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01/10 05:46
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call indicates strong revenue growth in key segments like Gexpro Services and positive developments in Canadian operations. While TestEquity faced some challenges, overall EBITDA margins improved. The Q&A revealed no major negative surprises, with management expressing confidence in future performance and strategic goals. The market cap suggests moderate sensitivity to positive catalysts, and the stock repurchase plan provides additional support. Therefore, a positive stock price movement of 2% to 8% is expected over the next two weeks.
Consolidated Revenue $502 million for Q2 2025, representing a 14.3% increase year-over-year. The increase was driven by 5 acquisitions closed in 2024 and organic growth. Organic average daily sales were up 3.3% year-over-year and 2.4% sequentially over Q1.
Adjusted EBITDA Margin 9.7% for Q2 2025, up from 9% in Q1 2025. Excluding the Source Atlantic acquisition, the margin would have been 10.2%. The increase was due to sequential margin improvements across all business verticals.
Cash Flow from Operations $33 million for Q2 2025, up from $21 million in the same quarter last year. The improvement was attributed to accelerated focus on working capital improvements.
Lawson Segment Revenue $124.3 million for Q2 2025, representing a 2.6% increase in average daily sales, including acquired revenue. Organic average daily sales were down 1% year-over-year due to lower military sales volume but up 1.6% sequentially from Q1.
Lawson Adjusted EBITDA Margin 12.6% for Q2 2025, up 70 basis points sequentially from Q1. The margin contraction year-over-year was due to continued investments in sales transformation.
Canadian Segment Revenue $55.9 million for Q2 2025. Organic sales increased 0.7% year-over-year and 2% on a constant currency basis. Sequentially, revenues increased 10.5% from Q1, primarily due to seasonality.
Canadian Segment Adjusted EBITDA Margin 6.5% for Q2 2025, up 130 basis points sequentially from Q1. Excluding Source Atlantic, the margin would have been 15.9% for Bolt Supply on a stand-alone basis.
Gexpro Services Revenue $127.8 million for Q2 2025, up 18.2% year-over-year. Organic average daily sales were up 2.4% sequentially from Q1.
Gexpro Services Adjusted EBITDA Margin 13.4% for Q2 2025, up from 11.9% in Q2 2024 and 12.6% in Q1 2025. The increase was driven by operating leverage and wallet expansion.
TestEquity Group Revenue $195 million for Q2 2025. Average daily sales were down 1.2% year-over-year but up 1.7% sequentially from Q1. The decline was due to softer electronic production supply and lower test and measurement revenues.
TestEquity Group Adjusted EBITDA Margin 6.9% for Q2 2025, up 10 basis points sequentially from Q1 but down from 7.8% in Q2 2024. The decline year-over-year was due to deleveraging on a lower sales base.
TestEquity Group Leadership Change: Barry Litwin, with over 30 years of experience, was appointed as the new operating CEO to transform TestEquity Group. He aims to unlock value and drive execution, focusing on innovative multichannel go-to-market strategies.
Sales Transformation at Lawson: Implemented a complete CRM system with over 70% adoption, rebuilt sales rep count by adding 90 reps in the last 12 months, and launched a refurbished web platform with over 10,000 daily customer visits.
Revenue Growth: Achieved Q2 sales of $502 million, a 14.3% increase from the previous year, driven by inorganic revenue and 3.3% organic daily sales growth.
Canadian Division Performance: Bolt Supply achieved strong double-digit EBITDA margins (~16%), while Source Atlantic faced challenges due to regional economic anxiety and tariff impacts. Canadian division revenues increased 2% on a constant currency basis.
Margin Expansion: Consolidated adjusted EBITDA margin increased to 9.7% in Q2, up from 9% in Q1. All business verticals achieved sequential quarterly improvements in EBITDA margins.
Cash Flow Improvement: Generated $33 million in cash flow from operations in Q2, enabling share repurchases and ending the quarter with no outstanding borrowings under the revolving credit facility.
Acquisition Integration: Progress in integrating Source Atlantic and Bolt Supply in Canada, achieving planned synergies like facility consolidations and gross margin expansion.
