieving sustainably higher profitability, a goal shared by all stakeholders. This is being realized through enhanced cross-selling and value added customer engagements, which are gaining traction in the marketplace by streamlining processes and optimizing resources. The team is making strategic improvements that support increasing the consolidated EBITDA margin into the 10s and ensuring all business verticals operate with a margin above 12% within the next few years. These efforts align with our Investor Day objectives from September to elevate total EBITDA to over 450 million in the next five years as eager as I am to demonstrate to our shareholder partners over the coming 24 months and beyond how current levers are driving future performance. The progress was not expected to be linear even though we have strong line of sight on attaining our outlined objectives. As the environment shifted, we exercise additional patience with some process retooling that we knew would result in significant profitability improvements, we were unable to start our DSG. test equity, Hetsco integration and profitability improvement plan until their earn-out window for Hetsco eclipsed in November. Despite this, our disciplined execution around our long term strategy, delivered one revenue and margin growth to demonstrated improved profitability and returns, and three reach significant free cash flow that collectively created a lot of shareholder value most importantly, in 2023, we further optimized the initial foundation created by pulling together DSG., which will allow us to sustain high value creating years through the foreseeable future. While our work to architect and tool DSG for significant future growth and shareholder value creation still leaves much to be done. We accomplished important strategic goals in 2023 I will review some Not the least of which included the major acquisition of Hetsco that I'll discuss. First, we added his go into the DSG. portfolio, which gives us a strategically important business that more tightly binds test equity with checks, pro services and Lawson since our purchase, our competences swell with better line of sight into an expanded set of cost synergies that we are well into unlocking through the Heska integration with tests, equity group and combining that vertical to leverage total spending capabilities across the SG. through review the Healthscope acquisition added over 400 million of revenue to a base of 1.4 billion, producing an annualized sales lift of more than 30%. Cisco also created significant revenue opportunities across the DSG. verticals through geographic footprint, expansion opportunities like in Mexico and internal value added capability additions for DSG. through their alliance printing and precision converting divisions as well as their VMI leadership in categories such as chemicals, sorters and adhesives, among others. Lawson and expert services are already activating all of these benefits. The Heska offering is also providing expanded efficiencies and coverage and capabilities for the test equity. Cisco combined sales initiatives, although we closed this acquisition in June 2023 due to the seller's earn-out, our initial integration plan was not launched until November when the earn-out expire. Our integration plan, which includes optimizing the spending and capabilities between Hetsco and the test equity group is expected to have DSG. enjoy significant run rate improvements from the Industrial Technologies vertical by the second half of 2024. Recall that we already announced a plan to take out 10 million of run rate operating costs from the test Equity Group. And those actions began in the fourth quarter and were informed some by the capabilities brought by Heska our 2024. Cost realization for the Industrial Technology group also includes additional cost capability and facility optimization, much of which will also be enjoyed during 2024, but an equal amount that we don't expect to realize until 2025 or even 2026.
Some additional key accomplishments by big business segment include our MRO focused business. Lawson Products had a standout year, we launched an important sales force transformation in 2023, engaging 900 highly productive field sales reps and expanding our inside sales team to about 45 people from a diminimus side, our plan in 2023 was to minimize the disruption of the rollout and fortify the sales force. Through the change process. We increasingly are leaning on data to optimize our sales force network and how to drive that productivity and opportunity to earn for our salespeople. And we are in the early stages of this effort. Most importantly, this is allowing us to get better at focusing resources where we can add the most value for customers, which is critical as we continue to refine having more product, more expertise and more value added tools and capabilities to engage with those customers and having a more optimized and consistent sales force focus on those customers will be critical to getting our improved capabilities in front of them. This approach is working well with good improvement in rep productivity realized in both the third quarter and fourth quarter. We committed in 2020 to the DSG. merger to significantly invest in Lawson's sales force infrastructure, which started in earnest in 2023. Although this is a multiyear and longer-term project, the early double digit productivity lifts indicate a solid trajectory for the return we expect ahead across ESG. We are committed to execute on disciplined inorganic growth through and equip an acquisition model with tuck-ins that are both accretive financially and capability-wise. That said, some have taken longer than we expected to close. So we were excited to announce the purchase in early 2024 of the acquisition of iMergent safety supply as a strategic extension for Lawson Products in the safety category, brand and line extensions and safety and power tool categories as well as continuing to expand offerings in key products and private label categories will collectively allow our business units to grow, improve margins and scale into new geographies and markets with limited risks. We expect this to improve our cross sale value proposition to existing customers of Gexpro Services and the industrial technology customers of test equity. Heska Gexpro Services continues to assume the leadership role in our synergistic cross-selling and upstreaming opportunities. Our GX pro services customers and more broadly DSC customers can now gain exposure on how to maximize the full range of DSC. products and our expanded suite of value added capabilities for our customers. In 2023, we saw the first efforts of a more robust cross selling message evolve from the 2022 initial successes into a more thoughtful and cohesive approach to engaging the market. This demonstrates credibility to customers and expands our offering with more product categories and more value added capabilities.
Gexpro Services enjoyed bringing home the first wave of successful engagements with some of our commercial and industrial customers as well as championing wins in our aerospace and defense verticals, which translated into several million for each broaden DSG engagement, downstream synergies, selling more products and capabilities to existing customers, including customers from the acquisitions we made opened up most significantly in our renewables category. Our 2022 acquisitions of Frontier resolution and SIS. sets us up as those acquisitions allowed us to take former competitors and convert them to suppliers in 2023 these key channel partners coming together now offer a more comprehensive differentiated offering to a much broader set of customers coming from all of the acquisitions and Gexpro Services as well. This is set up an opportunity to further drive margin improvements at Jack's pro services. Although much of the opportunities in front of us and are in the renewables end markets, these end markets are still extremely sluggish and drag EBITDA margins down from prior year for those acquisitions below the GX pro services core during the last half of 2023, where we're in and where we are now addressing integration cost out opportunities. We anticipate that the renewables marketplace will open back up in 2020 for a perspective, reinforced by our book-to-bill, which is trending significantly positive.
Finally, with the benefit of DSG, Gexpro Services started to benefit and capturing eCommerce revenue, adding several million dollars of incremental revenue from e-commerce orders originating from large established accounts in our aerospace and defense end markets despite the choppy environment in the technology market that delayed several customers' projects into 2024 and that created a drag on EBITDA of over $8.4 million for the year and over 2.3 million for the fourth quarter. Backlogs are building and we are seeing margin improvements, modest early GX pro services has started the year with a healthy book-to-bill. The previously mentioned Hetsco acquisition for our test equity group added significant scale to its North American operations, including Mexico in 2023, consistent with committing to getting the industrial technology vertical up to double digit EBITDA margins over the next couple of years, we worked on setting up the margin improvement initiatives. And as I mentioned, we indicated we've taken initiatives in November to take out over 10 million of 2024 run rate costs from the test equity group informed by the imminent opportunity in November to start the combination of capabilities, facilities and leadership with Cisco today, we understand more about the opportunity to leverage spend and resources and optimize capabilities at Hiscox. Examples of these include some of the following actions we've rationalized facilities restructure, go to market, including headcount reductions, made changes to our sourcing and supply agreements, rationalize unprofitable business with customers and streamline e-commerce efforts that allow for optimized search engine optimization and marketing spend. There's a lot of spend opportunity yet to be unlocked here and it won't happen overnight. But most importantly, the commercial opportunity brought by Cisco, its people, products, capabilities and position in the marketplace to DSG. is even more impactful. And I'm pleased with the rapid progress in collaboration out of the team since they were able to start tackling commercial initiatives together and together affecting cost and process rationalization after the earn-out window expired in November.
With that I'd like to turn the call over to Ron to walk through the financials.
Ron?

