What changed in this filing

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Item 1. Financial Statements

2023-11-02 compared with 2023-08-03 · 179 added, 125 removed, 797 unchanged (28% of the section changed)

3 unchanged sentences

(Dollars in thousands, except share data)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Current assets:

40 unchanged sentences

( 12,697 ) ( 12,526 )

Accumulated other comprehensive (loss) income ( 6,834 ) ( 9,956 )

Accumulated other comprehensive income (loss) ( 9,949 ) ( 9,956 )

Total stockholders’ equity 676,109 562,995

Total liabilities and stockholders’ equity $ 1,595,968 $ 1,215,610

(1) The accompanying Unaudited Condensed Consolidated Financial Statements and notes thereto have been retroactively adjusted to reflect the two -for-one stock split completed in August 2023.

See Note 1 – Nature of Operations and Basis of Presentation for details.

See notes to Condensed Consolidated Financial Statements (Unaudited)

2 unchanged sentences

(Dollars in thousands, except per share data)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2023 2022 2023 2022

12 unchanged sentences

Basic income (loss) per share of common stock (1)

$ ( 0.03 ) $ 0.43 $ 0.17 $ 0.27

Diluted income (loss) per share of common stock (1)

$ ( 0.03 ) $ 0.42 $ 0.17 $ 0.27

Comprehensive income (loss)

4 unchanged sentences

Comprehensive income (loss) $ ( 4,683 ) $ 6,767 $ 7,370 $ ( 2,805 )

(1) The accompanying Unaudited Condensed Consolidated Financial Statements and notes thereto have been retroactively adjusted to reflect the two -for-one stock split completed in August 2023.

See Note 1 – Nature of Operations and Basis of Presentation for details.

See notes to Condensed Consolidated Financial Statements (Unaudited)

2 unchanged sentences

(Dollars in thousands, except share data)

Common Stock Capital in Excess of Par Value Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity

Common Stock (1)

Capital in Excess of Par Value (1)

Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity

Outstanding Shares $ 1 Par Value

19 unchanged sentences

Balance at June 30, 2023 46,699,470 $ 46,700 $ 665,633 $ ( 16,809 ) $ ( 12,697 ) $ ( 6,834 ) $ 675,993

Net income (loss) — — — ( 1,568 ) — — ( 1,568 )

Foreign currency translation adjustment — — — — — ( 3,579 ) ( 3,579 )

Stock-based compensation — — 1,119 — — — 1,119

Shares issued 520 1 ( 1 ) — — — —

Shares issued through employee share purchases 144,608 144 3,109 — — — 3,253

Compensation expense related to employee share purchases — — 427 — — — 427

Other — — — — — 464 464

Balance at September 30, 2023 46,844,598 $ 46,845 $ 670,287 $ ( 18,377 ) $ ( 12,697 ) $ ( 9,949 ) $ 676,109

(1) The accompanying Unaudited Condensed Consolidated Financial Statements and notes thereto have been retroactively adjusted to reflect the two -for-one stock split completed in August 2023.

See Note 1 – Nature of Operations and Basis of Presentation for details .

See notes to Condensed Consolidated Financial Statements (Unaudited)

2 unchanged sentences

(Dollars in thousands)

Common Stock Capital in Excess of Par Value Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity

Common Stock (1)

Capital in Excess of Par Value (1)

Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity

Outstanding Shares $ 1 Par Value

18 unchanged sentences

Balance at June 30, 2022 38,887,964 $ 38,935 $ 554,182 $ ( 40,394 ) $ ( 10,144 ) $ ( 751 ) $ 541,828

Net income (loss) — — — 16,541 — — 16,541

Foreign currency translation adjustment — — — — — ( 9,774 ) ( 9,774 )

Stock-based compensation — — 489 — — — 489

Shares issued 35,984 36 ( 36 ) — — — —

Repurchase of common stock ( 108,178 ) ( 108 ) 108 — ( 1,940 ) — ( 1,940 )

Tax withholdings related to net share settlements of stock-based compensation awards ( 15,760 ) ( 16 ) 16 — ( 391 ) — ( 391 )

Other — — ( 6 ) — — — ( 6 )

Balance at September 30, 2022 38,800,010 $ 38,847 $ 554,753 $ ( 23,853 ) $ ( 12,475 ) $ ( 10,525 ) $ 546,747

(1) The accompanying Unaudited Condensed Consolidated Financial Statements and notes thereto have been retroactively adjusted to reflect the two -for-one stock split completed in August 2023.

See Note 1 – Nature of Operations and Basis of Presentation for details.

See notes to Condensed Consolidated Financial Statements (Unaudited)

2 unchanged sentences

(Dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Operating activities

5 unchanged sentences

Stock-based compensation 5,441 445

Deferred income taxes 86 ( 420 )

Compensation expense related to employee share purchases 427 —

Change in fair value of earnout liabilities ( 646 ) ( 3,948 )

Gain on sale of rental equipment ( 1,929 ) ( 2,463 )

Loss on sale of property, plant and equipment 215 —

Gain on sale of property, plant and equipment ( 86 ) —

Charge for step-up of acquired inventory 2,866 2,703

22 unchanged sentences

Proceeds from rights offering, net of offering costs of $ 1,531

Repurchase of common stock — ( 1,940 )

Shares repurchased held in treasury ( 171 ) ( 469 )

Proceeds from employees for share purchases 3,253 —

Payment of financing lease principal ( 358 ) ( 457 )

12 unchanged sentences

(Dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Supplemental disclosure of cash flow information

1 unchanged sentence

Net cash paid for interest $ 26,187 $ 12,093

Net cash paid for interest on supply chain financing $ 1,753 $ 579

Non-cash activities:

10 unchanged sentences

Lawson Products, Inc., an Illinois corporation ("Lawson"), TestEquity Acquisition, LLC, a Delaware limited liability company ("TestEquity"), and 301 HW Opus Holdings, Inc., a Delaware corporation conducting business as Gexpro Services ("Gexpro Services").

The complementary distribution operations of Lawson, TestEquity and Gexpro Services were combined on April 1, 2022 to create a specialty distribution company.