Focus on High-Margin Opportunities: TestEquity Group emphasized high-margin opportunities like rental and used test equipment, calibration activities, and specialty products VMI offerings.
Global Macroeconomic Uncertainty: The company faces challenges from a choppy global macroeconomic backdrop, which creates uncertainty in demand across various end markets.
Tariff Disruptions: Tariff disruptions are causing noise and hesitation in customer decision-making, impacting sales and operational planning.
Sales Transformation Challenges: The ongoing sales force transformation at Lawson is a multi-year process requiring significant time and resources, with slower-than-expected new sales rep productivity in the first 12 months.
Canadian Market Weakness: The Canadian manufacturing sector has shown a steep decline in 2025, with Source Atlantic heavily impacted by declines in top customers and regional economic anxiety surrounding tariffs.
Renewable Sector Headwinds: Potential headwinds in the domestic renewable sector could impact growth, despite international pipeline expansion.
TestEquity Group Performance: TestEquity Group's revenue and EBITDA performance have been below expectations, with softer electronic production supply sales and lower test and measurement revenues.
Integration and Synergy Realization: The integration of acquired businesses, such as Source Atlantic and TestEquity, requires significant effort to unlock synergies and achieve planned profitability enhancements.
Customer Behavior and Tariff Timing: Customer behavior tied to timing purchases around tariff impacts is creating inconsistencies in revenue uptick.
Revenue Expectations: The company anticipates that sales comparisons in the second half of 2025 will become more challenging due to strong sales that began midyear last year. However, they remain optimistic about the momentum in key markets such as aerospace, defense, renewables, and technology.
Margin Projections: Consolidated adjusted EBITDA margin increased to 9.7% in Q2 2025, with expectations for continued margin improvements across business verticals. Specific verticals like Gexpro Services achieved an EBITDA margin of 13.4%, and TestEquity Group is expected to focus on enhancing profitability through refined strategies.
Capital Expenditures: The company expects full-year 2025 net capital expenditures to be in the range of $20 million to $25 million, approximately 1% of revenues.
Market Trends: The company is monitoring potential headwinds in the domestic renewable sector while seeing an expanding international pipeline. They also note cautious customer behavior due to tariff impacts and economic anxiety in certain regions, particularly in Canada.
Business Segment Performance: - Gexpro Services is gaining momentum in aerospace, defense, renewables, and technology markets, with a growing pipeline of new customer development activities.
Share Repurchase Program: The company continued repurchasing shares, an effort that commenced in the first quarter of 2025. During the first 6 months of the year, approximately $20 million was returned to shareholders through the share repurchase program. Currently, approximately $6 million remains available under the previous Board-authorized program.
The earnings call reflects strong financial performance with improved EPS, EBITDA margins, and cash flow. Despite cautious Q4 guidance due to fewer selling days, the overall sentiment remains positive with resilient recovery momentum, strategic investments, and expanding market opportunities. The company's proactive approach to managing challenges and focus on growth initiatives, particularly in Gexpro Services and TestEquity, supports a positive outlook. The market cap suggests moderate sensitivity to these factors, leading to a prediction of a 2% to 8% stock price increase over the next two weeks.
The earnings call indicates strong revenue growth in key segments like Gexpro Services and positive developments in Canadian operations. While TestEquity faced some challenges, overall EBITDA margins improved. The Q&A revealed no major negative surprises, with management expressing confidence in future performance and strategic goals. The market cap suggests moderate sensitivity to positive catalysts, and the stock repurchase plan provides additional support. Therefore, a positive stock price movement of 2% to 8% is expected over the next two weeks.
The earnings call presented mixed signals. While revenue and EBITDA showed growth, military sales and demand softness pose concerns. The Q&A revealed uncertainties in military sales recovery and vague M&A plans. Despite positive shareholder returns and strong liquidity, integration challenges and economic uncertainties temper optimism. Given the mid-cap size, the stock is likely to remain stable, leading to a neutral prediction.
The earnings call presents a mixed picture. Strong revenue growth and improved financial metrics are countered by challenges in military sales, supply chain issues, and competitive pressures. The Q&A reveals concerns about military sales recovery and vague M&A plans, tempering optimism. The company's market cap suggests moderate volatility, leading to a neutral prediction.
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