Ron Knutson

Thank you, Brian, and good morning, everyone.
You'll see on the following few slides that we expanded information on the three segments to include the year-to-date information as well as the fourth quarter information.
Turning to slide 6, I will first summarize our business on a pro forma basis which includes acquisitions. For the full 12 months of 2023, Lawson represents 30% of total DSG revenue checks. Pro Services represents 23%, and the test equity group represents 47% of revenue, all on an adjusted revenue basis for 2023, our run rate adjusted revenue is now approximately 1.75 billion, and we serve over 180,000 customers across more than 500,000 SKUs.
Now turning to Slide 7, I'll summarize reported results for the year and for the fourth quarter by segment. Consolidated revenue for the year was $1.57 billion, inclusive of the premerger activity for Lawson in the first quarter of 2022. This represents an increase of $301.1 million or 23.7% post merger DSG. acquired four companies, which accounted for approximately $267.5 million of the increase. Excluding these acquisitions, organic sales for 2023 grew by 2.9% or 16.7% on a two year stack basis. For the quarter, GAAP sales were 405.2 million, an increase of 76.4 million or 23.2%, primarily due to the acquisition, excluding the acquisitions, not in Q4 a year ago, organic Q4 sales declined 6.4%, solely driven by the continued delay of capital spending within the test and measurement business that tests equity and weaker sales in the technology end market at pro services on a two year stacked basis, organic sales were up approximately 10% for the quarter, excluding these two headwinds, organic sales increased approximately 1% for the quarter 2023 reflected strong growth in net margin dollars, inclusive of the Lawson pre-merger results in 2022 adjusted EBITDA increased to $157 million in 2023 from 123 million a year ago. Full year 2023 represents 10% of sales versus 9.7% for all of 2022, a favorable outcome. As anticipated, the 2023 margins were reduced by approximately 50 bps from the acquisition of his scope.
For the fourth quarter, we generated adjusted EBITDA of $33.9 million or 8.4% of sales on seasonally fewer selling days in Q4 and the sales headwinds previously mentioned. I'll expand further at the segment level on this in a minute, we reported operating income for the full year of 43 million net of $40.3 million of acquisition related intangible amortization and $50.5 million of aggregate costs from stock-based comp acquisition, severance and retention related expenses, merger and acquisition costs and other nonrecurring items. Adjusted operating income, inclusive of Lawson for all of 2022 increased 19.9 million to $93.5 million. We reported GAAP diluted loss per share of $0.2 for the full year, inclusive of higher depreciation and amortization and a valuation allowance on certain deferred tax assets compared to earnings per share of $0.21 in the year ago. Full year adjusted diluted EPS was $1.42 on higher outstanding shares. It should be noted that starting in Q4, we began including total non-cash amortization expense related to the acquired entities and added these dollars back when computing adjusted earnings per share, which benefited EPS by $0.16 on a tax-effected basis for the quarter.
Turning to slide 8, let me now comment briefly on each of these segments. Starting with Lawson. Sales were $468.7 million, up 9.1% for the full year. Fourth quarter sales were $109.8 million as compared to $108 million a year ago quarter. The increase for the full year and the quarter was driven by continued strong performance within the strategic business, Kent Automotive and government military categories offset by softening sales within the Lawson core customers. Lawson's full year growth was achieved through price, increased wallet share with existing customers and new customers in both our strategic accounts and our Kent Automotive business. As Brian highlighted, Lawson had a really strong 2023, all while continuing to invest in the business to strategically position itself for longer-term success. We're still in the early innings of implementing initiatives to help our sales team become more productive. However, we're very pleased with the initial results of a 15% lift in sales rep productivity this quarter on top of an 18% improvement achieved in Q three. Lawson's adjusted EBITDA for the full year improved significantly to $63.7 million as compared to 38.6 million a year ago. This improvement was primarily driven by sales and gross margin improvements, partially offset by increased compensation on higher sales levels and channel investments to better position us on a longer-term basis for the quarter, Lawson realized adjusted EBITDA of 12.4 million or 11.3% of sales as compared to $11.5 million a year ago quarter, a 7.8% improvement, lower sales on fewer selling days in Q4 compared to other quarters on fairly flat operating costs, reduced loss and smart net margin in Q4 versus other quarters in the year.