The complementary distribution operations of Lawson, TestEquity and Gexpro Services were combined on April 1, 2022 to create a global specialty distribution company.

A summary of the Mergers (as defined below), including the legal entities party to the transactions and the stock consideration, is presented below.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “DSG”, the “Company”, "we", "our" or "us" refer to the holding company, Distribution Solutions Group, Inc., and all entities consolidated in the accompanying unaudited condensed consolidated financial statements.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q 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.

Recent Events

On August 15, 2023, DSG announced that its Board of Directors approved and declared a two -for-one stock split (the “Stock Split”) which entitled each stockholder of record as of the close of business on August 25, 2023 to receive one additional share of DSG common stock for each share of DSG common stock then-held.

The additional shares were distributed after the close of trading on August 31, 2023, and shares of DSG common stock began trading at the split-adjusted basis on September 1, 2023.

Accordingly, all share and per share amounts have been retroactively adjusted to reflect the impact of the Stock Split for all periods presented herein.

In order to implement the Stock Split, on August 31, 2023, DSG filed a Third Amended and Restated Certificate of Incorporation of DGS with the Secretary of State of the State of Delaware to increase the number of authorized shares of DSG common stock from 35,000,000 to 70,000,000 , which became effective on that date.

HIS Company, Inc.

1 unchanged sentence

DSG completed the Hisco Transaction on June 8, 2023.

The total purchase consideration exchanged for the Hisco Transaction was $ 270.4 million, net of cash, at closing, with a potential additional earn-out payment subject to Hisco achieving certain performance targets.

The total purchase consideration exchanged for the Hisco Transaction was $ 268.5 million, net of cash acquired of $ 12.2 million, at closing, 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.

DSG funded the Hisco Transaction using a combination of its amended and restated credit facility and proceeds raised from the Rights Offering (as defined below) with existing stockholders, both discussed below.

DSG funded the Hisco Transaction with borrowings under its amended and restated credit facility and proceeds raised from the Rights Offering (as defined below) with existing stockholders, both discussed below.

Refer to Note 3 – Business Acquisitions for further details about Hisco and the Hisco Transaction.

30 unchanged sentences

The Gexpro Services Merger Agreement provided that up to an additional 2,000,000 shares of DSG common stock would be potentially issuable to the Gexpro Services Stockholder in accordance with, and subject to the terms and conditions of, the earnout provisions of the Gexpro Services Merger Agreement.

On March 20, 2023, DSG issued 1,000,000 shares of DSG

common stock to the Gexpro Services Stockholder (the “Gexpro Services Holdback Shares”) pursuant to the terms of the earnout provisions of the Gexpro Services Merger Agreement.

On March 20, 2023, DSG issued 2,000,000 shares of DSG common stock to the Gexpro Services Stockholder (the “Gexpro Services Holdback Shares”) pursuant to the terms of the earnout provisions of the Gexpro Services Merger Agreement.

The Gexpro Services Holdback Shares issued represented the maximum number of additional shares that could be issued under the Gexpro Services Merger Agreement, and no further shares are available for issuance, and no additional shares will be issued, in connection with the Gexpro Services Merger Agreement.

17 unchanged sentences

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.

The unaudited condensed consolidated financial statements as of June 30, 2023 and December 31, 2022 reflect the financial position of TestEquity, Gexpro Services and DSG's legacy Lawson business on a consolidated basis.

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 nine months ended September 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 nine months ended September 30, 2023 and the three months ended September 30, 2022.

The unaudited condensed consolidated financial statements as of September 30, 2023 and December 31, 2022 reflect the financial position of TestEquity, Gexpro Services and DSG's legacy Lawson business on a consolidated basis.

The Company and its consolidated subsidiaries, except for Gexpro Services, operate on a calendar year-end.

1 unchanged sentence

However, quarterly financial statements for Gexpro Services are prepared on financial close dates that may differ from that of the Company.

The consolidated financial statement impact of the one day difference arising from the different period ends for the quarter ended June 30, 2023 was not material.

For the quarter ended September 30, 2023, there was no difference in the period end.

The Company utilizes the exchange rates in effect at Gexpro Services’ reporting date and the appropriate weighted-average rate for its fiscal reporting period.

5 unchanged sentences

A ll normal recurring adjustments have been made that are necessary to fairly state the results of operations for the interim periods.

Operating results for the three and six month period ended June 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Operating results for the three and nine month period ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Note 2 – Summary of Significant Accounting Policies

25 unchanged sentences

The Mergers were accounted for as a reverse merger under the acquisition method of accounting for business combinations, whereby TestEquity and Gexpro Services were identified as the accounting acquirers and were treated as a combined entity for financial reporting purposes, and DSG was identified as the accounting acquiree.

Accordingly, under the

acquisition method of accounting, the purchase price was allocated to DSG's tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated acquisition-date fair values.

Accordingly, under the acquisition method of accounting, the purchase price was allocated to DSG's tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated acquisition-date fair values.

These estimates were determined through established and generally accepted valuation techniques.

32 unchanged sentences

Other Acquisitions

DSG and its operating companies acquired other businesses during the first six months of 2023 and the year ended December 31, 2022.

DSG and its operating companies acquired other businesses during the first nine months of 2023 and the year ended December 31, 2022.

The acquisitions were accounted for under ASC 805, the acquisition method of accounting.

6 unchanged sentences

Hisco also offers vendor-managed inventory and RFID programs with specialized warehousing for chemical management, logistics services and cold storage.

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.

The total purchase consideration exchanged for the Hisco Transaction was $ 268.5 million, net of cash acquired of $ 12.2 million, with a potential additional earn-out payment subject to Hisco achieving certain performance targets.

Refer to Note 8 – Earnout Liabilities for additional information on the earn-out.

For the three and six months ended June 30, 2023, $ 2.3 million was recorded as compensation expense over the service period for the retention bonuses as a component of Selling, general and administrative expenses in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

DSG funded the Hisco Transaction using a combination of its 2023 Credit Agreement and proceeds raised from the Rights Offering.

