Distribution Solutions Group, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q, the audited consolidated financial statements, accompanying notes and other information included in our Annual Report on Form 10-K filed for the year ended December 31, 2022 and the Lawson Products, Inc. unaudited condensed consolidated financial statements and accompanying notes included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022. References to “DSG”, the “Company”, "we", "our" or "us" refer to Distribution Solutions Group, Inc. and all entities consolidated in the accompanying unaudited condensed consolidated financial statements. Overview Organization and Structure Distribution Solutions Group, Inc. ("DSG"), is a multi-platform specialty distribution company providing high touch, value-added distribution solutions to the maintenance, repair and operations ("MRO"), the original equipment manufacturer ("OEM") and the industrial technologies markets. The Mergers that were consummated on April 1, 2022 resulted in the combination of Lawson, TestEquity and Gexpro Services. For a description of the Mergers, see Note 1 – Nature of Operations and Basis of Presentation within Item 1. Financial Statements. We manage and report our operating results through three reportable segments: Lawson, TestEquity and Gexpro Services. A summary of our segments is presented below. For additional details about our segments, see Note 16 – Segment Information within Item 1. Financial Statements. Lawson is a distributor of specialty products and services to the industrial, commercial, institutional and government MRO market. TestEquity is a distributor of test and measurement equipment and solutions, industrial and electronic production supplies, vendor managed inventory programs, converting, fabrication and adhesive solutions from its leading manufacturer partners supporting the technology, aerospace, defense, automotive, electronics, education, automotive and medical industries. Gexpro Services is a global supply chain solutions provider, specializing in developing and implementing vendor managed inventory ("VMI") and kitting programs to high-specification manufacturing customers. In addition to these three reportable segments, we have an “All Other” category which includes unallocated DSG holding company costs that are not directly attributable to the ongoing operating activities of our reportable segments and the results of a non-reportable segment. Recent Events HIS Company, Inc. Acquisition On June 8, 2023, DSG acquired all of the issued and outstanding capital stock of Hisco, a distributor of specialty products serving industrial technology applications, pursuant to the Purchase Agreement dated March 30, 2023. The total purchase consideration exchanged for the Hisco Transaction was $270.4 million, net of cash, with a potential additional earn-out payment subject to Hisco achieving certain performance targets. DSG will also pay $37.5 million in cash or DSG common stock in retention bonuses to certain Hisco employees that remain employed with Hisco or its affiliates for at least twelve months after the closing of the Hisco Transaction. In connection with the Hisco Transaction, DSG combined the operations of TestEquity and Hisco, creating one of the largest suppliers serving the electronics design, production, and repair industries. Accordingly, Hisco results are included in the TestEquity reportable segment. DSG funded the Hisco Transaction using a combination of borrowings under its 2023 Credit Agreement and proceeds raised from the Rights Offering, both discussed below. Refer to Note 3 – Business Acquisitions for further details about the Hisco Transaction. 33 Table of Contents Debt Amendment On June 8, 2023, the Company entered into the First Amendment to Amended and Restated Credit Agreement (the “First Amendment”), which amended the Amended and Restated Credit Agreement, dated as of April 1, 2022 (as amended by the First Amendment, the “2023 Credit Agreement”), by and among the Company, certain subsidiaries of the Company as borrowers or guarantors, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent. The First Amendment provides for a $305 million incremental term loan. Refer to Note 9 – Debt for additional information about the 2023 Credit Agreement. Rights Offering On May 30, 2023, the Company raised approximately $100 million pursuant to a Rights Offering of transferable subscription rights to holders of DSG common stock as of the close of business on May 1, 2023. Refer to Note 11 – Stockholders' Equity for additional information about the Rights Offering. DSG Vision and Strategic Focus The complementary distribution operations of Lawson, TestEquity and Gexpro Services were combined in 2022 for the purpose of creating a specialty distribution company enabling each of Lawson, TestEquity and Gexpro Services to maintain their respective high-touch, value-added service delivery models and customer relationships in their specialty distribution businesses under the leadership of their separate business unit management teams. The DSG leadership team provides oversight to these separate leadership teams. This structure helps the combined company to leverage best practices, back-office resources and technologies across the three operating companies to help drive cost synergies and efficiencies. The combined company has the ability to utilize its combined financial resources to accelerate a strategy of expansion through both business acquisitions and organic growth. Organic Growth Strategy We intend to grow our businesses organically by exploring growth opportunities that provide different channels to reach customers, increase revenue and generate positive results. We plan to utilize our Company structure to grow organic revenue through collaborative selling across our customer bases and expanding the digital capabilities across our platform. Acquisition Strategy In addition to organic growth, we plan to actively pursue acquisition opportunities complementary to our businesses and that we believe will be financially accretive to our organization. Sales Drivers DSG believes that the Purchasing Managers Index ("PMI") published by the Institute for Supply Management is an indicative measure of the relative strength of the economic environment of the industry in which it operates. The PMI is a composite index of economic activity in the U.S. manufacturing sector. A measure of the PMI index above 50 is generally viewed as indicating an expansion of the manufacturing sector while a measure below 50 is generally viewed as representing a contraction. The average monthly PMI wa s 46.9 in the six months ended June 30, 2023 compared to 56.3 in the six months ended June 30, 2022 . Lawson Sales Drivers The North American MRO market is highly fragmented. Lawson competes for business with several national distributors as well as a large number of regional and local distributors. The MRO business is impacted by the overall strength of the manufacturing sector of the U.S. economy. Lawson's revenue is also influenced by the number of sales representatives and their productivity. Lawson plans to continue concentrating its efforts on increasing the productivity and size of its sales team. Additionally, Lawson drives revenue through the expansion of products sold to existing customers as well as attracting new customers and additional ship-to locations. Lawson also is expanding its inside sales team to help drive field sales representative productivity and also utilizes an e-commerce site to generate sales. 