Turning to Technical Services on Slide 9. Total sales for the year increased 5.3% to $405.7 million for the fourth quarter sales were 93.2 million, down 6.9% solely from project related businesses, primarily within renewables and continued customer delays in the technology vertical, including the semiconductor end markets, 2023 saw global semiconductor spending declined by roughly 10% as consumer electronics and automobile production drove softness and supply chains adjusted the remainder of the base Gexpro Services business increased 6.2% with continued strength in the industrial power and renewables end markets. Gexpro services' largest vertical is now industrial power, followed by renewables, which are expected to have secular strength for the next several quarters and years. We are continuing to invest in the business. However, we are cautious about certain weaker markets in those more sensitive to current macro economic issues checks for services, full year adjusted EBITDA grew to $45.2 million or 11.1% of sales versus 43.2 million a year ago. For the quarter, adjusted EBITDA was 8.8 million or 9.5% of sales. The decline as a percent of sales was primarily related to lower sales for the quarter in the higher margin technology vertical, which put over $2 million of net margin pressure on the quarter, we anticipate Gexpro Services will return to low double digit EBITDA margins in the first half of 2024 on higher sales on a relatively flat fixed cost structure.
Lastly, I will turn to test equity group on Slide 10. Full year sales grew to 641.8 million, an increase of $249.4 million or 63.6%, driven primarily by the Cisco acquisition and 2023 and other acquisitions completed in 2022. Excluding these acquisitions, test equity sales were down $24 million or 8% for the year, primarily within the test and measurement business. As we've discussed on previous calls, the decline in this piece of our business is primarily related to delays in customers' capital project spending fourth quarter sales were up 85.3 million to 190.7 million, with Cisco sales adding 96.6 million and a decline in organic volume of 11.4%. On a two year stack basis, test equity organic sales were up approximately 3.1%. Test equities adjusted EBITDA for the full year was $43.3 million or 6.7% of sales compared to $34.7 million or 8.9% a year ago. Acquisitions made in 2022 and 2023 added approximately 19.7 million in adjusted EBITDA. The decline in the test equities' base business adjusted EBITDA was primarily related to lower sales levels in the test and measurement offset by cost normalization taken in Q4.
For the quarter, test Equities net margin was $11.8 million or 6.2% of sales. The lower margin for the quarter was primarily related to lower sales on capital related projects, fewer selling seasonal selling days and additional operating expenses related to higher health insurance claims and employee compensation. As we think about 2024 for test equity, we will continue to focus on the integration of his scope and test equity. We remain committed to sequentially improving our margin profile as 2024 develops through higher sales synergies to be realized on the combined company and the nonrecurring nature of some of the Q4 charges we anticipate a stronger second half of 2024 for test equity as we continue to integrate his scope and on some of the pickup in capital spending, allowing us to drive toward a double digit margin profile.
Moving to Slide 11. We ended the year with nearly $300 million of liquidity, including 99.6 million of cash and cash equivalents and under 98.3 million under our existing credit facility. As you know, we amended our credit facility in 2023 from 500 million to 805 million to support the acquisition of his scope and to free up liquidity for other acquisitions. We're really pleased with the progress made in strengthening our balance sheet and ending 2023 at a leverage rate of 2.9 times, all while acquiring four businesses since forming DSG., although we continue to support a robust working capital investments. We are carefully managing inventory levels, accounts receivable and accounts payable, as evidenced by our ability to generate significant cash flow from operations of 102 million for the year. Our cash conversion ratio, defined as adjusted EBITDA, less the change in working capital and less CapEx divided by adjusted EBITDA was over 100% and 2023 net capital expenditures, including rental equipment, were 18.7 million for 2023. We expect full year CapEx to be in the range of 16 to $20 million or approximately 1% of revenue and 2024 and have a similar cash flow conversion goal for 2024.
Before I turn it back to Brian, I'd like to make some comments on how we see 2024 developing. As we've discussed over the past two quarters, we were up against tough comps with Q4 2022, having been up 16.7%, and that will continue into 2024 with Q1 2023, having been up nearly 14% given our fourth quarter results and the first quarter comp that we're up against. We expect Q1 of 2020 for organic sales to be down versus a year ago in a range, similar as what we experienced in the fourth quarter as we make traction on many of our initiatives as 2024 develops and as comps against prior year soften, we would expect organic sales growth to turn positive starting in the second half. To achieve our internal sales plans, we will need some normalization of various end markets and some recovery of customer capital related project spending. While we recognize the Q4 margins are seasonally our weakest quarter and were softer than originally anticipated. One quarter will not slow us down from our overall strategy. We will likely feel some of this margin pressure into the first quarter, but we are committed to continuing to drive margins upward while continuing to strengthen the entire DSG. platform.
I'll now turn the call back to Brian.