For the three and nine months ended September 30, 2023, $ 10.1 million and $ 12.4 million, respectively, was recorded as compensation expense over the service period for the retention bonuses as a component of Selling, general and administrative expenses in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

DSG funded the Hisco Transaction with borrowings under its 2023 Credit Agreement and proceeds raised from the Rights Offering.

Refer to Note 9 – Debt for information about the 2023 Credit Agreement and Note 11 – Stockholders' Equity for details on the Rights Offering.

The Purchase Agreement allowed certain eligible Hisco employees to invest all or a portion of their respective closing payment in DSG common stock at $ 22.50 per share, up to an aggregate value of DSG common stock issued to such eligible Hisco employees of $ 25.0 million.

During the three and nine months ended September 30, 2023, the Company issued 144,608 shares of DSG common stock to the eligible Hisco employees and received approximately $ 3.25 million.

For the three and nine months ended September 30, 2023, approximately $ 0.4 million was recorded as compensation expense for the discount between the prevailing market price of the DSG common stock on the date of purchase and the purchase price of $ 22.50 per share as a component of Selling, general and administrative expenses in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The following table summarizes the allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed, including the allocation to other intangible assets acquired:

(in thousands) Hisco

Acquisition date June 8, 2023

(in thousands) June 8, 2023

Acquisition Date Measurement Period Adjustments Adjusted Total

Current assets $ 131,950 $ ( 2,565 ) $ 129,385

17 unchanged sentences

The final valuation will be completed within the one-year measurement period following the acquisition date, and any adjustments will be recorded in the period in which the adjustments are determined.

Following the initial fair value measurement, the Company updated the purchase price allocation for Hisco primarily related to the ongoing review of the opening balance sheet and contractual working capital adjustments and revised certain assumptions used in estimating the fair value of the contingent consideration.

The adjustments to these balances resulted in a $ 0.7 million decrease to goodwill and a $ 2.0 million decrease to the total purchase consideration, net of cash acquired.

The customer relationships and trade names intangibles assets have estimated useful lives of 12 years and 8 years, respectively.

21 unchanged sentences

Lease liabilities — ( 1,125 ) ( 9,313 ) — — ( 10,438 )

Long-term debt — — — — ( 2,105 ) ( 2,105 )

Goodwill 37,236 10,305 11,544 5,703 1,989 66,777

2 unchanged sentences

Seller's notes — — — 1,169 — 1,169

Deferred consideration — — — — 474 474

Total purchase consideration exchanged, net of cash acquired $ 54,690 $ 30,755 $ 25,674 $ 7,192 $ 2,292 $ 120,603

The consideration for the Frontier acquisition includes a potential earn-out payment up to $ 3.0 million based upon the achievement of certain milestones and relative thresholds during the earn out measurement period which ends on December 31, 2024.

The consideration for the Frontier acquisition includes a potential earn-out payment of up to $ 3.0 million based upon the achievement of certain milestones and relative thresholds during the earn out measurement period which ends on December 31, 2024.

Refer to Note 8 – Earnout Liabilities for additional information on the earn-out.

Following the initial fair value measurement, the Company updated the purchase price allocation for Instrumex in 2023 related to accrued expenses and other liabilities and long-term debt.

The adjustments to these balances resulted in a $ 0.9 million increase to goodwill and a $ 1.6 million decrease to the total purchase consideration, net of cash acquired.

As a result of acquisitions completed in 2022, the Company recorded tax deductible goodwill of $ 53.6 million in 2022 that may result in a tax benefit in future periods.

3 unchanged sentences

The unaudited pro forma information reflects adjustments including amortization on acquired intangible assets, interest expense, and the related tax effects.

This information is presented for

informational purposes only and is not necessarily indicative of future results or the results that would have occurred had the Mergers and other acquisitions been completed on the date indicated.

Three Months Ended June 30, Six Months Ended June 30,

This information is presented for informational purposes only and is not necessarily indicative of future results or the results that would have occurred had the Mergers and other acquisitions been completed on the date indicated.

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2023 2022 2023 2022

2 unchanged sentences

Actual Results of Business Acquisitions

The following table presents actual results attributable to our business combinations that were included in the unaudited condensed consolidated financial statements for the second quarter and first six months of 2023 and 2022.

The following table presents actual results attributable to our business combinations that were included in the unaudited condensed consolidated financial statements for the third quarter and first nine months of 2023 and 2022.

The results of DSG's legacy Lawson business are included only subsequent to the April 1, 2022 Merger Date, and the results for other acquisitions are only included subsequent to their respective acquisition dates provided above.

Three Months Ended June 30, 2023 Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022

(in thousands) Lawson Other Acquisitions Total Lawson Other Acquisitions Total

1 unchanged sentence

Net Income $ — $ ( 7,388 ) $ ( 7,388 ) $ 8,282 $ 4,363 $ 12,645

Six Months Ended June 30, 2023 Six Months Ended June 30, 2022

Lawson Other Acquisitions Total Lawson Other Acquisitions Total

Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

(in thousands) Lawson Other Acquisitions Total Lawson Other Acquisitions Total

Revenue $ — $ 132,797 $ 132,797 $ 250,364 $ 146,742 $ 397,106

Net Income $ — $ ( 8,253 ) $ ( 8,253 ) $ 12,883 $ 12,651 $ 25,534

The Company incurred transaction costs related to the Mergers and other completed and contemplated acquisitions of $ 5.1 million and $ 9.2 million for the three and six months ended June 30, 2023, respectively, and $ 6.1 million and $ 8.6 million for the three and six months ended June 30, 2022, respectively, which are included in Selling, general and administrative expenses in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

The Company incurred transaction and integration costs (credits) related to the Mergers and other completed and contemplated acquisitions of $( 0.1 ) million and $ 9.1 million for the three and nine months ended September 30, 2023, respectively, and $ 2.4 million and $ 10.8 million for the three and nine months ended September 30, 2022, respectively, which are included in Selling, general and administrative expenses in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Note 4 – Revenue Recognition

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The Company is not usually subject to obligations for warranties, rebates, returns or refunds except in the case of rebates for select customers if predetermined purchase thresholds are met as discussed for the TestEquity segment below.