34 Table of Contents TestEquity Sales Drivers Across the test and measurement, industrial and electronic production supplies businesses, the North American market is highly fragmented with competitors ranging from large global distributors to national and regional distributors. TestEquity management focuses on the internal metric of Sales per Day (“SPD”) and Day Adjust Growth (“DAG”). The SPD calculates and compares TestEquity’s total sales divided by the number of selling days, adjusted for weekends and holidays. A selling day generally represents a business day in which TestEquity ships products to its customers. The DAG represents the percentage increase or decrease in the SPD for a defined period of time. Specifically in respect of its electronic production supplies business, the current semi-conductor chip shortage is negatively impacting TestEquity’s business as such chips are key elements to the electronic production process. TestEquity anticipates that recovery of this important part of its customers’ supply chain will occur in late 2023 and early 2024. Through the Hisco Transaction, TestEquity will expand its product offerings, including adhesives, chemicals and tapes as well as specialty materials such as electrostatic discharge, thermal management materials and static shielding bags. Hisco operates in 38 locations across North America, including its Precision Converting facilities that provide value-added fabrication and its Adhesive Materials Group that provides an array of custom repackaging solutions. Hisco also offers vendor-managed inventory and RFID programs with specialized warehousing for chemical management, logistics services and cold storage. Gexpro Services Sales Drivers The global supply chain solutions market is highly fragmented across Gexpro Services' key vertical segments. Gexpro Services’ competitors range from large global distributors and manufacturers to small regional domestic distributors and manufacturers. Gexpro Services' revenue is influenced by our OEMs’ production schedules, new product introduction launches, and service project needs. Gexpro Services drives revenue through increasing wallet share with existing customers, customer-led geographic expansion, and new customer development in its six key vertical markets. Additionally, Gexpro Services drives revenue through expansion of its installation and aftermarket services by leveraging its portfolio of recent acquisitions. Supply Chain Disruptions Along with the broader economy, we continue to be affected by rising supplier costs caused by inflation and increased transportation and labor costs . This results in challenges in acquiring and receiving inventory in a timely fashion and fulfilling customer orders . We have instituted various price increases during 2022 and 2023 in response to rising supplier costs, as well as increased transportation and labor costs in order to manage our gross profit margins. Cyber Incident Litigation On February 10, 2022, DSG disclosed that Lawson Products' computer network was the subject of a cyber incident potentially involving unauthorized access to certain confidential information (the “Cyber Incident”). DSG engaged a cybersecurity forensics firm to assist in the investigation of the incident and to assist in securing its computer network. Because of the nature of the information that may have been compromised, DSG was required to notify the parties whose information was potentially compromised of the incident as well as various governmental agencies and has taken other actions, such as offering credit monitoring services. At June 30, 2023 DSG, had not incurred material costs as a result of the Cyber Incident and, at this time, is unable to estimate the total cost of any remediation that may be required. On April 4, 2023, a putative class action lawsuit (the “Cyber Incident Suit”) was filed against DSG. For more information about the Cyber Incident Suit, please refer to Note 14 – Commitments and Contingencies within Item 1. Financial Statements. Critical Accounting Policies and Use of Estimates The unaudited condensed consolidated financial statements were prepared in accordance with GAAP. A discussion of our critical accounting policies and estimates is contained within Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in DSG's Annual Report on Form 10-K for the year ended December 31, 2022. There have been no significant changes to our previously disclosed critical accounting policies and use of estimates. The following provides information on the accounts requiring more significant estimates. 35 Table of Contents Inventory Reserves - Inventories principally consist of finished products stated at the lower of cost or net realizable value using the first-in-first-out method for the Lawson segment and primarily the weighted average method for the TestEquity and Gexpro Services segments. Most of our products are not exposed to the risk of obsolescence due to technology changes. However, some of our products do have a limited shelf life, and from time to time we add and remove items from our catalogs, brochures or website for marketing and other purposes. To reduce the cost basis of inventory to a lower of cost or net realizable value, a reserve is recorded for slow-moving and obsolete inventory based on historical experience and monitoring of current inventory activity. Estimates are used to determine the necessity of recording these reserves based on periodic detailed analysis using both qualitative and quantitative factors. As part of this analysis, the Company considers several factors including the inventories length of time on hand, historical sales, product shelf life, product life cycle, product category and product obsolescence. In general, depending on the product category, we reserve inventory with low turnover at higher rates than inventory with higher turnover. At June 30, 2023, our inventory reserve was $13.6 million, equal to approximately 4.0% of our gross inventory. A hypothetical change of one hundred basis points to our reserve as a percentage of total inventory would have affected our cost of goods sold by $3.4 million. Income Taxes - Deferred tax assets or liabilities reflect temporary differences between amounts of assets and liabilities for financial and tax reporting. Such amounts are adjusted, as appropriate, to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse. Significant judgment is required in determining income tax provisions as well as deferred tax asset and liability balances, including the estimation of valuation allowances and the evaluation of uncertain tax positions. Goodwill Impairment - Goodwill represents the cost of business acquisitions in excess of the fair value of identifiable net tangible and intangible assets acquired. The Company reviews goodwill for potential impairment annually on October 1st, or when an event or other circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. The first step in the multi-step process to determine if goodwill has been impaired and to what degree is to review the relevant qualitative factors that could cause the fair value of the reporting unit to decrease below the carrying value of the reporting unit. The Company considers