Bryan King

Thank you, Ron. We are pleased with 2023 and are even more excited about how our successful initiatives tackle during 2023 will drive our 2024 and 2025 performance. Our prioritized focus on cash flow generation resulted in significant free cash flow in 2023.
Turning to Slide 12. We continue to operate under a disciplined capital deployment strategy that drives focus around reducing capital intensity, where possible, increasing working capital efficiencies, which improves liquidity and reduces our net borrowings.
We ended the year with 99.6 million of cash and have zero borrowed on our revolver while enjoying a $430 million investment in net working capital, we are focused on continuing to structurally increase the return profile of the business, both through operational discipline and process improvements, where we have a clear line of sight on those improvements and with our return profile. Additionally benefiting from key acquisitions that will enhance our long-term position in the marketplace. While the current challenged backdrop for a couple of our end markets can create a short term distraction, we are passionate and committed to drive this business alongside deepening bench of innovative thought leadership. With strong distribution experience, we are aligned and collectively committed as large shareholders, along with a shared vision from the Board to capitalize on this excellent opportunity to further build this best-in-class specialty value added distributor.
With this shared vision and the strategy we are executing, we are managing our leverage appropriately at 2.9 times at year end. And we are confident that we are well positioned to capitalize on accretive acquisitions to drive organic and inorganic growth to build a better DSG., we use a disciplined approach to prioritize our capital investing. Our acquisition priorities need to be informed by intensity of other operational and leadership priorities. Financial leverage and periodic decisions to invest in our own stock. To that end, during 2023, we increased our share repurchase program by 25 million and repurchased 139,000 shares at an average cost of $26.9 per share during the fourth quarter.
Finally, we executed a successful oversubscribed rights offering and a two for one stock split in 2023 in order to balance our capital structure and liquidity objectives prudently as best we can for all our stakeholders.
As we said in the last quarter, we continually monitor macroeconomic and global shifts that may affect the dynamics and forecasts of our end markets. We are two-plus months into 2024 and given a continuation of choppiness this year, similar to the end of 2023 and even with certain tailwinds expected in 2024, we expect that our our first quarter organic sales compression will likely be in a similar range to the fourth quarter of 2023. We're also seeing encouraging indications through our increased quoting activity and our book-to-bill that revenue reacceleration could be spooling back up in those softer pockets. These macro dynamics are significantly different than the invitation for expanded engagement that our customers are welcoming from the more robust offering. Each of the S verticals can now provide.
Turning to Slide 13. Full year and fourth quarter results demonstrated our ability to benefit from our diverse end markets to achieve a 10% EBITDA margin. Our cross-selling initiatives are still in the early innings. Still, cross-selling is becoming more natural across our teams, and we are finding better and different ways to increase sales through long-standing relationships with our best customers. We're very pleased with our progress of acquired business initiatives and believe we can incrementally improve margins in our industrial technology vertical between the exciting test equity and Hilco synergy opportunities over the over the next several quarters as well as improved margins across our other acquisitions made over the past two years. We plan to continue to act on accretive bolt-on acquisitions that fit our M&A criteria and that reinforce DSG.'s expanded aperture around high-value, high-touch specialty distribution capabilities, the acquisitions initiatives and actions taken in 2023 and 2024 are critically important as they deliberately scale up the profitability capabilities and intrinsic value of DSG. across each of the business units setting the successful course for the next five years and beyond. We plan to continue to make good, prudent decisions that create value, improve the long-term return profile of the business and generate cash to wrap up as Chairman and Chief Executive Officer of DSG. and as managing partner of LKCM. Headwater, where we enjoy a very large interest in DSG., we are exceptionally well aligned and committed to our investors and DSG.'s objective. You have my commitment along with the DSG. and LKC. and Headwater teams that together, we remain relentlessly focused around driving steep and sustained long-term value creation for our shareholders.
With that, operator, we would like to take questions from analysts and investors.

Question and Answer Session

Operator

(Operator Instructions) Max Cain, Stephens Inc.
Good morning, and thank you for taking my questions or is that really Matt on and so on a sequential basis has 1Q consolidated?
Yes, your revenue trended first 4Q and for the remainder of March.
Are there any noteworthy negative or positive factors that make that might change that trajectory going forward?

Ron Knutson

Yes. Next next This is Ron. I'll take that. So and keep in mind, you know, for us the seasonality that we generally experienced within our overall business. Typically, Q4 is our weakest quarter of probably followed by our Q1 and Q2 and Q3 are certainly the strongest quarters on know, sequentially, you know where we are today in terms of the first couple of months and I would call it kind of flat versus where we exited the fourth quarter on yellow in terms of in terms of March, it is a 21 day selling month for us this year. So I wouldn't say I know Brian, commented on some of the some of the ordering process and so forth coming around. But on the March is typically a generally a 23 day month for us this month a little bit shorter. So the first quarter only had 63 selling days. So Phenom, so we won't see I know is quite a bit of a leverage advantage on a 23 on a 21 day month as we would a 23. But for you specifically answer your question, not the first couple of months of the year or kind of flat sequentially versus Q4.

[Max Cain]

Got it. Thanks for the color.
And my second question is regarding adjusted EBITDA margins.
Kind of a similar question, but yes, on a sequential basis, how has consolidated margins trends in the first four Q?
And are there any noteworthy factors March, I may change that trajectory.

Ron Knutson

Yes, I'll jump in on that one as well. So as you know, we don't provide formal guidance on in terms of in terms of the year. I know both Brian and I made some comments in our prepared remarks and that we do feel that we'll bring on experienced. Some of the margin pressure in Q1 are similar to what we saw in Q4 just given given where the overall sales are trending out so on nothing, I would say nothing unusual there in terms of what we're expecting a deal here in the month of March either. But Tom, again, without without getting into too much specifics. I think we're going to we're going to continue to see a little bit of that margin pressure from here in the first quarter, probably early into the second quarter.

[Max Cain]

Thanks for the color, and I'll turn it back.

Ron Knutson

Thanks, Matt.

Operator

Kevin Steinke, Barrington Research.

Kevin Steinke

Good morning, Brian and Ron. I wanted to ask about morning.
I wanted to ask about Ron, your comments about Tom, are you looking to return to positive organic growth in the second half of 2024? And you said it would be somewhat dependent on a pickup in your your some of the softer end markets, but you're just trying to get a sense as to your line of sight into the pension potential pickup in those end markets? I know you talked about the pipeline building in check scroll for technology and renewables. And then it sounds like you expect some capital spend return on test and measurement equipment and test directly. So just any more color on your expectations on the pickup in demand and the line of sight you have there?
Iraq?

Ron Knutson

No, but yes, go ahead, Ryan.