The Company does not typically receive payment in advance of satisfying its obligations under the terms of its

sales contracts with customers;

The Company does not typically receive payment in advance of satisfying its obligations under the terms of its sales contracts with customers;

therefore, liabilities related to such payment are not significant to the Company.

3 unchanged sentences

a product performance obligation and a service performance obligation, and accordingly, two separate revenue streams.

Although Lawson has identified that it offers its customers both a product and a service obligation, the customer only receives one invoice per transaction with no price allocation between these obligations.

Although Lawson has identified that it offers its customers both a product and a service obligation, the customer only receives one invoice per transaction with no

price allocation between these obligations.

Lawson does not price its offerings based on any allocation between these obligations.

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Disaggregated consolidated revenue by geographic area (based on the location to which the product is shipped to):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2023 2022 2023 2022

10 unchanged sentences

Rental equipment is included in Rental equipment, net in the Unaudited Condensed Consolidated Balance Sheet, and rental revenue is included in Revenue in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) .

The unearned rental revenue related to customer prepayments on equipment leases of $ 0.3 million at June 30, 2023 and $ 0.3 million at December 31, 2022 was included in Accrued expenses and other current liabilities in the Unaudited Condensed Consolidated Balance Sheet and is expected to be earned in its entirety during the next twelve months.

The unearned rental revenue related to customer prepayments on equipment leases was nominal at September 30, 2023 and December 31, 2022 .

Lawso n leases parts washer machines to customers through its Torrents leasing program.

1 unchanged sentence

The leased machines are included in Rental equipment, net, in the Unaudited Condensed Consolidated Balance Sheet, and the leasing revenue is recognized on a straight-line basis and is included in Revenue in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) .

The unearned rental revenue related to customer prepayments on equipment leases was nominal at June 30, 2023 and December 31, 2022 .

The unearned rental revenue related to customer prepayments on equipment leases was nominal at September 30, 2023 and December 31, 2022 .

Rental revenue from operating leases:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2023 2022 2023 2022

8 unchanged sentences

Inventories, net, consisting of purchased products and manufactured electronic equipment offered for resale, were as follows:

(in thousands) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Inventories, gross $ 329,221 $ 275,072

3 unchanged sentences

Components of property, plant and equipment were as follows:

(in thousands) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Land $ 16,753 $ 9,578

8 unchanged sentences

Property, plant and equipment, net $ 111,949 $ 64,395

(1) Construction in progress primarily related to upgrades to certain of the Company's distribution facilities that we expect to place in service in the next 12 months.

Depreciation expense for property, plant and equipment was $ 2.5 million and $ 2.5 million for the second quarter of 2023 and 2022, respectively, and $ 6.0 million and $ 3.1 million for the first six months of 2023 and 2022, respectively.

Amortization expense for capitalized software was $ 0.8 million and $ 0.9 million for the second quarter of 2023 and 2022, respectively, and $ 1.5 million and $ 1.1 million for the first six months of 2023 and 2022, respectively.

(1) Construction in progress primarily related to upgrades to certain of the Company's information technology systems that we expect to place in service in the next 12 months.

Depreciation expense for property, plant and equipment was $ 3.5 million and $ 1.1 million for the third quarter of 2023 and 2022, respectively, and $ 9.5 million and $ 4.0 million for the first nine months of 2023 and 2022, respectively.

Amortization expense for capitalized software was $ 0.5 million and $ 0.0 million for the third quarter of 2023 and 2022, respectively, and $ 2.0 million and $ 1.0 million for the first nine months of 2023 and 2022, respectively.

Rental Equipment, net

Rental equipment, net consisted of the following:

(in thousands) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Rental equipment $ 63,310 $ 63,184

1 unchanged sentence

Rental equipment, net $ 26,320 $ 27,139

Depreciation expense included in cost of sales for rental equipment was $ 1.9 million and $ 1.5 million for the second quarter of 2023 and 2022, respectively and $ 4.2 million and $ 2.9 million for the first six months of 2023 and 2022, respectively.

Depreciation expense included in cost of sales for rental equipment was $ 1.7 million and $ 2.3 million for the third quarter of 2023 and 2022, respectively and $ 5.9 million and $ 5.4 million for the first nine months of 2023 and 2022, respectively.

Refer to Note 4 – Revenue Recognition for a discussion on the Company's activities as lessor.

1 unchanged sentence

Accrued expenses and other current liabilities consisted of the following:

(in thousand) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Accrued compensation $ 27,532 $ 24,094

Deferred acquisition payments and accrued earnout liabilities 16,461 1,383

Accrued severance and acquisition related retention bonus 12,648 927

Accrued and withheld taxes, other than income taxes 8,758 4,885

Accrued customer rebates 5,592 5,053

Accrued stock-based compensation 5,055 3,340

Accrued customer rebates 4,710 5,053

Accrued interest 3,592 1,775

Accrued severance and acquisition related retention bonus 3,170 927

Accrued health benefits 1,743 1,306

5 unchanged sentences

Other liabilities consisted of the following:

(in thousand) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Security bonus plan $ 9,109 $ 9,651

7 unchanged sentences

Acquisitions (1)

— 49,941 — — 49,941

Impact of foreign exchange rates ( 11 ) — ( 174 ) ( 42 ) ( 227 )

Balance at June 30, 2023 $ 155,915 $ 163,822 $ 55,649 $ 23,277 $ 398,663

Balance at September 30, 2023 $ 155,762 $ 164,045 $ 55,247 $ 22,708 $ 397,762

(1) Refer to Note 3 – Business Acquisitions for information related to measurement period adjustments .

Intangible Assets

The gross carrying amount and accumulated amortization for definite-lived intangible assets were as follows:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value

4 unchanged sentences

(1) Other primarily consists of non-compete agreements.

Amortization expense for definite-lived intangible assets was $ 9.4 million and $ 18.6 million for the three and six months ended June 30, 2023, respectively, and $ 9.9 million and $ 15.3 million for the three and six months ended June 30, 2022, respectively.

