Distribution Solutions Group Adjusted EBITDA Reaches 9.9% of Sales

The Tip Desk · November 11, 2026 · 3 min read

Third-quarter revenue was $573.6 million, up 10.7% from a year earlier, as organic sales rose 9.2% and acquisitions added $7.8 million.

Distribution Solutions Group, Inc. (DSGR), a specialty distributor of MRO, OEM and industrial-technology products, reported third-quarter revenue of $573.6 million, up 10.7% from $518.0 million a year earlier. Organic sales rose 9.2%, with average daily sales improving across all business units, and acquisitions closed in the first nine months of 2026 contributed $7.8 million of incremental revenue. The third-quarter purchase of American Fasteners Corp. added about $3.8 million.

Sequential growth slowed. Revenue rose 2.8% from the second quarter, with organic sales up 2.2% and organic average daily sales up 2.8% versus June. In the second quarter, sequential organic sales had grown 12.4% and organic average daily sales 8.1%.

Gross margin compressed to 32.0% from 32.9% a year earlier. The company attributed the decline primarily to customer sales-mix shifts and higher tariff rates on inbound shipments, partially offset by pricing benefits.

GAAP operating income was $25.2 million, or 4.4% of sales, compared with $23.6 million, or 4.6%, a year earlier. That figure was net of $11.3 million of non-cash acquired-intangible amortization and $11.4 million of non-recurring severance, acquisition-related retention, stock-based compensation, acquisition costs and other items. Adjusted operating income, excluding those items, was $47.9 million, up 19.7% from $40.1 million a year earlier.

Adjusted EBITDA was $56.8 million, or 9.9% of sales, compared with $48.5 million, or 9.4%, a year earlier. Net income was $8.9 million, or $0.19 a share, versus $6.5 million, or $0.14 a share, a year earlier. Non-GAAP adjusted diluted earnings were $0.58 a share, compared with $0.40 a year earlier.

TestEquity was the largest contributor to the year-over-year lift. Revenue there rose to $242.3 million from $206.5 million, and operating income rose to $8.3 million from $2.6 million. TestEquity adjusted EBITDA was $17.5 million, or 7.2% of revenue. Lawson Products revenue was $130.3 million, with operating income of $5.8 million and adjusted EBITDA of $17.2 million, or 13.2% of sales. Gexpro Services revenue was $139.8 million; operating income declined to $13.6 million from $13.9 million, and adjusted EBITDA was $18.1 million, or 12.9% of revenue. Canada Branch Division revenue was $62.1 million, with operating income of $3.9 million and adjusted EBITDA of $6.0 million, or 9.7% of sales. All Other posted an operating loss of $6.4 million, including $3.7 million of other non-recurring costs.

Cash provided by operations was $18.7 million in the quarter; net capital expenditures were $5.9 million. Liquidity ended at $378.0 million, including $72.3 million of cash, with net debt leverage of 3.4 times.

On July 15, 2026, the company entered a merger agreement under which entities affiliated with LKCM Headwater Investments, already owner of about 79% of the stock, will acquire remaining shares for $35.00 a share in cash. The price is $5.50 above LKCM Headwater’s March proposal of $29.50 and about an 81% premium to the $19.31 close on March 13, 2026. A special committee of disinterested directors unanimously approved the deal, and the board approved it with certain directors recusing themselves. Closing remains subject to stockholder approval, including a majority of votes cast by holders not owned by LKCM Headwater, and other customary conditions. The Hart-Scott-Rodino waiting period expired August 20. The company also amended its JPMorgan Chase credit agreement so revolving-loan proceeds may finance the merger.

Subsequent to the quarter, the company closed on GradeEight Holdings, LLC.