Bryan King

It's either one of us, but Kevin, that Ron gave some you just highlighted the three areas that we've been most focused on because they're where we've seen that the only real softness, if you look at it, tested the Industrial Technology division or test equity and 23 of the 24 million of drag that we had on revenue last year was specifically from the test and measurement equipment in there was there were specific inventory destocking dynamics that were going on in the marketplace there. We maybe they made the wrong decision, but we decided to step out of selling equipment, right, Tom, at margins that we saw some competitors kind of trying to blow out inventory to get their inventory levels at the end of the year. I'm rightsized in so that that overhang is a normalization of inventory levels from some of our peers has seemed to work through the system. And we've seen quite a bit more requests for the activity level of quotation has gone up quite a bit as we've gone into this year, although we noted that our customers have budgeted for spend, but we're not seeing the spending dollars being released yet at the pace that we would want to see to feel like that, that businesses normalize. But we expect that it will and we also aren't saying is that, but the more undisciplined approach in some of our competitors have kind of gotten out of the marketplace with their inventory positions that they took on when our channel partners were struggling to get product in is kind of the same issue that we've seen in other parts of our businesses, not just IDSG., where the supply chain led to people putting orders or expanding their of their efforts to train it, gather inventory. And then there was a destocking level that we saw and we saw it in other end markets as well at DSG. towards the end of last year and the most acute spot where we felt it inside was at test and measurement, and we may have made of it. And we've wrestled a lot with the decision on whether or not to participate in the marketplace as people were selling stuff at margins that were significantly lower than what we've historically sold test and measurement equipment for, and that's abated itself.
On the renewables side, we've just seen a delay in some of the project spend and also some of that on the M&A MRO, a packaging that we've kind of our kits that we put together to be able to address some of the reworks of a lot of that installed base on the renewable side. But our book to bill is this high as I've seen it in the renewable space currently but we and so we expect that to flow through in revenues, but it's it's still been sluggish, but getting back to the levels that we would expect out of an area that we're really excited about participating in as a leader to that end market in front of us.
On the semiconductor side, we took a pretty good punch last year. I tried to highlight it specifically with the actual dollar drag and that we had, you know, revenues were down 50% in the renewal in the semiconductor space project for last year. It had the biggest impact on our earnings for the Jack Pro division and the 88.3 million or $88.4 million drag that we had for the year on EBITDA and that that end market is still kind of book-to-bills, not where we'd like to see it yet. But our customers, we're still engaged with them and we're working currently on ways to expand our current wallet share with them. And as we also, it's kind of been an interesting we've seen a shift with of with one of our customers in particular and another one that we're working with on where some of their production is moved away from the U.S. At the same time as we're working actively with a number of customers on new expanded fabrication capacity in the U.S., which we all kind of think or would expect with the chip back on. But it's not been kind of seamless as we would have fixed as we'd like to see as we've seen some shifting overseas from customers at the same time is we're seeing new plants being built domestically. And so there's a there's some choppiness still in that end market we expected by the second half of the year. That's really where the back half of the year at element that we've kind of laid out their projects grow, we expect to see more of a renewed or restored level of activity there on the semiconductors that the other end markets have actually held up quite well. And so if you take those those challenges out our organic growth rate, we would have had flat to positive organic growth in each of those verticals without are those headwinds.

Kevin Steinke

All right, makes sense.

Bryan King

I don't know how to thank Kevin. It was okay. In terms of just thinking about headwinds that we had last year, but also celebrating the great work that was done, it would be the sales force kind of transition that we did at Lawson. We got the benefit of more productivity out of our sellers, and we've reorganized some of the ways that they serve their customers in some of the and some of the efficiency with which we lean on on those sellers in their particular I'm selling territories in. And so that has had that has created some level of choppiness that we think that Tom and we kind of got we knew that it would probably lift margins, but create some drag on organic growth last year. We just didn't expect that we would also have the drag on the other two verticals at the same time. So we thought we'd get the benefit of the EBITDA flow through with a little bit of a drag on on organic sales growth at Lawson, while we would also we were enjoying through the first half of last year and into the third quarter. Really strong end markets still saw strength on a blended basis across the other two verticals, which we thought would kind of not highlight as much the drag on the salesforce reorganization on organic growth. But that was very much of a deliberate objective to be able to bring the structural profitability of Lawson up closer to where we are think it should be done over time.

Kevin Steinke

Okay, thank you. And just following up on that, when you talk about the expectations for a better second half of 2024. I mean, in discussions with your clients, how much does that macro outlook play into that, the building pipelines? And what have you I guess we've just been hearing more generally from various companies that and now they're getting more comfortable with it the way inflation is trending and the possibility of interest rate cuts at some point this year is that that kind of factoring into your clients' thought process and starting to move forward with some spend on some of the more interest rate sensitive things like renewable development, et cetera?

Bryan King

Yes, Kevin, I mean, the for me, the best example of that is just seeing the book to bill on some of the markets that have been more sensitive to inflation or to interest rates like the renewables sort of renewables have the highest book-to-bill currently as any of the markets that we that we serve. But instead of that, that in and of itself to me is an indication that there's confidence in that end market anyway, which has been probably the most sensitive is our end markets to interest rates and a continued kind of overhang or concern about a recession, and they are moving forward with projects that they had in their engagements with us around the on request for proposals and then obviously, booking orders with us, but those won't translate into route into the revenue lift. We don't think until until later in the year than the first quarter on that, that's probably the best industry for me to use as a proxy for the question you asked, but I do think that there's two other elements that we're saying is just like we were able to destock and some quite a bit. During last year, we watched our customers do the same. And so the concern that we all had about inflation and every time we reordered a product being having pricing passed through on us from our vendors. We had customers who were experiencing the same from us and then everyone was puffing their orders. Some are carrying more inventory, both because of the concern about an inflationary price increase as well as the concern around supply chain disruptions. Test and Measurement was an area where we had seen a real overhang on supply chain disruption. And, you know, distributors like us are rental companies that are similar to us took and kind of went out and took inventory positions in an effort to, you know, Trian it smoothes the challenging backdrop that we had from the vendor, the manufacturer getting us products. And once that manufacturer and many of our manufacturers started a being able to deliver product more seamlessly. Again, all of us started looking at how much incremental working capital we put in place during 2022, and we started taking dollars out of it. So we work down our working capital last year and with interest rates, high carrying working capital is a real burden, basically has a real cost to it where when you're in a much lower interest rate environment, you don't really charge yourself as much for carrying that extra inventory. So we have we think that a lot of that overhang of working capitals worked through the system. Our in business activity levels are good across most all of our industries. And so Tom, the choppiness that we felt kind of tested measurement starting in September and then through the semiconductor before that. And then with renewables delayed through the fourth quarter and the first quarter, it's definitely put up. It did have a drag on our organic growth objectives and that we had put it out there for everybody, but it's not put a drag on it anyway that Tom gives us any lack of confidence in where we're headed. But the other part that's been really very much more reassuring has been we just came out of all day yesterday, we were in the last two days with leadership from the three companies, mostly led by really the Jack's protein. I'm getting together having a Cisco team, they're working through how they're tackling and more cross-selling and more shared customer relationships. And while that's taken, probably it's slower to get some of these bigger customers to migrate or to change where they're buying, they're there their content from them in leaning on for services, we're seeing a significant amount of interest and we also have a much we have a much better go-to-market message today about the consolidated now on ways that we can are there the collaborative ways that our three verticals can work together when we talk to a prospective customer, and that's evolving even more now that we've got Cisco's capabilities in the fold. Cisco's sit really has a lot to try to share in terms of capabilities, both with Lawson and Jeff's pro services. And we knew that when we that we started chasing Hetsco years ago. And I thought that it would be a critical piece, a linchpin piece to our broader ESG strategy. And we're glad to have you not just in the last couple of days of being able to listen to the way that the Cisco team is working with the GX pro services team, for instance, on specific customers that have asked for us to bring the the three verticals capabilities together to solve some major on manufacturers objectives here that that's been probably the most encouraging and fun for me to to see Okay, great.