Amortization expense for definite-lived intangible assets was $ 11.3 million and $ 29.9 million for the three and nine months ended September 30, 2023, respectively, and $ 5.6 million and $ 20.9 million for the three and nine months ended September 30, 2022, respectively.

Amortization expense related to intangible assets was recorded in Selling, general and administrative expenses.

7 unchanged sentences

The Company leases property used for warehousing, distribution centers, office space, branch locations, equipment and vehicles.

The expenses generated by leasing activity for the three and six months ended June 30, 2023 and 2022 were as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

The expenses generated by leasing activity for the three and nine months ended September 30, 2023 and 2022 were as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

Lease Type Classification 2023 2022 2023 2022

6 unchanged sentences

(1) Includes short term lease expense, which is immaterial.

The value of net assets and liabilities related to our operating and finance leases as of June 30, 2023 and December 31, 2022 was as follows (in thousands):

Lease Type June 30, 2023 December 31, 2022

The value of net assets and liabilities related to our operating and finance leases as of September 30, 2023 and December 31, 2022 was as follows (in thousands):

Lease Type September 30, 2023 December 31, 2022

Total ROU operating lease assets (1)

10 unchanged sentences

Total long term lease liabilities $ 70,353 $ 39,828

(1) Operating lease assets are recorded net of accumulated amortization of $ 20.2 million as of June 30, 2023 a nd $ 14.8 million as of December 31, 2022

(2) Financing lease assets are recorded net of accumulated amortization as a component of Other assets in the Unaudited Condensed Consolidated Balance Sheet of $ 1.1 million as of June 30, 2023 and $ 0.9 million as of December 31, 2022

The value of lease liabilities related to our operating and finance leases as of June 30, 2023 was as follows (in thousands):

(1) Operating lease assets are recorded net of accumulated amortization of $ 23.2 million as of September 30, 2023 a nd $ 14.8 million as of December 31, 2022.

(2) Financing lease assets are recorded net of accumulated amortization as a component of Other assets in the Unaudited Condensed Consolidated Balance Sheet of $ 1.3 million as of September 30, 2023 and $ 0.9 million as of December 31, 2022.

The value of lease liabilities related to our operating and finance leases as of September 30, 2023 was as follows (in thousands):

Maturity Date of Lease Liabilities Operating Leases Financing Leases Total

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Present value of lease liabilities $ 82,269 $ 1,325 $ 83,594

The weighted average lease terms and interest rates of leases held as of June 30, 2023 were as follows:

The weighted average lease terms and interest rates of leases held as of September 30, 2023 were as follows:

Lease Type Weighted Average Term in Years Weighted Average Interest Rate

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Financing Leases 2.8 6.9 %

The cash outflows of leasing activity for the six months ended June 30, 2023 were as follows (in thousands):

Six Months Ended June 30,

The cash outflows of leasing activity for the nine months ended September 30, 2023 and 2022 were as follows (in thousands):

Nine Months Ended September 30,

Cash Flow Source Classification 2023 2022

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The estimated aggregate fair value of the earnout derivative liability recorded on the April 1, 2022 Merger Date was $ 43.9 million, with an offsetting entry to additional paid-in capital.

As of April 29, 2022 and December 31, 2022, 700,000 and 462,000 of the 1,162,000 shares, respectively, were reclassified to equity, as the contingencies had been determined to have

As of April 29, 2022 and December 31, 2022, 1,400,000 and 924,000 of the 2,324,000 shares, respectively, were reclassified to equity, as the contingencies had been determined to have been met.

There was no remaining earnout derivative liability at December 31, 2022.

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On March 20, 2023, all of the 3.4 million shares of DSG common stock available to be issued under the earnout provisions within the Merger Agreements were issued in accordance with the two earnout provisions within the Merger Agreements.

As the remaining additional shares had been reclassified to equity as of December 31, 2022, there was no change in fair value for the first six months of 2023.

The Company recorded expense of $ 5.7 million for changes in the fair value of the earn-out derivative liability for the six months ended June 30, 2022 as a component of Change in fair value of earnout liabilities in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

As the remaining additional shares had been reclassified to equity as of December 31, 2022, there was no change in fair value for the first nine months of 2023.

For the three and nine months ended September 30, 2022, the Company recorded income of $ 10.3 million and $ 4.6 million, respectively, as a component of Change in fair value of earnout liabilities in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) due to changes in the fair value of the earn-out derivative liability.

Hisco Acquisition

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The fair value of the contingent consideration arrangement was classified as a Level 3 instrument and was determined using a probability-based scenario analysis approach.

As of June 8, 2023 (the Hisco Transaction date) and June 30, 2023, the fair value of the earn-out was $ 6.0 million and $ 6.2 million, respectively, with amounts recorded in Accrued expenses and other current liabilities in the Unaudited Condensed Consolidated Balance Sheet.

The Company recorded a loss of $ 0.2 million for changes in the fair value of the earn-out liability for the six months ended June 30, 2023 as a component of Change in fair value of earnout liabilities in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

As of June 8, 2023 (the Hisco Transaction date) and September 30, 2023, the fair value of the earn-out was $ 6.0 million and $ 0.1 million, respectively, with amounts recorded in Accrued expenses and other current liabilities in the Unaudited Condensed Consolidated Balance Sheet.

Prior to the Hisco Transaction by DSG, Hisco had a preexisting contingent consideration arrangement from an acquisition Hisco made during 2022.

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The fair value of the contingent consideration arrangement was classified as a Level 3 instrument and was determined using a probability-based scenario analysis approach.

As of June 8, 2023 (the Hisco acquisition date) and June 30, 2023, the fair value of the earn-out was $ 1.5 million and $ 1.5 million, respectively, with amounts recorded in Accrued expenses and other current liabilities in the Unaudited Condensed Consolidated Balance Sheet.

There was no change in the fair value of the earn-out liability for the six months ended June 30, 2023.

As of June 8, 2023 (the Hisco acquisition date) and September 30, 2023, the fair value of the earn-out was $ 1.5 million and $ 1.5 million, respectively, with amounts recorded in Accrued expenses and other current liabilities in the Unaudited Condensed Consolidated Balance Sheet.