factors such as macroeconomic, industry and market conditions, cost factors, overall financial performance and other relevant factors that would affect the individual reporting units. If the Company determines that it is more likely than not that the fair value of the reporting unit is greater than the carrying value of the reporting unit, then no further impairment testing is needed. If the Company determines that it is more likely than not that the carrying value of the reporting unit is greater than the fair value of the reporting unit, the Company will move to the next step in the process. The Company will estimate the fair value of the reporting unit and compare it to the reporting unit's carrying value. If the carrying value of the reporting unit exceeds its fair value, the Company will record an impairment of goodwill equal to the amount the carrying value of the reporting unit exceeds its fair value, up to the total amount of goodwill previously recognized. Business Combinations - We allocate the purchase price paid for assets acquired and liabilities assumed in connection with our acquisitions based on their estimated fair values at the time of acquisition. This allocation involves a number of assumptions, estimates, and judgments in determining the fair value, as of the acquisition date, of the following: • intangible assets, including the valuation methodology (the relief of royalty method for trade names and multi-period excess earnings method for customer relationships), estimations of future cash flows, discount rates, royalty rates, recurring revenue attributed to customer relationships, and our assumed market segment share, as well as the estimated useful life of intangible assets; • deferred tax assets and liabilities, uncertain tax positions, and tax-related valuation allowances; • inventory; • property, plant and equipment; • pre-existing liabilities or legal claims; and • goodwill as measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. Our assumptions and estimates are based upon comparable market data and information obtained from our management and the management of the acquired companies. We allocate goodwill to the reporting units of the business that are expected to benefit from the business combination. 36 Table of Contents Factors Affecting Comparability to Prior Periods Our results of operations for the six months ended June 30, 2023 are not directly comparable to prior results for the six months ended June 30, 2022 due to the Mergers that were completed on April 1, 2022. The Mergers were accounted for as a reverse merger under the acquisition method of accounting in accordance with the accounting guidance for reverse acquisitions as provided in Accounting Standards Codification 805, Business Combinations ("ASC 805"). Under this guidance, TestEquity and Gexpro Services were treated as a combined entity as the accounting acquirer for financial reporting purposes, and DSG was identified as the accounting acquiree. This determination was primarily made as TestEquity and Gexpro Services were under the common control of an entity that owns a majority of the voting rights of the combined entity, and therefore, only DSG experienced a change in control. Accordingly, the unaudited condensed consolidated financial statements for the six months ended June 30, 2022 reflect the results of operations of TestEquity and Gexpro Services on a consolidated basis, and the results of operations of DSG's legacy Lawson business are only included subsequent to the April 1, 2022 Merger Date. The combined operations of all three entities are included in the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023 and the three months ended June 30, 2022. Non-GAAP Financial Measures The Company's management believes that certain non-GAAP financial measures may provide users of this financial information with additional meaningful comparisons between current results and results in prior operating periods. Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain infrequently occurring, seasonal or non-operational items that impact the overall comparability. These non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. Non-GAAP Adjusted EBITDA Management believes Adjusted EBITDA is an important measure of the Company's operating performance. We define Adjusted EBITDA as operating income plus depreciation and amortization, stock-based compensation, severance costs, costs related to the execution and integration of the Mergers, amortization of fair value step-up resulting from the Mergers, acquisition related costs (unrelated to the Mergers), and other non-recurring items. The following table provides our calculation of Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022: Reconciliation of Operating Income to Non-GAAP Adjusted EBITDA (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 (7) Operating income (loss) $ 13,776 $ 4,113 $ 30,497 $ 7,101 Depreciation and amortization 14,584 14,746 30,306 22,335 Stock-based compensation (1) 2,188 4,013 4,392 4,013 Severance and acquisition related retention expenses (2) 2,437 953 2,788 1,409 Merger/integration costs (3) 150 5,790 1,373 7,232 Inventory step-up (4) 716 1,622 716 1,622 Acquisition related costs (5) 4,908 334 7,784 1,337 Other non-recurring (6) 1,341 82 1,597 106 Adjusted EBITDA $ 40,100 $ 31,653 $ 79,453 $ 45,155 (1) Expense primarily for stock-based compensation, of which a portion varies with the Company’s stock price. (2) Includes severance expense from actions taken in 2023 and 2022 not related to a formal restructuring plan and acquisition related retention expenses for the Hisco Transaction. (3) Merger transaction costs related to the negotiation, review and execution of the Merger Agreements relating to the Mergers and subsequent integration costs. (4) Inventory fair value step-up adjustment for Lawson resulting from the reverse merger acquisition accounting. (5) Expense for acquisition related costs, unrelated to the Mergers. (6) Other non-recurring costs consist of non-capitalized deferred financing costs incurred in conjunction with the 2023 Credit Agreement, certain non-recurring strategic projects and other non-recurring items. 37 Table of Contents (7) Includes the operating results of Lawson subsequent, but not prior, to the April 1, 2022 Merger Date in accordance with GAAP accounting guidance for reverse acquisitions. Management uses operating income and Adjusted EBITDA to evaluate the performance of its reportable segments. See Note 16 – Segment Information with in Item 1. Financial Statements for additional information about our reportable segments. The following table provides Adjusted EBITDA by reportable segment: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2023 2022 2023 2022 Adjusted EBITDA Lawson (1) $ 16,070 $ 9,405 $ 34,520 $ 9,405 TestEquity 9,493 8,647 17,152 14,138 Gexpro Services 13,142 11,915 24,816 19,926 All Other (2) 1,395 1,686 2,965 1,686 Consolidated Adjusted EBITDA $ 40,100 $ 31,653 $ 79,453 $ 45,155 (1) Includes the operating results of Lawson subsequent, but not prior, to the April 1, 2022 Merger Date in accordance with GAAP accounting guidance for reverse acquisitions . (2) Includes the operating results of All Other subsequent, but not prior, to the April 1, 2022 Merger Date in accordance with GAAP accounting guidance for reverse acquisitions . Supplemental Information - Lawson Non-GAAP Adjusted