Kevin Steinke

And just lastly, I wanted to ask about Tom. Yes, the organic revenue trends and Lawson Products you mentioned continue to do that.
Good, good progress with strategic Kent Automotive and government verticals on, but feel some softening and losses, core customer base that the organic growth rate just stepped down a bit sequentially, 3Q to 4Q. Have you seen a more noticeable softening in that core customer bases or anything we should be thinking about as we kind of move into 2024 here on that front?

Ron Knutson

Yes, Kevin, this is Ron. So yes, you're spot on in terms of where we saw most of the strength in 2023 was on our strategic business side. We continue to develop good customer relationships servicing more of their locations. The Kent Automotive business continues to grow nicely. And so for us, it's a real balance, right in terms of the sales rep productivity that we were able to achieve 15% on top of 18% in the third quarter. So we feel really good about that where where we are seeing some weakness is within within the core base, which does make up about 50% of Lawson's customer base now. And I think it's I would say it's probably twofold. One is on is we're signing more strategic accounts and more Kent Automotive business, we really have to have a focused effort on where that where that how that customer gets service. And I think part of that is probably naturally taking a little a little bit away from probably a little bit of cannibalization from our from our core customer base. The nice piece on that we've done really throughout 2023 as we've made really pretty significant investments in inside sales, technical sales specialists, our lead development reps are really the infrastructure that can help support our sales reps, and we have them actively working on those core customers that on that, we've not seen a sale for, you know, in the last couple of months, let's call it. So yes, a little bit of weakness there. But I would say that there is a heavy heavy focus internally within Lawson on that. That's not only do we need to be able to support these other growing kind of pieces of our business, but really getting our way back into our core customers, make sure that we can see growth there as well.

Bryan King

It brought it up I want to just add to that, Kevin, the there was the sales force transformation that we took on last year was one that was that was very deliberate around trying to expand profitability of Lawson. It was both to expand profitability loss. And it was Alex is absolutely focused on being able to expand the earnings opportunity for our outside sales team and so to do that, we had to make sure that they were spending their time where they were, where they needed to be, spending it to drive, you know, longer term traction in revenue growth. And a lot of the time when you really broke it down, a lot of their time was being spent on a lot of very small customers that we don't want to leave, but we needed to manage how ours ours outside salespeople were engaging with them. And so when you really fully burden their time and our resources, a lot of those little accounts were not profitable on a contribution basis. And so we knew that. And so we that's part of the reason why we've addressed them with some other tools on ways to cover them so that the sales outside salesperson is not spending as much time inside of those accounts. And we've re so that core, you know, it's got some movement in it. And so it's not when I look at it and I look at the drag it, Tom, in different pockets of it around organic revenue growth right now. I have to take some of the noise out of how we're serving those customers differently today because we're actually making more money on how we're serving them on on less dollars that are coming that are kind of few that are coming through that channel that small tiny end of our channel. And so there's that compression element that we had to head to tackle and certainly with not having as much, you know, but to have a tailwind of economic growth last year at the end of the year from it at the same time as we're doing that compression slowed the organic growth rate at Lawson like we anticipated it would, but more than than we probably anticipated just because of the backdrop.

Kevin Steinke

Okay.
Fair enough.
Thanks for taking your questions. I will turn it back over.
Thanks.

Bryan King

And thank you, Kevin.

Operator

Ken Newman, KeyBanc Capital Markets.

Ken Newman

Hey, good morning. I should say good morning.
So first, I guess, obviously, it sounds like a bit of a slow start here into 2024. I think it sounds like you you expect the benefits from the cost-out initiatives and improving activity maybe in the second half. Curious, I mean, do you think the operating leverage for EBITDA is able to get back to that? Is your target of 20% to 30% starting in the second half? Or is that more of a 2025 opportunity?
Sorry, if I started running shredders.
Yes, just to make sure I understand your question. Your question is on the on the flow-through, correct on the operating leverage direct incremental EBITDA margins?
Yeah.
Yeah, yeah, no, it doesn't.