There was no change in the fair value of the earn-out liability for the nine months ended September 30, 2023.

Frontier Acquisition

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The fair value of the contingent consideration arrangement was classified as a Level 3 instrument and was determined using a probability-based scenario analysis approach.

As of March 31, 2022 (the Frontier acquisition date), December 31, 2022 and June 30, 2023, the fair value of the earn-out was $ 0.9 million, $ 1.7 million and $ 0.5 million, respectively, with amounts recorded in Accrued expenses and other current liabilities and Other liabilities in the Unaudited Condensed Consolidated Balance Sheet.

The Company recorded income of $ 0.2 million for changes in the fair value of the earn-out liability for the six months ended June 30, 2023 as a component of Change in fair value of earnout liabilities in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

As of March 31, 2022 (the Frontier acquisition date), December 31, 2022 and September 30, 2023, the fair value of the earn-out was $ 0.9 million, $ 1.7 million and $ 0.0 million, respectively, with amounts recorded in Accrued expenses and other current liabilities and Other liabilities in the Unaudited Condensed Consolidated Balance Sheet.

The Company recorded income of $ 0.7 million for changes in the fair value of the earn-out liability for the nine months ended September 30, 2023 as a component of Change in fair value of earnout liabilities in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss).

Note 9 – Debt

The Company's outstanding long-term debt was comprised of the following:

(in thousands) June 30, 2023 December 31, 2022

(in thousands) September 30, 2023 December 31, 2022

Senior secured revolving credit facility $ — $ 122,000

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The Company is required to repay principal of approximately $ 7.6 million each quarter.

Net of outstanding letters of credit, there w as $ 189.6 million of borrowi ng availability under the revolving credit facility as of June 30, 2023.

The weighted average interest rate from January 1, 2023 through June 30, 2023 was 7.4 %.

Net of outstanding letters of credit, there w as $ 198.3 million of borrowi ng availability under the revolving credit facility as of September 30, 2023.

The weighted average interest rate from January 1, 2023 through September 30, 2023 was 7.4 %.

The loans under the 2023 Credit Agreement bear interest, at the Company’s option, at a rate equal to (i) the Alternate Base Rate or the Canadian Prime Rate (each as defined in the 2023 Credit Agreement), plus, in each case, an additional margin ranging from 0.0 % to 1.75 % per annum, depending on the total net leverage ratio of the Company and its restricted subsidiaries as of the most recent determination date under the 2023 Credit Agreement or (ii) the Adjusted Term SOFR Rate or the CDOR Rate (each as defined in the 2023 Credit Agreement), plus, in each case, an additional margin ranging from 1.0 % to 2.75 % per annum, depending on the total net leverage ratio of the Company and its restricted subsidiaries as of the most recent determination date under the 2023 Credit Agreement.

On April 1, 2022, deferred financing costs of $ 4.0 million were incurred in connection with the original Amended and Restated Credit Agreement, and on June 8, 2023, deferred financing costs of $ 3.4 million were incurred in connection with the

First Amendment.

Deferred financing costs are amortized over the life of the debt instrument and reported as interest expense.

As of June 30, 2023, total deferred financing costs net of accumulated amortization were $ 9.9 million of which $ 7.2 million are included in Long-term debt, less current portion, net (related to the senior secured term loan, senior secured delayed draw term loan and incremental term loan) and $ 2.7 million are included in Other assets (related to the senior secured revolving credit facility) in the Unaudited Condensed Consolidated Balance Sheet.

As of September 30, 2023, total deferred financing costs net of accumulated amortization were $ 9.2 million of which $ 6.7 million are included in Long-term debt, less current portion, net (related to the senior secured term loan, senior secured delayed draw term loan and incremental term loan) and $ 2.5 million are included in Other assets (related to the senior secured revolving credit facility) in the Unaudited Condensed Consolidated Balance Sheet.

The 2023 Credit Agreement contains various covenants, including financial maintenance covenants requiring the Company to maintain compliance with a consolidated minimum interest coverage ratio and a maximum total net leverage ratio, each determined in accordance with the terms of the 2023 Credit Agreement.

The Company was in compliance with all financial covenants set forth in the 2023 Credit Agreement as of June 30, 2023.

The Company was in compliance with all financial covenants set forth in the 2023 Credit Agreement as of September 30, 2023.

Note 10 – Stock-Based Compensation

The Company recorded stock-based compensation expense of $ 2.2 million and $ 4.4 million for the three and six months ended June 30, 2023, respectively, and $ 4.0 million and $ 4.0 million for the three and six months ended June 30, 2022, respectively .

The Company recorded stock-based compensation expense of $ 1.0 million and $ 5.4 million for the three and nine months ended September 30, 2023, respectively, and a benefit of $ 3.6 million and expense of $ 0.4 million for the three and nine months ended September 30, 2022, respectively .

A portion of the Company's stock-based awards are liability-classified.

Accordingly, changes in the market value of DSG common stock may result in stock-based compensation expense or benefit in certain periods.

A stock-based compensation liability of $ 5.5 million a s of June 30, 2023 and $ 3.3 million as of December 31, 2022 was included in Accrued expenses and other current liabilities in the Unaudited Condensed Consolidated Balance Sheet.

A stock-based compensation liability of $ 5.1 million a s of September 30, 2023 and $ 3.3 million as of December 31, 2022 was included in Accrued expenses and other current liabilities in the Unaudited Condensed Consolidated Balance Sheet.

Impact of Stock Split

The equity compensation plans contain anti-dilution provisions whereby in the event of any change in the capitalization of the Company (including in the event of a stock split), the number and type of awards underlying outstanding stock-based compensation awards must be adjusted, as appropriate, in order to prevent dilution or enhancement of rights.

The impact of these provisions resulted in a modification of all outstanding stock-based compensation awards upon the Stock Split.

As the fair value of the awards immediately after the Stock Split did not change when compared to the fair value of such awards immediately prior to the Stock Split, no incremental compensation costs were recognized as a result of such modifications.