Operating Income and Non-GAAP Adjusted EBITDA For management to discuss Lawson's operating results on a comparable basis, Lawson's historical, pre-merger components of operating income have been provided separately in the table below. In addition, Lawson's GAAP results of operations were adjusted to include the results prior to the April 1, 2022 Merger Date in order to reflect the total operating activities attributable to Lawson for each period presented. Management believes this historical information provides the most meaningful basis of comparison for Lawson's operations, is more useful in identifying current business trends, and is important for the user of our financial statements in understanding Lawson's business. Refer to Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business Acquisitions within Item 1. Financial Statements for information about the Mergers. These non-GAAP amounts are not considered to be prepared in accordance with GAAP, have not been prepared as pro forma results under applicable regulations, may not reflect the actual results we would have achieved had the Mergers occurred at the beginning of 2022, and should not be viewed as a substitute for the results of operations presented in accordance with GAAP. Lawson's historical operating results prior to the Mergers were obtained from the unaudited condensed consolidated financial statements included in DSG's Quarterly Report on Form 10-Q filed for the quarterly period ended March 31, 2022. Lawson Non-GAAP Adjusted Results - Calculation of Supplemental Information (Unaudited) (in thousands) Six Months Ended June 30, 2023 Six Months Ended June 30, 2022 Lawson Operating Income GAAP Results (1) Pre-Merger Results Adjusted Results (2) GAAP Results (1) Pre-Merger Results (3) Adjusted Results (2) Revenue $ 244,427 $ — $ 244,427 $ 107,334 $ 104,902 $ 212,236 Cost of goods sold 107,140 — 107,140 50,552 49,371 99,923 Gross profit 137,287 — 137,287 56,782 55,531 112,313 Selling, general and administrative expenses 120,572 — 120,572 59,344 44,435 103,779 Operating income (loss) $ 16,715 $ — $ 16,715 $ (2,562) $ 11,096 $ 8,534 Lawson Adjusted EBITDA (4) $ 34,520 $ — $ 34,520 $ 9,405 $ 8,042 $ 17,447 (1) Operating income prepared in accordance with GAAP, which includes Lawson’s results of operations subsequent, but not prior, to the April 1, 2022 Merger Date. See Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business Acquisitions within Item 1. Financial Statements. (2) Lawson's results of operations adjusted for comparability on a period-over-period basis. These non-GAAP results represent Lawson’s total operating activities for the six months ended June 30, 2023 and 2022 , regardless of the Merger date (that is, they reflect both pre- and post-Merger results of Lawson). 38 Table of Contents (3) Lawson's results of operations for the three months ended March 31, 2022, which occurred prior to the April 1, 2022 Merger Date, were not included in the Company's GAAP operating results under reverse merger acquisition accounting. (4) Refer to the Non-GAAP Adjusted EBITDA section above for a reconciliation of Adjusted EBITDA to operating income. Composition of Results of Operations The following results of operations for the three and six months ended June 30, 2023 and the three months ended June 30, 2022 include the combined operations of DSG. The following results of operations for the six months ended June 30, 2022 include the accounts of the TestEquity and Gexpro Services combined entity, as the accounting acquirer, and the results of DSG's legacy Lawson business have only been included for activity subsequent, and not prior, to the April 1, 2022 Merger Date. 39 Table of Contents RESULTS OF OPERATIONS Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 Consolidated Results of Operations Three Months Ended June 30, 2023 2022 (Dollars in thousands) Amount % of Revenue Amount % of Revenue Revenue Lawson $ 119,147 31.5% $ 107,334 33.4% TestEquity 136,067 36.0% 97,874 30.5% Gexpro Services 108,274 28.6% 99,792 31.1% All Other 14,496 3.8% 16,336 5.1% Total Revenue 377,984 100.0% 321,336 100.0% Cost of goods sold Lawson 52,769 14.0% 50,552 15.7% TestEquity 104,827 27.7% 75,064 23.4% Gexpro Services 75,928 20.1% 70,615 22.0% All Other 8,437 2.2% 10,550 3.3% Total Cost of goods sold 241,961 64.0% 206,781 64.4% Gross profit 136,023 36.0% 114,555 35.6% Selling, general and administrative expenses Lawson 57,908 15.3% 59,344 18.5% TestEquity 34,422 9.1% 22,339 7.0% Gexpro Services 23,568 6.2% 23,787 7.4% All Other 6,349 1.7% 4,972 1.5% Total Selling, general and administrative expenses 122,247 32.4% 110,442 34.4% Operating income (loss) 13,776 3.6% 4,113 1.3% Interest expense (9,492) (2.5)% (3,751) (1.2)% Loss on extinguishment of debt — —% (2,814) (0.9)% Change in fair value of earnout liabilities 36 —% (5,693) (1.8)% Other income (expense), net (761) (0.2)% (182) (0.1)% Income (loss) before income taxes 3,559 0.9% (8,327) (2.6)% Income tax expense (benefit) 535 0.1% (3,612) (1.1)% Net income (loss) $ 3,024 0.8% $ (4,715) (1.5)% Overview of Consolidated Results of Operations Our consolidated revenue increased in the second quarter of 2023 compared to the second quarter of 2022 primarily driven by acquisitions completed in 2023 and 2022 and organic sales growth. Consolidated gross profit and Selling, general and administrative expenses increased over the prior year primarily driven by the inclusion of the acquisitions completed in 2023 and 2022. Refer to Results by Reportable Segment below for a complete discussion of our results of operations. 40 Table of Contents Results by Reportable Segment Lawson Segment Three Months Ended June 30, Change (Dollars in thousands) 2023 2022 Amount % Revenue $ 119,147 $ 107,334 $ 11,813 11.0 % Cost of goods sold 52,769 50,552 2,217 4.4 % Gross profit 66,378 56,782 9,596 16.9 % Selling, general and administrative expenses 57,908 59,344 (1,436) (2.4) % Operating income (loss) $ 8,470 $ (2,562) $ 11,032 N/M Gross profit margin 55.7 % 52.9 % Adjusted EBITDA (1) $ 16,070 $ 9,405 $ 6,665 70.9 % (1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income. Revenue and Gross Profit Revenue increased $11.8 million, or 11.0%, to $119.1 million in the second quarter of 2023 compared to $107.3 million in the second quarter of 2022 . The increase was primarily driven by the realization of price increases enacted throughout 2022 and 2023 to offset rising supplier costs, increased quantity volumes and strengthening sales to Lawson's strategic and governmental customers and automotive end market. Gross profit increased $9.6 million to $66.4 million in the second quarter of 2023 compared to gross profit of $56.8 million in the prior year quarter primarily as a result of increased sales, price increases, lower net freight expense and spreading operating expenses over a higher level of sales. Lawson gross profit as a percent of revenue was 55.7% in the second quarter of 2023 compared to 52.9% in the prior year quarter. The gross profit margin percentage improvement for the second quarter of 2023 was primarily the result of price increases and leveraging operating costs over a higher sales base. The prior year quarter was negatively impacted by increased supplier costs from inflation and supply chain disruptions, and a sales shift toward lower margin customers. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of compensation and support for Lawson sales representatives and expenses to operate Lawson's distribution network and overhead expenses. Selling, general and administrative expenses decreased $1.4 million to $57.9 million in the second quarter of 2023 compared to $59.3 million in the prior year quarter. The decrease was primarily driven by lower stock-based compensation, acquisition related costs and legal expenses, partially offset by higher compensation expense incurred to support increased sales and health insurance costs. Adjusted EBITDA During the three months ended June 30, 2023, Lawson generated Adjusted EBITDA of $16.1 million , an increase of $6.7 million , or 70.9% from the same period a year ago primarily driven by increased revenue and margins and lower Selling, general and administrative expenses . 41 Table of Contents TestEquity Segment Three Months Ended June 30, Change (Dollars in thousands) 2023 2022 Amount % Revenue $ 136,067 $ 97,874 $ 38,193 39.0 % Cost of goods sold 104,827 75,064 29,763 39.7 % Gross profit 31,240 22,810 8,430 37.0 % Selling, general and administrative expenses 34,422 22,339 12,083 54.1 % Operating income (loss) $ (3,182) $ 471 $ (3,653) N/M Gross profit margin 23.0 % 23.3 % Adjusted EBITDA (1) $ 9,493 $ 8,647 $ 846 9.8 % (1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income. Revenue and Gross Profit Revenue increased $38.2 million, or 39.0%, to $136.1 million in the second quarter of 2023 compared to $97.9 million in the second quarter of 2022 . The increase was primarily driven by $43.4 million of revenue generated from acquisitions completed in 2023 and 2022 offset by a $5.2 million decline in legacy TestEquity revenue due to a slowdown in the test and measurement market, primarily caused by tightening of capital budgets in TestEquity's customer base. Gross profit increased $8.4 million to $31.2 million in the second quarter of 2023 compared to gross profit of $22.8 million in the prior year quarter primarily as a result of the inclusion of the acquisitions completed in 2023 and 2022, which generated $11.1 million of additional gross profit in the second quarter of 2023. TestEquity gross profit as a percent of revenue was 23.0% in the second quarter of 2023 compared to 23.3% in the prior year quarter. The slight gross profit margin percentage decline for t he second quarter of 2023 was due to the amortization of the fair value step-up of inventory of $0.7 million related to the Hisco Transaction . Selling, General and Administrative Expenses Selling, general and administrative expenses consist of compensation and support for TestEquity's sales representatives and expenses to operate TestEquity's distribution network and overhead expenses. Selling, general and administrative expenses increased $12.1 million to $34.4 million in the second quarter of 2023 compared to $22.3 million in the prior year quarter. Approximately $10.4 million of the increased expenses was primarily driven by the acquisitions completed in 2023 and 2022 and approximately $2.1 million of the increased expenses was driven by increased acquisition expenses in the second quarter of 2023 of $4.1 million in connection with the Hisco Transaction compared to $2.0 million of merger and acquisition expenses in the prior year quarter. Adjusted EBITDA During the three months ended June 30, 2023, TestEquity generated Adjusted EBITDA of $9.5 million, an increase of $0.8 million, or 9.8% from the same period a year ago with approximately $3.0 million driven by the acquisitions completed in 2023 and 2022, offset by a reduction of $2.2 million in legacy TestEquity due to the decline in revenue. 42 Table of Contents Gexpro Services Segment Three Months Ended June 30, Change (Dollars in thousands) 2023 2022 Amount % Revenue $ 108,274 $ 99,792 $ 8,482 8.5 % Cost of goods sold 75,928 70,615 5,313 7.5 % Gross profit 32,346 29,177 3,169 10.9 % Selling, general and administrative expenses 23,568 23,787 (219) (0.9) % Operating income (loss) $ 8,778 $ 5,390 $ 3,388 62.9 % Gross profit margin 29.9 % 29.2 % Adjusted EBITDA (1) $ 13,142 $ 11,915 $ 1,227 10.3 % (1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income. Revenue and Gross Profit Revenue increased $8.5 million, or 8.5%, to $108.3 million in the second quarter of 2023 compared to $99.8 million in the second quarter of 2022 . The increase was primarily driven by organic growth in the base business t hrough an expansion of products and services to existing customers as well as the addition of new customers. Gross profit increased $3.2 million to $32.3 million in the second quarter of 2023 compared to gross profit of $29.2 million in the prior year quarter primarily due to increased revenue. Gexpro Services gross profit as a percent of revenue was 29.9% in the second quarter of 2023 compared to 29.2% in the prior year quarter. The gross profit margin increase was driven by an improvement in the global supply chain and enhanced margin management on its product offering. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of sales and marketing expenses primarily relating to compensation, costs associated with supporting Gexpro Services’ service facilities, overhead expenses within finance, legal, human resources and information technology, and other costs required to operate Gexpro Services’ business and service customers. Selling, general, and administrative expenses remained flat with $23.6 million of expenses in the second quarter of 2023 compared to $23.8 million in the prior year quarter. Adjusted EBITDA During the three months ended June 30, 2023, Gexpro Services generated Adjusted EBITDA of $13.1 million , an increase of $1.2 million, or 10.3%, from the same period a year ago primarily driven by increases in revenue and margins on flat Selling, general, and administrative expenses. Consolidated Non-operating Income and Expense Three Months Ended June 30, Change (Dollars in thousands) 2023 2022 Amount % Interest expense $ (9,492) $ (3,751) $ (5,741) 153.1 % Loss on extinguishment of debt $ — $ (2,814) $ 2,814 (100.0) % Change in fair value of earnout liabilities $ 36 $ (5,693) $ 5,729 N/M Other income (expense), net $ (761) $ (182) $ (579) 318.1 % Income tax expense (benefit) $ 535 $ (3,612) $ 4,147 (114.8) % N/M Not meaningful 43 Table of Contents Interest Expense Interest expense increased $5.7 million in the second quarter of 2023 compared to the prior year quarter . The increase was primarily driven by higher interest rates and outstanding borrowings partially driven by the Hisco Transaction . Loss on Extinguishment of Debt The $2.8 million loss on extinguishment of debt in the second quarter of 2022 was due to the write-off of previously capitalized financing costs as a result of the debt refinancing related to the Mergers. Change in Fair Value of Earnout Liabilities The nominal benefit in the second quarter of 2023 related to the change in fair value of the earnout liabilities associated with the Frontier acquisition and the Hisco Transaction. The $5.7 million loss in the second quarter of 2022 primarily related to the change in fair value of the earnout derivative liability associated with the earnout provisions of the Merger Agreements. Income Tax Expense (Benefit) Income tax expense was $0.5 million, a 15.0% effective tax rate for the three months ended June 30, 2023 compared to income tax benefit of $3.6 million and a 43.4% effective tax rate for the three months ended June 30, 2022. The change in the year over year effective tax rate was primarily due to the the release of a reserve for an uncertain tax benefit during the quarter. 44 Table of Contents Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 Consolidated Results of Operations Six Months Ended June 30, 2023 2022 (Dollars in thousands) Amount % of Net Sales Amount % of Net Sales Revenue Lawson (1) $ 244,427 33.7 % $ 107,334 22.6 % TestEquity 243,425 33.5 % 170,276 35.8 % Gexpro Services 209,290 28.8 % 181,475 38.2 % All Other 29,112 4.0 % 16,336 3.4 % Total Revenue 726,254 100.0 % 475,421 100.0 % Cost of goods sold Lawson (1) 107,140 14.8 % 50,552 10.6 % TestEquity 186,828 25.7 % 130,543 27.5 % Gexpro Services 146,439 20.2 % 128,337 27.0 % All Other 16,953 2.3 % 10,550 2.2 % Total Cost of goods sold 457,360 63.0 % 319,982 67.3 % Gross profit 268,894 37.0 % 155,439 32.7 % Selling, general and administrative expenses Lawson (1) 120,572 16.6 % 59,344 12.5 % TestEquity 59,753 8.2 % 39,866 8.4 % Gexpro Services 46,699 6.4 % 44,156 9.3 % All Other 11,373 1.6 % 4,972 1.0 % Total Selling, general and administrative expenses 238,397 32.8 % 148,338 31.2 % Operating income (loss) 30,497 4.2 % 7,101 1.5 % Interest expense (17,162) (2.4) % (10,607) (2.2) % Loss on extinguishment of debt — — % (3,395) (0.7) % Change in fair value of earnout liabilities (21) — % (5,693) (1.2) % Other income (expense), net (1,736) (0.2) % 774 0.2 % Income (loss) before income taxes 11,578 1.6 % (11,820) (2.5) % Income tax expense (benefit) 2,647 0.4 % (4,568) (1.0) % Net income (loss) $ 8,931 1.2 % $ (7,252) (1.5) % (1) Includes the operating results of Lawson subsequent, but not prior, to the Merger Date of April 1, 2022. Overview of Consolidated Results of Operations Our consolidated results of operations include the financial impact of the Mergers that were completed on April 1, 2022 and the other acquisitions completed in 2023 and 2022. The increase in gross profit for the first six months of 2023 compared to the first six months of 2022 was primarily due to the inclusion of Lawson operations only subsequent, and not prior, to the Merger Date and the other acquisitions completed in 2023 and 2 022. Expenses for the first six months of 2023 compared to the first six months of 2022 were impacted by the inclusion of Lawson and the other acquisitions completed in 2023 and 2022. Refer to Results by Reportable Segment below for a complete discussion of our results of operations. 45 Table of Contents Results by Reportable Segment Lawson Segment Six Months Ended June 30, Change (Dollars in thousands) 2023 2022 Amount % Revenue $ 244,427 $ 107,334 $ 137,093 — % Cost of goods sold 107,140 50,552 56,588 — % Gross profit 137,287 56,782 80,505 — % Selling, general and administrative expenses 120,572 59,344 61,228 — % Operating income (loss) $ 16,715 $ (2,562) $ 19,277 — % Gross profit margin 56.2 % 52.9 % Adjusted EBITDA (1) $ 34,520 $ 9,405 $ 25,115 267.0 % (1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income. The increase in revenue, gross profit and operating income for the first six months of 2023 compared to the first six months of 2022 was due to the inclusion of Lawson operations beginning on the Merger Date and not including any Lawson operations prior to the Merger Date. Supplemental Information For management to discuss Lawson's operating results on a comparable basis, Lawson's GAAP results of operations for the six months ended June 30, 2022 were adjusted to include its results prior to the April 1, 2022 Merger Date in order to reflect the total operating activities attributable to Lawson for each period presented. These non-GAAP Adjusted Results for the six months ended June 30, 2022 presented in the table below are referred to within this supplemental results of operations discussion as "Adjusted". Six Months Ended June 30, Adjusted Change (Dollars in thousands) 2023 Adjusted 2022 (1) Amount % Revenue $ 244,427 $ 212,236 $ 32,191 15.2% Cost of goods sold 107,140 99,923 7,217 7.2% Gross profit 137,287 112,313 24,974 22.2% Selling, general and administrative expenses 120,572 103,779 16,793 16.2% Operating income (loss) $ 16,715 $ 8,534 $ 8,181 95.9% Gross profit margin 56.2 % 52.9 % Adjusted EBITDA (2) $ 34,520 $ 17,447 $ 17,073 97.9% (1) For comparability purposes, Lawson's GAAP results of operations were adjusted to include the historical unaudited results of Lawson prior to the Merger Date. Refer to the section Factors Affecting Comparability to Prior Periods and the non-GAAP measures section Supplemental Information - Lawson Non-GAAP Adjusted Operating Income and Non- GAAP EBITDA for more information related to the calculation of adjusted amounts. (2) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income. Revenue and Gross Profit Revenue increased $32.2 million , or 15.2%, to $244.4 million in the first six months of 2023 compared to adjusted revenue of $212.2 million in the same period of 2022 . The increase was primarily driven by the realization of price increases enacted throughout 2022 and 2023 to offset rising supplier costs, increased quantity volumes and strengthening sales to Lawson's strategic and governmental customers and automotive end market. Gross profit increased $25.0 million to $137.3 million in the first six months ended June 30, 2023 compared to adjusted gross profit of $112.3 million i n the same period of 2022 primarily as a result of increased sales, price increases , lower net freight expense and sp reading operating expenses over a higher level of sales. Lawson gross profit as a percent of revenue was 46 Table of Contents 56.2% in the first six months of 2023 compared to adjusted gross profit as a percent of adjusted revenue of 52.9% in the prior year period. The gross profit margin percentage improvement for the first six months of 2023 was primarily the result of price increases, lower net freight costs and leveraging costs over a higher sales base. T he adjusted gross profit margin percentage for the same period of 2022 was impacted by increased supplier costs from inflation and supply chain disruptions and a sales shift toward lower margin customers. Adjusted gross profit margin for 2022 was also impacted by the amortization of the fair value step-up of inventory of $1.2 million related to the Mergers. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of compensation and support for Lawson sales representatives as well as expenses to operate Lawson's distribution network and overhead expenses. Selling, general and administrative expenses increased $16.8 million to $120.6 million in the first six months of 2023 compared to adjusted Selling, general and administrative expenses of $103.8 million in the same period of 2022. The increase was primarily driven by higher compensation expense incurred to support increased sales, additional depreciation and amortization as a result of the fair value step-up adjustments related to the reverse merger acquisition accounting and higher stock-based compensation in 2023 partially offset by lower acquisition related costs in 2023 and a stock-based compensation benefit in 2022. Adjusted EBITDA During the six months ended June 30, 2023 , Lawson generated Adjusted EBITDA of $34.5 million, an increase of $17.1 million, or 97.9% from the same period a year ago primarily driven by increased revenue and gross profit margin. TestEquity Segment Six Months Ended June 30, Change (Dollars in thousands) 2023 2022 Amount % Revenue $ 243,425 $ 170,276 $ 73,149 43.0 % Cost of goods sold 186,828 130,543 56,285 43.1 % Gross profit 56,597 39,733 16,864 42.4 % Selling, general and administrative expenses 59,753 39,866 19,887 49.9 % Operating income (loss) $ (3,156) $ (133) $ (3,023) N/M Gross profit margin 23.3 % 23.3 % Adjusted EBITDA (1) $ 17,152 $ 14,138 $ 3,014 21.3 % (1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income. Revenue and Gross Profit Revenue increased $73.1 million , or 43.0%, to $243.4 million in the first six months of 2023 compared to $170.3 million in the same period in 2022 . The increase was primarily driven by $78.3 million of revenue generated from acquisitions completed in 2023 and 2022 offset by a $5.2 million decline in legacy TestEquity due to a slowdown in the test and measurement market, primarily caused by tightening of capital budgets in TestEquity's customer base. Gross profit increased $16.9 million to $56.6 million in the first six months of 2023 compared to $39.7 million in the same period of 2022 primarily as a result of the inclusion of the acquisitions completed in 2023 and 2022, which generated $18.6 million of additional gross profit during the first six months of 2023 . TestEquity gross profit as a percent of revenue was consistent at 23.3% in the first six months of 2023 compared to 23.3% in the prior year period driven by an expansion of margins within the existing base business offset by the amortization of the fair value step-up of inventory of $0.7 million related to the Hisco Transaction and a shift in sales mix from the lower gross margin rates from the 2022 acquisitions. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of compensation and support for TestEquity's sales representatives and expenses to operate TestEquity's distribution network and overhead expenses. 47 Table of Contents Selling, general and administrative expenses increased $19.9 million to $59.8 million in the first six months of 2023 compared to $39.9 million in the same period of 2022 . Approximately $15.6 million of the increased expenses was primarily driven by the acquisitions completed in 2023 and 2022 and approximately $4.0 million of the increased expenses was driven by increased merger and acquisition expenses in the first six months of 2023 of $6.8 million in connection with the Hisco Transaction compared to $2.8 million of merger and acquisition expenses in the same period of 2022. Adjusted EBITDA During the six months ended June 30, 2023 , TestEquity generated Adjusted EBITDA of $17.2 million , an increase of $3.0 million, or 21.3% from the same period a year ago with approximately $5.3 million driven by the acquisitions completed in 2023 and 2022. Gexpro Services Segment Six Months Ended June 30, Change (Dollars in thousands) 2023 2022 Amount % Revenue $ 209,290 $ 181,475 $ 27,815 15.3 % Cost of goods sold 146,439 128,337 18,102 14.1 % Gross profit 62,851 53,138 9,713 18.3 % Selling, general and administrative expenses 46,699 44,156 2,543 5.8 % Operating income (loss) $ 16,152 $ 8,982 $ 7,170 79.8 % Gross profit margin 30.0 % 29.3 % Adjusted EBITDA (1) $ 24,816 $ 19,926 $ 4,890 24.5 % (1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income. Revenue and Gross Profit Revenue increased $27.8 million , or 15.3%, to $209.3 million in the first six months of 2023 compared to $181.5 million in the same period of 2022 . The increase was primarily driven by $3.2 million of revenue generated from the Frontier acquisition completed at the end of the first quarter of 2022 and organic growth in the base business through an expansion of products and services to existing customers as well as the addition of new customers. Gross profit increased $9.7 million to $62.9 million in the first six months of 2023 compared to $53.1 million in the same period of 2022 . Gexpro Services gross profit as a percent of revenue was 30.0% in the first six months of 2023 compared to 29.3% in the prior year period d riven by an improvement in the global supply chain and margin management on its product offering. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of sales and marketing expenses primarily relating to compensation, costs associated with supporting Gexpro Services’ service facilities, overhead expenses within finance, legal, human resources and information technology, and other costs required to operate Gexpro Services' business and service customers. Selling, general, and administrative expenses increased $2.5 million to $46.7 million in the first six months ended June 30, 2023 compared to $44.2 million in the same period of 2022. The increase was primarily driven by $2.4 million of additional expenses from the Frontier acquisition completed at the end of the first quarter of 2022 and additional compensation and product fulfillment costs to support the organic growth. Adjusted EBITDA During the six months ended June 30, 2023 , Gexpro Services generated Adjusted EBITDA of $24.8 million , an increase of $4.9 million, or 24.5% from the same period a year ago primarily driven by increased revenue and gross profit margin . 48 Table of Contents Consolidated Non-operating Income and Expense Six Months Ended June 30, Change (Dollars in thousands) 2023 2022 Amount % Interest expense $ (17,162) $ (10,607) $ (6,555) 61.8 % Loss on extinguishment of debt $ — $ (3,395) $ 3,395 N/M Change in fair value of earnout liabilities $ (21) $ (5,693) $ 5,672 N/M Other income (expense), net $ (1,736) $ 774 $ (2,510) (324.3) % Income tax expense (benefit) $ 2,647 $ (4,568) $ 7,215 N/M Interest Expense Interest expense increased $6.6 million in the first six months of 2023 compared to the same period of 2022 primarily due to an increase in interest rates and higher borrowings related to the Mergers and the other 2022 and 2023 acquisitions. Loss on Extinguishment of Debt The $3.4 million loss on extinguishment of debt in the six months ended June 30, 2022 was primarily due to the write-off of previously capitalized financing costs as a result of the debt refinancing related to the Mergers. Change in Fair Value of Earnout Liabilities The nominal loss in the first six months of 2023 related to the change in fair value of the earnout liabilities associated with the Frontier acquisition and the Hisco Transaction. The $5.7 million loss in the first six months of 2022 primarily related to the change in fair value of the earnout derivative liability associated with the earnout provisions of the Merger Agreements. Income Tax Expense (Benefit) Income tax expense was $2.6 million, a 22.9% effective tax rate for the first six months of 2023 compared to an income tax benefit of $4.6 million and a 38.6% effective tax rate for the first six months of 2022. The change in the year over year effective tax rate was primarily due to lower transaction costs and the release of a reserve for an uncertain tax benefit. The 2022 income tax was also impacted by the creation of a consolidated group for federal income tax purposes as a result of the completion of the Mergers. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $44.2 million on June 30, 2023 compared to $24.6 million on December 31, 2022. The Company believes its current balances of cash and cash equivalents, availability under its 2023 Credit Agreement and cash flows from operations will be sufficient to meet its liquidity needs for the next twelve months. As of June 30, 2023, liquidity for the Company was $233.8 million comprised of $44.2 million of cash and cash equivalents and $189.6 million of bo rrowing availability remaining, net of outstanding letters of credit, under the 2023 Credit Agreement. On June 2, 2023, the Company raised approximately $100 million from the Rights Offering, in which 2,222,222 shares of DSG common stock were sold at a purchase price of $45.00 per share. On June 8, 2023, the Company borrowed the $305.0 million under the incremental term loan of the 2023 Credit Agreement. The Company used these combined proceeds primarily to fund the Hisco Transaction and to pay down its revolving credit facility. Our primary short-term and long-term liquidity and capital resource needs are to finance operating expenses, working capital, capital expenditures, potential business acquisitions, strategic initiatives and general corporate purposes. Our current debt obligations under the 2023 Credit Agreement mature in April 2027. Principal payments on the 2023 Credit Agreement for the next twelve months are $30.3 million . Refer to Note 9 – Debt within Item 1. Financial Statements for additional information related to our debt obligations. Access to debt capital markets has historically provided the Company with sources of liquidity, beyond normal operating cash flows. We do not anticipate having difficulty in obtaining financing from those markets in the future, however, we cannot provide assurance that events beyond our control will not have a material adverse impact on our liquidity. 49 Table of Contents Sources and Uses of Cash The following table presents a summary of our cash flows: (in thousands) June 30, 2023 June 30, 2022 Change Net cash provided by (used in) operating activities $ 27,464 $ (39,543) $ 67,007 Net cash provided by (used in) investing activities $ (262,824) $ (115,286) $ (147,538) Net cash provided by (used in) financing activities $ 274,930 $ 157,043 $ 117,887 Cash Provided by (Used in) Operating Activities Net cash provided by operations for the six months ended June 30, 2023 was $27.5 million primarily due to net income including non-cash items, partially offset by investments in trade working capital to support higher sales and other net cash flow items. Net cash used in operations for the six months ended June 30, 2022 was $39.5 million, excluding non-cash items, primarily due to increased accounts receivables driven by higher sales and increased inventories due to increased supplier costs driven by inflation and global supply chain disruptions. Cash Provided by (Used in) Investing Activities Net cash used in investing activities for the six months ended June 30, 2023 was $262.8 million, primarily due to the Hisco Transaction, as well as purchases of property, plant and equipment and rental equipment which was partially offset by the sale of rental equipment. Net cash used in investing activities for the six months ended June 30, 2022 was $115.3 million, primarily due to acquisitions completed by TestEquity and Gexpro Services. Cash Provided by (Used in) Financing Activities Net cash provided by financing activities for the six months ended June 30, 2023 was $274.9 million due to proceeds from the 2023 Credit Agreement and the Rights Offering partially offset by repayment of previous indebtedness and principal payments on the term loans. In conjunction with the Hisco Transaction, the Company borrowed $305.0 million under the incremental term loan facility on June 8, 2023 and raised approximately $100 million through the Rights Offering closed during the second quarter of 2023. During the first six months of 2023, deferred financing costs of $3.4 million were incurred related to the 2023 Credit Agreement and offering costs of $1.5 million were incurred related to the Rights Offering. Net cash provided by financing activities for the six months ended June 30, 2022 was $157.0 million, primarily due to proceeds from term loans and revolving credit facilities to finance the Mergers and other acquisitions, partly offset by repayment of previous indebtedness. Deferred financing costs of $11.4 million were incurred during the first six months of 2022 related to these financing activities. Financing and Capital Requirements Credit Facility On June 8, 2023, in connection with the Hisco Transaction, DSG entered into the First Amendment, which amended and replaced the previous April 1, 2022 credit agreement with the 2023 Credit Agreement, and provided for a $305.0 million incremental term loan facility. The 2023 Credit Agreement also provides for the Company to increase the commitments from time to time by up to $200 million in the aggregate, subject to, among other things, receipt of additional commitments from existing and/or new lenders and pro forma compliance with certain financial covenants. The 2023 Credit Agreement includes a $200 million senior secured revolving credit facility, a $250 million senior secured initial term loan facility, a $305 million incremental term loan and a $50 million senior secured delayed draw term loan facility. Refer to Note 9 – Debt within Item 1. Financial Statements for a description of the 2023 Credit Agreement. 50 Table of Contents On June 30, 2023, we had $598.4 million in outstanding borrowings under the 2023 Credit Agreement and $189.6 million of bo rrowing availability remaining, net of outstanding letters of credit, under the senior secured revolving credit facility component. As of June 30, 2023, we were in compliance with all financial covenants under our 2023 Credit Agreement. While we were in compliance with our financial covenants as of June 30, 2023, failure to meet the covenant requirements of the 2023 Credit Agreement in future quarters could lead to higher financing costs and increased restrictions, reduce or eliminate our ability to borrow funds, or accelerate the payment of our indebtedness and could have a material adverse effect on our business, financial condition and results of operations. Purchase Commitments As of June 30, 2023, we had contractual commitments to purchase approximately $187 million of products from our suppliers and contractors over the next twelve months. Capital Expenditures During the six months ended June 30, 2023, t otal capital expenditures for property, plant and equipment and rental equipment were $13.8 million excluding proceeds from the sale of rental equipment. The Company expects to spend approxi mately $6 million to $8 million for capit al expenditures during the remainder of 2023 to support ongoing operations. Stock Repurchase Program The Company's Board of Directors previously authorized a stock repurchase program that permits the Company to repurchase its common stock. The timing and the amount of any repurchases will be determined by management under parameters established by the Board of Directors and depend on various factors including an evaluation of our stock price, corporate and regulatory requirements, capital availability and other market conditions. The Company had $7.6 million of remaining availability for stock repurchases under the program as of June 30, 2023. See Note 11 – Stockholders' Equity with in Item 1. Financial Statements for further information. 51 Table of Contents ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ITEM 3 of Part I has been omitted from this report.