Bryan King

Yes, we believe that we can get there in the second half of this year. I mean, that's not a we don't believe that that's going to take us into 25 to get there. I'm I think that it's a it's a natural follow through to and some of the commentary this morning just around, you're seeing a stronger second half than the first half for us. So on where we are. We're not even though we're seeing some some margin pressure here in the first quarter from scale. As we look at bridging our way from Q2 from Q1 into Q2 and into Q3, we clearly see on incremental margin lift as we work sequentially from quarter to quarter. So yes, we've not backed away from that that overall call it 25% operating leverage is is the sale start to turn here later in the year?
Canada is still aggressive to make sure that I understand the question. So I don't know that we've, if anything is we're taking out expenses and we're improving operating leverage in the business. The operating leverage has not been taken down. We've certainly suffered over the last several months and into the fourth quarter and in the current era that the January February trends. And consistent with that, just the challenge of having fixed costs that are not getting carried by as much top line revenue. And so there's some negatives contribution margin that's dragged down on EBITDA. But at the same time, we have very deliberate cost out measures that were in place and that we had identified and been working through over the last 18 months. And many of those we couldn't really tackle till November with the Hetsco earnout being a cleanup. And so there's some that we should see and be able to talk about the $10 million that we alluded to in our last conference call earnings call that we'll be restarting tackling on the test equity front is now being matched up with another. So 7 million or so that we're able to work from the other side of the merger on a kind of pulling together the industrial technology side. So there's 17 million that we're working on cost out there that we should be able to realize this year and that's so that that's something that while we'll get more visibility on, it can have a better kind of back half of the year.
Selling environment is only taking operating leverage at some level up from whatever it was baseline before. And we've also got less spending leverage opportunities that we're taking on. We were able to improve our our our leverage on our dock each dollar spend across the DSG platform. So that's in addition to, you know, we had been working on that starting 18 months ago. Some of that didn't roll all the way through the P&L last year in there. And there were still initiatives that we were able and are able to tackle that are discrete initiatives that we identified. And as we've been working through that. The total consolidated spend objectives on the on the DSC platform goes goes or expanding the operating leverage opportunity going in the future. I want to make sure that we understand where the baseline is whatever the baseline was beforehand. We've not taken it down. We've actually expanded it. But our challenge has been having these in market softness, pockets that are a real distraction for all of us. But then just I want to see more from organic revenue growth out of our cross-selling and are getting to that sooner. And now it's taken a little bit more time to knock down some of the targets that we've laid out there for specific customer opportunities that we we have line of sight on yes, I know that, that makes a lot of sense and actually kind of leads a bit into my follow-up here, which is a maybe a follow-up to Kevin's last question here.

Ken Newman

On Lawson. But I mean, Ron, is there any color on what pricing benefits have been in that segment this quarter? Because obviously you guys have seen or talked a little bit about customer destocking maybe offset by some inflationary pricing benefits? And how how do we think about the flow through of price through sales and margin?
Both into it's last quarter and then first quarter maybe the rest of the year? Because I would imagine that flow through might be a bit more extensive on the pricing aspects rather than on the volumes?

Bryan King

Yes. I would.
Yes, I would it's a candidate in the really in the first half of the year, we were getting more of the price increases that were put in place later in 2022 that flowed through into into early 23. When we look at our overall unit volume of being shipped out the door on, it's I would say that it and it flattened out in that core. So we saw on we saw more of a decline in the core volume in the first half of the year. And that really now in the second half of the year and even here into January and February, it's kind of hit that, Tom, what we would call kind of a low point in has been running relatively flat, um, so I think that some of that pressure that we saw on the on the core business on is really more so took place as we were transitioning some of the sales reps earlier in the year with some of the disruption that we did or I wouldn't call it may disruption blue, some of the plan changes, but we've kind of leveled off at this point. And we don't see volumes are decreasing here in this in the second half of 23. And actually, it's ticked up a little bit here in January and February, so on. But you're right on the 2023 because the big chunk of our overall growth was was really related to price.
Yes, especially the first ad aired?
Yes, it could remain weak because we had the we had significant pricing initiatives that Ron and Cees are in each of the teams put in place during 2022 as we eclipse those in 23, you know that we had the first half of 2023 weeks. We were getting the benefit of the 2022 pricing initiatives that did not roll through for the full 12 months and in most all that was done by, you know, early or mid Now last year.
Secondly, I mean, I hope I don't know, but I'm trying to think, Ron, if you can give us any specifics about pricing strength initiatives that we took on last year. And there's there's some small ones inside of like Gexpro on resetting contract terms at around 1231 metrics. And so when we've got a contract, those kind of end up those pricing resets don't take place until the contract reset. And but in terms of dynamic pricing activities are, I say, outside of kind of some dynamic pricing initiatives, we took some specific pricing actions during the inflationary, the more the higher inflationary periods that we were feeling in 2022 coming from our suppliers.
Well, at any rate, yes, there were.

Ron Knutson

Yes, there were there were there was limited price. I mean, we were very selective around price increases in the second half of 23. But you're right, Brian, that the majority of it was the was the carryover effect of what we did in 2022 and then being surgically going after just specific products or specific areas, we knew we had to come, keep margins up on, you know, in the latter half, but there, but it was pretty limited.

Ken Newman

Got it. That's helpful.
Maybe if I could just squeeze one more in here. Just on the supply chain. I know there's a lot of moving pieces, but curious if you have any color on just how much of your inventory is coming from over the water maybe from the Red Sea and the shipping line dynamics there? And maybe just any color on whether you're seeing some impacts from transport logistics expenses creating one way or the other?

Bryan King

Yes. From an expense standpoint on the on the on the transportation side, we certainly felt more of it in 2022. 23 are really seem to normalize for us, and we've not seen anything, Ken, at this point that it's starting to have a dramatic impact on us from an overall cost standpoint, it's we're just we're not we're just not seeing it yet. Is that yet to come, but we've not seen it here in the second half of 23 or at least in the first couple of months and into 24.
I've understood. You indicated I'll note on your on your middle class. Middle question on margin. I've been reminded here that we are we do have very specific initiatives that are more surgical that are a part of our gross margin strategy that we're walking from gross margins up in some but different parts of different verticals in different parts of that. And that's but that's not going to be that sort of stuff where you see 10 or 2025 at a time. That's not kind of the more pricing initiatives that we took that are would be the ones that you would wonder whether or not when you see a top line number, whether or not there's a that's volume versus pricing leisure more very specific gross margin objectives that we've got, two that are taking place at the vertical levels to drive gross margins up to a more appropriate level.

Ken Newman

Got it. Very helpful.
Thanks.

Operator

Brad Hathaway, Far View.

Bryan King

Morning, Brad.

Operator

Brad, your line is live.

Bryan King

Do you have enough data yet for our but I was worried that 75 minutes at 75 minutes into the call that you that we had lost you completely.

Brad Hathaway

No, I understood.
I tried to be quick now your go up. Appreciate the incremental color on kind of, I guess, some of the macro headwinds because it's obviously, I think people kind of look at the overall macro environment. If you're more benign about it, but I guess the PMIs sub-debt, you're seeing some things in your specific industries on what I was curious, though, asset gathering, but covered pretty well with some with regards to his scope on.
So you haven't really started the integration yet till December, correct?

Bryan King

Yes. The I'd say that we started taking some actions in November, but they really didn't have any impact to either top line or profitability.

Brad Hathaway

Okay.

Bryan King

But yes, that's right. So we weren't allowed to start taking actions until November in really November when we started moving things around.
It was on the tax equity side, not on his side by Amazon because I think you have or I guess now we'll call kind of February or industrial technologies, you made a comment that you kind of see this mid-term path to adding 12% margins, if that's correct.

Brad Hathaway

And I guess yes, I was wondering, is the Cisco integration the major factor in that? Or are there other building blocks you can kind of point you to get from where we are now and kind of test equity to that kind of more mid term goal?

Bryan King

Yes. So there's there are other building blocks from Brad. What what the way that I kind of bridge that is that in my mind, in any way in that. We've got very discrete. I'm numbers that we're working through, but there's about 200 basis points of and cost leveraging our spend, leveraging on a on an EBITDA basis kind of tenor or tenor basis points of revenue that we I have line of sight that we're working through this year or that we should get the benefit of this this year. There's another equal amount that that won't flow through the P&L until that fully flow through until the 25 or in some cases 26. So there's kind of a total 400 basis points that the team has identified up in effort kind of synergistic opportunities there. And then there's some there's in addition to that there, and that's across the total volume of that Industrial Technologies Group. And there are additional elements that we are working towards to drive of the volume, leveraging profitability that that we have and that we see in terms of being able to bring the Cisco capabilities to all at ESG as an example, that it didn't lift margins quite a bit for everybody. It was one that we will work through in the last the day we had everybody together would be the printing and labeling capabilities that are owned by Cisco, taking on volume that is needed from Jack Sprout, for instance. And so you end up with a lift because we're getting more throughput on a facility that was and a very good facility, but not one that was operating at a level of capacity kind of capacity utilization, it would pull that the gross margins and EBITDA margins of that come that alliance from Alliance printing business to where it really drops a lot more dollars. So there's there's a number of those things. There's also things like there's other capabilities that are specific, you know, kind of value added capabilities that Jeff Crowe is leaning into this go or leaning into a test equity that expands the structural margins, attest, equity and Hetsco and in certain categories. And those are outside of the 400 basis points that I alluded to earlier.
Got it, Tom, there does need to be there's no doubt about it to get to the 12%. We've got to get back to the normalized top line. So there's there's a full 200 basis points that because the spend is leveraging the spend that we that we expect that we'll get just from getting through this test and measurement overhang, our product in delayed purchasing and then also getting getting the organic revenue a baseline back to where it should be.

Brad Hathaway

Okay. So just to make sure I'm clear in Q4 22 is roughly 6%. So to bridge that 600 bps, it's roughly four and a bit from kind of synergies and 200 bit from volume leverage. Is that kind of correct?
That's about right.
Yes, I've got a great network that normally I'm wondering if you have it.
Okay.
Thank you.

Operator

John Kreger, JAG Capital.

John Krueger

Hey, Brian, thanks for taking the question here.
John askew, I just wanted to ask you how you're thinking about buybacks and keeping that free float available to other investors effect.

Bryan King

So what metric that you tell me where the stock price is, and I'll tell you what we're doing on the buyback. I mean, I have not really, but I think we're that were that specific in what we're we're looking at exactly what the terminal value that we're trying to build in the businesses and we've got a capital allocation model that, you know, quite specific. It's taken us longer to get some of our M&A done. Candidly, during the about last half of last year, the disruption in some of these pocketed end markets that we've talked about this morning, like renewables or semiconductor specifically as well as some other noise in this not in the channels, it may have impacted some of the people that work that we have direct dialogues with that are not in a process that aren't necessarily having to sell their business, but want to be a part of DSG. and so it's slowed down. Some of our, you know, kind of getting to the goal line on M&A that are specific, some capabilities or expansions of our of our reach that we want to have and in some of our kind of long term value, Bob proposition that we want to pull together with DSG. So as those things have slowed kind of now, we have good line of sight on some of those right now. But as those have kind of not happened as quickly and we're generating cash?
Yes, we want to make sure that we're mindful of exactly what we're doing with our shareholders' cash while we're sitting on that additional liquidity. And so if the stock price is where it is too significant of a discount of what we think that the terminal value of the business would be if we wanted to sell the Company then and we're going to we're going to buy back shares, but we don't want to buy back shares. And so but Bob, but we will but we know it's part of a very disciplined capital allocation. And I wanted to make sure that we continue to improve the float. That's why we did the stock split. That's why we're making sure that they're trying to get out, get out in the marketplace and see shareholders like yourself and go on the road. But that's yes, that's to make sure that that that our shareholders are confident in what we're trying to execute on and that where we can we want to improve liquidity for everybody, but we're not sellers and a net buyer of auto and the business itself is up. It's doing what we wanted to do at its core. The team is performing really well against a lot of very discrete objectives are to drive value longer term for all of us. And so if we think that the right thing to do for all the shareholders is to use liquidity to buy shares then and we'll do it.

John Krueger

Appreciate it.

Bryan King

Thanks here. Thank you for your support.

Operator

We have reached the end of the question-and-answer session, and I will now turn the call over to Brian for closing remarks.

Bryan King

Thank you and we look forward to speaking with you everyone again, when we report our first quarter results in early May. Additionally just alluded to it just a minute ago, we are planning a multi-city non-deal roadshow starting on the East Coast and covering parts of the Midwest. During the last week of March, we also have an investor or investor by several investor conferences scheduled for this spring. And we appreciate everybody's time today. And we absolutely think the 3,700 DSG. associates for a great 20, 23, they put a lot into it, Tom, and thank you. Have a great day. Thank you.

Operator

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