In addition, there was no change to the vesting conditions or classification of each of the outstanding stock-based compensation awards.

Restricted Stock Awards

For the six months ended June 30, 2023, the Company issued approximately 26,000 Restricted stock awards ("RSAs") that vest over five years from the grant date with a grant date fair value of $ 1.3 million.

For the nine months ended September 30, 2023, the Company issued approximately 53,000 Restricted stock awards ("RSAs") that vest over five years from the grant date with a grant date fair value of $ 1.2 million.

Upon vesting, the vested RSAs are exchanged for an equal number of shares of DSG common stock.

The participants have no voting or dividend rights with the RSAs.

The RSAs are valued at the closing price of DSG's common stock on the date of grant and the expense is recorded ratably over the vesting period.

The RSAs are valued at the closing price of shares of DSG common stock on the date of grant and the expense is recorded ratably over the vesting period.

Stock Options

For the six months ended June 30, 2023, the Company issued approximately 606,000 stock options to key employees that vest over five years from the grant date.

For the nine months ended September 30, 2023, the Company issued approximately 1,354,000 stock options to key employees that vest over five years from the grant date.

The fair value was determined using a Black-Scholes valuation model with a grant date fair value of $ 9.6 million.

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Upon vesting, stock options are recognized as a component of equity.

Unrecognized compensation related to stock options as of June 30, 2023 was $ 9.2 million, which is expected to be recognized over a weighted-average period of 2.4 years.

Unrecognized compensation related

to stock options as of September 30, 2023 was $ 10.0 million, which is expected to be recognized over a weighted-average period of 2.3 years.

Activity related to the Company’s stock options during 2023 was as follows:

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Granted 1,353,706 37.05

Outstanding on June 30, 2023 893,821 74.30

Exercisable on June 30, 2023 40,000 27.01

Outstanding on September 30, 2023 1,929,706 37.50

Exercisable on September 30, 2023 180,800 29.74

The weighted average fair value assumptions used in the Black-Scholes model for the stock options issued during 2023 were as follows:

Expected volatility 45.23 %

Risk-free rate of return 3.6 %

Expected term (in years) 6.2 years

Expected volatility 45.2 % to 45.5 %

Risk-free rate of return 3.6 % to 4.5 %

Expected term (in years) 6.2 years to 6.5 years

Expected annual dividend $ 0

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The risk-free rate of return reflects the interest rate offered for zero coupon treasury bonds over the expected life of the stock options.

The expected life represents the period of time that options granted are expected to be

outstanding and was calculated using the simplified method allowed by the SEC, which approximates our historical experience.

The expected life represents the period of time that options granted are expected to be outstanding and was calculated using the simplified method allowed by the SEC, which approximates our historical experience.

The estimated annual dividend was based on the recent dividend payout trend.

Note 11 – Stockholders' Equity

On August 15, 2023, DSG announced that its Board of Directors approved and declared the Stock Split which entitled each stockholder of record as of the close of business on August 25, 2023 to receive one additional share of DSG common stock for each share of DSG common stock then-held.

The additional shares were distributed after the close of trading on August 31, 2023, and shares of DSG common stock began trading at the split-adjusted basis on September 1, 2023.

Accordingly, all share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the Stock Split.

Stockholders’ equity has been retroactively adjusted, where applicable, to give effect to the Stock Split for all periods presented by reclassifying the par value of the additional shares issued in connection with the Stock Split to Common stock from Capital in excess of par value.

Rights Offering

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Under an existing stock repurchase program authorized by the Board of Directors, the Company may repurchase its common stock from time to time in open market transactio ns, privately negotiated transactions or by other methods.

No shares were repurchased during the three and six months ended June 30, 2023 or 2022 under the Company's stock repurchase plan.

T he remaining availability for stock repurchases under the program was $ 7.6 million at June 30, 2023.

No shares were repurchased during the three and nine months ended September 30, 2023 under the Company's stock repurchase plan.

During the third quarter of 2022, the Company repurchased 108,178 shares of Company common stock under the repurchase plan at an average cost of $ 17.93 per share for a total cost of $ 1.9 million.

T he remaining availability for stock repurchases under the program was $ 7.6 million at September 30, 2023.

Note 12 – Earnings Per Share

As a result of the Mergers discussed in Note 1 – Nature of Operations and Basis of Presentation , all historical per share data and number of shares and numbers of equity awards were retroactively adjusted.

As a result of the Stock Split and Mergers discussed in Note 1 – Nature of Operations and Basis of Presentation , all historical per share data, number of shares and numbers of equity awards were retroactively adjusted.

The following table provides the computation of basic and diluted earnings per share:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands, except share and per share data) 2023 2022 2023 2022

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Note 13 – Income Taxes

The Company recorded income tax expense of $ 0.5 million , a 15.0 % effective tax rate for the three months ended June 30, 2023 .

Income tax benefit of $ 3.6 million , a 43.4 % effective tax rate was recorded for the three months ended June 30, 2022 .

The effective tax rate for the three months ended June 30, 2023 was lower than the U.S.

statutory rate primarily due to the release of a reserve for an uncertain tax benefit during the quarter.

The effective tax rate for the three months ended June 30, 2022 was higher than the U.S.

The Company recorded income tax expense of $ 1.0 million , a ( 171.3 )% effective tax rate for the three months ended September 30, 2023 .

Income tax expense of $ 8.5 million , a 33.9 % effective tax rate was recorded for the three months ended September 30, 2022 .

The effective tax rate for the three months ended September 30, 2023 was higher than the U.S.

statutory rate primarily due to adjustments to uncertain tax positions, a book loss for the current quarter, and other permanent items.

The effective tax rate for the three months ended September 30, 2022 was higher than the U.S.

statutory rate primarily due to state taxes, transaction costs, and other permanent items.

The Company recorded income tax expense of $ 2.6 million , a 22.9 % effective tax rate for the six months ended June 30, 2023 .

Income tax benefit of $ 4.6 million , a 38.6 % effective tax rate was recorded for the six months ended June 30, 2022 .

The effective tax rate for the six months ended June 30, 2023 was slightly higher than the U.S.

statutory rate primarily due to state taxes, foreign operations, and other permanent items, offset by the release of a reserve for an uncertain tax benefit during the second quarter.

The effective tax rate for the six months ended June 30, 2022 was higher than the U.S.

The Company recorded income tax expense of $ 3.6 million , a 33.1 % effective tax rate for the nine months ended September 30, 2023 .

Income tax expense of $ 3.9 million , a 29.6 % effective tax rate was recorded for the nine months ended September 30, 2022 .

The effective tax rate for the nine months ended September 30, 2023 was higher than the U.S.

statutory rate primarily due to state taxes, foreign operations, and other permanent items, offset by the release of a reserve for an uncertain tax benefit.

The effective tax rate for the nine months ended September 30, 2022 was higher than the U.S.

statutory rate primarily due to state taxes, transaction costs, and other permanent items.

Relative to the U.S.

statutory rate, the effective tax rate for the six months ended June 30, 2023 was impacted by state taxes, foreign income and other permanent items, offset by the release of a reserve for an uncertain tax benefit during the second quarter.

The Company and its subsidiaries are subject to U.S.

federal income tax, as well as income tax of multiple state and foreign jurisdictions.

As of June 30, 2023, the Company is subject to U.S.

As of September 30, 2023, the Company is subject to U.S.

federal income tax examinations for the years 2019 through 2021 and income tax examinations from various other jurisdictions for the years 2016 through 2022.

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and Luther King Capital Management Corporation (collectively, the “LKCM Defendants”).

Purporting to act on behalf of DSG, in the Derivative Action the plaintiffs allege, among other things, various

claims of alleged breach of fiduciary duty against the Director and Officer Defendants and the LKCM Defendants in connection with the Mergers.

Purporting to act on behalf of DSG, in the Derivative Action the plaintiffs allege, among other things, various claims of alleged breach of fiduciary duty against the Director and Officer Defendants and the LKCM Defendants in connection with the Mergers.

The Derivative Action seeks, among other things, money damages, equitable relief and the costs of the Derivative Action, including reasonable attorneys’, accountants’ and experts’ fees.

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from the Derivative Action without prejudice.

The defendants filed motions to dismiss the Derivative Action, along with related supporting briefing materials, with the Delaware Chancery Court, and the plaintiffs filed briefing materials opposing those motions to dismiss.

The Delaware Chancery Court has scheduled a hearing to be held on September 13, 2023, regarding the defendants’ motions to dismiss.

The Delaware Chancery Court held a hearing on September 13, 2023, to hear arguments on the defendants’ motions to dismiss.

At the conclusion of the hearing, in rulings issued on September 13, 2023, and September 19, 2023, the entire complaint was dismissed with prejudice for failure to state a claim.

On October 16, 2023, the plaintiffs filed a notice of appeal from the dismissal of their claims with respect to all defendants other than the members of the Special Committee (Messrs.

Hillman, Albert and Edelson) and Mr.

The Delaware Supreme Court has not set a date for the hearing on the plaintiffs’ appeal of the ruling.

DSG disagrees with and intends to vigorously defend against the Derivative Action.

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On February 10, 2022, DSG disclosed that its computer network was the subject of a cyber incident potentially involving unauthorized access to certain confidential information (the “Cyber Incident”).

On April 4, 2023, a putative class action lawsuit (the “Cyber Incident Suit”) was filed against DSG entitled Lardone Davis, on behalf of himself and all others similarly situated v.

On April 4, 2023, a putative class action lawsuit (the “Cyber Incident Suit”) was filed against DSG entitled Lardone Davis, on behalf of himself and all others similarly situated,

Lawson Products, Inc., Case No.

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The injection process was completed in the first quarter of 2019 and the environmental consulting firm is monitoring the affected area.

At June 30, 2023 the Company had approximately $ 0.1 million accrued for potential monitoring costs included in Accrued expenses and other current liabilities in the Unaudited Condensed Consolidated Balance Sheet.

At September 30, 2023 the Company had approximately $ 0.1 million accrued for potential monitoring costs included in Accrued expenses and other current liabilities in the Unaudited Condensed Consolidated Balance Sheet.

The costs for future monitoring are not significant and have been fully accrued.

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Purchase commitments

The Company enters into inventory purchase commitments with third parties in the ordinary course of business, and as of June 30, 2023, had contractual commitments to purchase approximately $ 187 million of products from our suppliers and contractors, which is expected to be paid in the next twelve months.

The Company enters into inventory purchase commitments with third parties in the ordinary course of business, and as of September 30, 2023, had contractual commitments to purchase approximately $ 200 million of products from our suppliers and contractors, which is expected to be paid in the next twelve months.

Note 15 – Related Party Transactions

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Subsequent to the Mergers, individuals employed by LKCM Headwater Operations, LLC, a related party of LKCM, have provided the Company with certain consulting services in order to identify cost savings, revenue enhancements and operational synergies of the combined companies.

As of June 30, 2023 expense of $ 0.1 million was recorded within Selling, general and administrative expenses within the Unaudited Condensed Consolidated Statements of Income and Comprehensive Income (Loss), reflecting expenses accrued for these consulting services.

For the nine months ended September 30, 2023, expense of $ 0.4 million was recorded within Selling, general and administrative expenses within the Unaudited Condensed Consolidated Statements of Income and Comprehensive Income (Loss), reflecting expenses accrued for these consulting services.

TestEquity and Gexpro Services Mergers

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Following the completion of the Rights Offering on May 30, 2023, entities affiliated with LKCM and Mr.

King beneficially owned in the aggregate approximately 18.2 million shares of DSG common stock as of June 1, 2023, representing approximately 77.9 % of the outstanding shares of DSG common stock as of June 30, 2023.

King beneficially owned in the aggregate approximately 36.4 million shares of DSG common stock as of June 1, 2023, representing approximately 77.6 % of the outstanding shares of DSG common stock as of September 30, 2023 .

Board of Directors

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Asset information by operating segment is not presented below since the chief operating decision maker does not review this information by segment.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2023 2022 2023 2022

15 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements