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Item 8. Financial Statements and Supplementary Data

2024-03-07 compared with 2023-03-14 · 581 added, 469 removed, 811 unchanged (56% of the section changed)

1 unchanged sentence

The following information is presented in this item:

Report of Independent Registered Public Accounting Firm ( BDO USA, LLP ;

Chicago, Illinois ;

PCAOB ID# 243 )

Report of Independent Registered Public Accounting Firm ( Grant Thornton, LLP ;

1 unchanged sentence

PCAOB ID# 248 )

Report of Independent Registered Public Accounting Firm ( BDO USA, P.C.

Chicago, Illinois ;

PCAOB ID# 243 )

Consolidated Balance Sheets as of December 31, 2 0 2 3 and 202 2

Consolidated Statements of Operations and Comprehensive Incom e ( L oss) fo r the Years ended December 31, 2022 and 2021

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years ended December 31, 2 02 3 and 202 2

Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 20 2 3 and 202 2

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Distribution Solutions Group, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of Distribution Solutions Group, Inc., (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 7, 2024 expressed an unqualified opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Business Acquisition – HIS Company, Inc.

– Valuation of acquired Intangible Assets

As described further in Note 3 to the financial statements, the Company acquired HIS Company, Inc.

on June 8, 2023, for a total purchase price of approximately $267.3 million, net of cash acquired.

The Company allocated the purchase price, on a preliminary basis, to the assets acquired and liabilities assumed based on their respective fair values, including identified intangible assets of $65.3 million.

The principal considerations for our determination that the valuation of acquired customer relationships and trade names is a critical audit matter are (i) the significant judgment by management when determining assumptions used in the fair value measurement of acquired intangible assets and (ii) the high degree of auditor judgment and subjectivity in performing procedures and evaluating management’s significant assumptions relating to the projected forecasted information including revenue growth rate, weighted average cost of capital (WACC), royalty rate, and customer attrition rate.

Our audit procedures related to the valuation of the acquired intangible assets included the following, among others:

(i) we tested the design and operating effectiveness of the controls over the Company’s acquisition and valuation process, including review of the valuation model, significant assumptions used, and the completeness and accuracy of the underlying data used

(ii) we reviewed the projected forecasted information including forecasted revenue growth rate by assessing the reasonableness of management’s forecasts compared to historical results and forecasted industry trends

(iii) with the assistance of our valuation specialists, we assessed the assumptions and methodologies used in developing the WACC, royalty rates, and customer attrition rates by developing a range of independent estimates and comparing those to the rates selected by management.

We also involved our valuation specialists to validate the assumptions and methodologies used in valuing the intangible assets.

/s/ GRANT THORNTON LLP

We have served as the Company's auditor since 2023.

Los Angeles, California

March 7, 2024

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

3 unchanged sentences

We have audited the accompanying consolidated balance sheet of Distribution Solutions Group, Inc.

(the “Company”) as of December 31, 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 14, 2023 expressed an adverse opinion thereon.

(the “Company”) as of December 31, 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

9 unchanged sentences

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Classification and Presentation of the Holdback Shares

As described in Notes 1 and 3 to the consolidated financial statements, the Company consummated mergers with TestEquity and Gexpro Services on April 1, 2022 (the "Merger Date").

The related merger agreements contained earnout provisions for the issuance of an additional 0.7 million shares to the former owners of TestEquity and 1.0 million shares to the former owners of Gexpro Services (collectively, the “Holdback Shares”), upon the consummation of certain additional acquisitions or achievement of certain financial metrics in the future, among other factors.

As of April 1, 2022, the Company determined that the earnout targets for 0.5 million Holdback Shares issuable to the former owners of Gexpro Services had been met while the remaining 1.2 million Holdback Shares were recorded as an earnout derivative liability.

We identified the classification and presentation of the Holdback Shares as of the Merger Date as a critical audit matter due to the complexities of the earnout provisions within the merger agreements and the determination of when those earnout provisions were or will be satisfied.

Auditing these elements involved especially challenging, subjective or complex auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skills or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Reading the merger related agreements and management’s technical accounting memo to understand the facts and circumstances within the agreements and other assumptions impacting the accounting for the Holdback Shares, including the classification and presentation of the earnout derivative liability.

• Utilizing personnel with specialized knowledge and skill in derivatives and business combinations to evaluate the appropriateness of management’s conclusions about how to apply the relevant accounting guidance.

Valuation of certain trade names

As described in Note 3 to the consolidated financial statements, the Company acquired $43.0 million of intangible assets related to trade names in connection with the mergers consummated on April 1, 2022.

The fair value of these trade names was determined using the relief from royalty method.

We identified the valuation of the intangible assets related to trade names in the April 1, 2022 mergers as a critical audit matter due to the judgmental nature of the valuation methodology and the significant assumptions used to estimate the fair value of trade names, specifically the royalty rate.

Auditing these elements involved especially subjective and complex auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skills or knowledge needed.

The primary procedures we performed to address this critical audit matter included:

• Evaluating the reasonableness of management’s assumptions to determine the royalty rate used, including consideration of the comparable trade name licensing transactions utilized.

• Utilizing personnel with specialized knowledge and skill to assist in evaluating the appropriateness of the relief from royalty method and the reasonableness of the royalty rate assumption.

/s/BDO USA, LLP

We have served as the Company's auditor since 2022.

/s/ BDO USA, P.C.

We served as the Company's auditor from 2022 to 2023.

Chicago, Illinois

March 14, 2023

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Distribution Solutions Group, Inc.

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of Distribution Solutions Group, Inc.

and subsidiaries (the “Company”) as of December 31, 2021, and the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/Grant Thornton, LLP

We served as the auditor of one or more of the entities comprising Distribution Solutions Group, Inc.

from 2015 to 2023.

Los Angeles, California

March 14, 2023

March 14, 2023, except for effects of the Stock Split described in Notes 1 and 11, as to which the date is March 7, 2024

Distribution Solutions Group, Inc.

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Restricted cash 15,695 186

Accounts receivable, less allowance for doubtful accounts of $ 1,513 and $ 2,473 , respectively

Accounts receivable, less allowances of $ 2,120 and $ 1,513 , respectively

213,448 166,301

Inventories, net 264,374 132,717

Inventories 315,984 264,374

Prepaid expenses and other current assets 28,272 22,773

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Goodwill 399,925 348,048

Deferred tax asset 189 266

Deferred tax asset, net 95 189

Intangible assets, net 253,834 227,994

7 unchanged sentences

Current portion of long-term debt 32,551 16,352

Current portion of lease obligation 9,964 4,641

Related party payables — 4,813

Current portion of lease liabilities 13,549 9,964

Accrued expenses and other current liabilities 97,241 62,677

1 unchanged sentence

Long-term debt, less current portion, net 535,881 395,825

Security bonus plan 9,651 —

Deferred compensation 9,962 —

Lease obligation 39,828 16,132

Deferred tax liability 23,834 808

Lease liabilities 67,065 39,828

Deferred tax liability, net 18,326 23,834

Other liabilities 25,443 23,649

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( 16,434 ) ( 12,526 )

Accumulated other comprehensive (loss) income ( 9,956 ) 1,569

Accumulated other comprehensive income (loss) ( 5,170 ) ( 9,956 )

Total stockholders’ equity 661,601 562,995

Total liabilities and stockholders’ equity $ 1,550,331 $ 1,215,610

(1) The accompanying 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 Consolidated Financial Statements

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

$ ( 0.20 ) $ 0.22

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

$ ( 0.20 ) $ 0.21

Comprehensive income (loss)

2 unchanged sentences

Foreign currency translation adjustment 4,906 ( 11,525 )

Other ( 120 ) —

Comprehensive income (loss) $ ( 4,181 ) $ ( 4,119 )

(1) The accompanying 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 Consolidated Financial Statements

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

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Foreign currency translation adjustment — — — — — ( 11,525 ) ( 11,525 )

Stock-based compensation — — 1,505 — — — 1,505

Shares issued 135,927 135 ( 135 ) — — — —

Equity consideration for purchase of business — — 6,282 — — — 6,282

Capital contribution — — 9,233 — — — 9,233

Deemed consideration for reverse acquisition 18,240,334 18,240 333,251 — — — 351,491

Reclassification of issuable shares from earnout derivative liability — — 43,624 — — — 43,624

Fair value adjustment of stock-based compensation awards — — 1,910 — — — 1,910

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

Tax withholdings related to net share settlements of stock-based compensation awards ( 24,163 ) ( 24 ) 57 — ( 553 ) — ( 520 )

Settlement of related party liability — — 5,276 — — — 5,276

Other — ( 45 ) 44 — — — ( 1 )

3 unchanged sentences

Stock-based compensation — — 3,732 — — — 3,732

Stock-based compensation liability paid in shares — — 227 — — — 227

Shares issued 85,842 86 ( 86 ) — — — —

Deemed consideration for reverse acquisition 9,120,167 9,120 342,371 — — — 351,491

Reclassification of issuable shares from earnout derivative liability — — 43,624 — — — 43,624

Fair value adjustment of stock-based compensation awards — — 1,910 — — — 1,910

Repurchase of common stock ( 54,089 ) ( 54 ) 54 — ( 1,940 ) — ( 1,940 )

Shares issued - earnout 3,400,000 3,400 ( 3,400 ) — — — —

Issuance of common stock in rights offering 4,444,444 4,444 94,025 — — — 98,469

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

Compensation expense related to employee share purchase plan — — 427 — — — 427

Repurchases of common stock ( 138,725 ) ( 139 ) 139 — ( 3,619 ) — ( 3,619 )

Tax withholdings related to net share settlements of stock-based compensation awards ( 11,378 ) ( 11 ) 11 — ( 287 ) — ( 287 )

Settlement of related party liability — — 5,276 — — — 5,276

Other — — 591 ( 4 ) ( 2 ) ( 120 ) 465

Balance at December 31, 2023 46,758,359 $ 46,758 $ 671,154 $ ( 34,707 ) $ ( 16,434 ) $ ( 5,170 ) $ 661,601

(1) The accompanying 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 Consolidated Financial Statements

7 unchanged sentences

Depreciation and amortization 63,588 45,186

Amortization of debt issue costs 1,888 1,297

Amortization of debt issuance costs 2,420 1,888

Extinguishment of debt — 3,395

Stock-based compensation 7,940 2,448

Compensation expense related to employee share purchases 427 —

Deferred income taxes ( 8,028 ) ( 2,406 )

Change in fair value of earnout liability 483 —

Change in fair value of earnout liabilities ( 758 ) 483

Gain on sale of rental equipment ( 2,675 ) ( 3,632 )

Bargain purchase option — ( 1,363 )

Loss on sale of property, plant and equipment 294 —

Charge for step-up of acquired inventory 3,582 2,866

Net realizable value and reserve adjustment for obsolete and excess inventory 4,608 1,104

Net realizable value adjustment and write-offs for obsolete and excess inventory 8,990 4,608

Bad debt expense 784 795

19 unchanged sentences

Deferred financing costs ( 3,419 ) ( 11,956 )

Capital contribution — 9,233

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

Repurchase of common stock ( 3,619 ) ( 1,940 )

Shares repurchased held in treasury ( 287 ) ( 520 )

Proceeds from employees for share purchases 3,253 —

Payment of financing lease principal ( 515 ) ( 429 )

Payment of earnout ( 1,000 ) —

Payment on seller's note — ( 9,757 )

15 unchanged sentences

Net cash paid for interest $ 38,048 $ 22,153

Net cash paid for interest on supply chain financing $ 2,581 $ 1,291

Non-cash activities:

1 unchanged sentence

Settlement of related party obligations $ — $ 5,276

Equity consideration in relation to business acquisitions $ — $ 6,946

Right of use assets obtained in exchange for finance lease liabilities $ 616 $ 886

Right of use assets obtained in exchange for operating lease liabilities $ 19,424 $ 14,634

Seller's note issued as purchase consideration $ — $ 1,169

3 unchanged sentences

Note 1 – Nature of Operations and Basis of Presentation

Effective May 5, 2022, Distribution Solutions Group, Inc.

("DSG"), a Delaware corporation, changed its corporate name from “Lawson Products, Inc.” to “Distribution Solutions Group, Inc.” DSG is a global specialty distribution company providing value added distribution solutions to the maintenance, repair and operations ("MRO"), original equipment manufacturer ("OEM") and industrial technology markets.

Distribution Solutions Group, Inc.

("DSG"), a Delaware corporation, is a global specialty distribution company providing value added distribution solutions to the maintenance, repair and operations ("MRO"), original equipment manufacturer ("OEM") and industrial technology markets.

DSG has three principal operating companies:

1 unchanged sentence

("Lawson"), TestEquity Acquisition, LLC ("TestEquity") and 301 HW Opus Holdings, Inc., conducting business as Gexpro Services ("Gexpro Services").

The complementary distribution operations of Lawson, TestEquity and Gexpro Services were combined 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 Annual Report on Form 10-K to “DSG”, the “Company”, "we", "our" or "us" refer to the holding company, Distribution Solutions Group, Inc., and all entities consolidated in the accompanying consolidated financial statements.

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

Combination with TestEquity and Gexpro Services

On December 29, 2021, DSG entered into an:

• Agreement and Plan of Merger (the “TestEquity Merger Agreement”) by and among (i) LKCM TE Investors, LLC, a Delaware limited liability company (the “TestEquity Equityholder”), (ii) TestEquity Acquisition, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the TestEquity Equityholder (“TestEquity”), (iii) DSG and (iv) Tide Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of DSG (“Merger Sub 1”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 1 would merge with and into TestEquity, with TestEquity surviving the merger as a wholly-owned subsidiary of DSG (the “TestEquity Merger”);

• Agreement and Plan of Merger (the “Gexpro Services Merger Agreement” and, together with the TestEquity Merger Agreement, the “Merger Agreements”) by and among (i) 301 HW Opus Investors, LLC, a Delaware limited liability company (the “Gexpro Services Stockholder”), (ii) 301 HW Opus Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of the Gexpro Services Stockholder (“Gexpro Services”), (iii) DSG and (iv) Gulf Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of DSG (“Merger Sub 2”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 2 would merge with and into Gexpro Services, with Gexpro Services surviving the merger as a wholly-owned subsidiary of DSG (the “Gexpro Services Merger” and, together with the TestEquity Merger, the “Mergers”).

Each outstanding share of TestEquity and Gexpro Services common stock outstanding immediately prior to the closing of the Mergers was converted into approximately 0.3618 shares and 0.7675 shares, respectively, of DSG common stock, based on the ratio of outstanding shares of each entity immediately prior to the Mergers to the number of shares of DSG common stock acquired in the Mergers.

On December 29, 2021, DSG entered into:

• an Agreement and Plan of Merger (the “TestEquity Merger Agreement”) by and among (i) LKCM TE Investors, LLC, a Delaware limited liability company (the “TestEquity Equityholder”), (ii) TestEquity, which was a wholly-owned subsidiary of the TestEquity Equityholder, (iii) DSG and (iv) Tide Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of DSG (“Merger Sub 1”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 1 would merge with and into TestEquity, with TestEquity surviving the merger as a wholly-owned subsidiary of DSG (the “TestEquity Merger”);

• an Agreement and Plan of Merger (the “Gexpro Services Merger Agreement” and, together with the TestEquity Merger Agreement, the “Merger Agreements”) by and among (i) 301 HW Opus Investors, LLC, a Delaware limited liability company (the “Gexpro Services Stockholder”), (ii) Gexpro Services, which was a wholly-owned subsidiary of the Gexpro Services Stockholder, (iii) DSG and (iv) Gulf Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of DSG (“Merger Sub 2”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 2 would merge with and into Gexpro Services, with Gexpro Services surviving the merger as a wholly-owned subsidiary of DSG (the “Gexpro Services Merger” and, together with the TestEquity Merger, the “Mergers”).

At the closing of the Mergers, each outstanding share of TestEquity and Gexpro Services common stock outstanding immediately prior to the closing of the Mergers was converted into approximately 0.1809 shares and 0.3838 shares, respectively, of DSG common stock, based on the ratio of outstanding shares of each entity immediately prior to the Mergers to the number of shares of DSG common stock acquired in the Mergers.

Completion of the TestEquity Merger

On April 1, 2022 (the "Merger Date"), the TestEquity Merger was consummated pursuant to the TestEquity Merger Agreement.

In accordance with and under the terms of the TestEquity Merger Agreement, at the closing of the TestEquity Merger, DSG:

In accordance with the TestEquity Merger Agreement, Merger Sub 1 merged with and into TestEquity, with TestEquity surviving as a wholly-owned subsidiary of DSG.

In accordance with and under the terms of the TestEquity Merger Agreement, in connection with the closing of the TestEquity Merger on the Merger Date, DSG:

(i) issued to the TestEquity Equityholder 6,600,000 shares of DSG common stock, (ii) on behalf of TestEquity, paid certain indebtedness of TestEquity and (iii) on behalf of TestEquity, paid certain transaction expenses of TestEquity.

The TestEquity Merger Agreement provides that an additional 700,000 shares of DSG common stock (the “TestEquity Holdback Shares”) may be issued to the TestEquity Equityholder or forfeited in accordance with two earnout provisions of the TestEquity Merger Agreement.

The amount of TestEquity Holdback Shares issuable under the first earnout opportunity is based on, among other factors, the consummation of a certain additional acquisition by TestEquity during the period beginning after December 29, 2021 and ending 90 days after the Merger Date.

If any TestEquity Holdback Shares remain after the calculation of the first earnout opportunity, there is a second earnout opportunity based on, among other factors, the

increase in TestEquity EBITDA (as defined in the TestEquity Merger Agreement) in calendar year 2022 over calendar year 2021 subject to the calculations within the TestEquity Merger Agreement.

As of December 31, 2022, 700,000 TestEquity Holdback Shares are expected to be issued under the first earnout opportunity due to the consummation of the certain additional acquisition as referenced in the TestEquity Merger Agreement and were remeasured at fair value immediately prior to and reclassified to equity at April 29, 2022 when the additional acquisition was consummated.

Final issuance of the Test Equity Holdback Shares under the earnout opportunity is subject to customary terms and conditions as specified in the Test Equity Merger Agreement.

Refer to Note 8 – Earnout Derivative Liability for information about the earnout derivative liability related to the TestEquity Holdback Shares.

The TestEquity Merger Agreement provided that up to an additional 1,400,000 shares of DSG common stock would be potentially issuable to the TestEquity Equityholder in accordance with, and subject to the terms and conditions of, the earnout provisions of the TestEquity Merger Agreement.

On March 20, 2023, DSG issued 1,400,000 shares of DSG common stock to the TestEquity Equityholder (the "TestEquity Holdback Shares") pursuant to the terms of the earnout provisions of the TestEquity Merger Agreement.

The TestEquity Holdback Shares issued represented the maximum number of additional shares that could be issued under the TestEquity Merger Agreement, and no further shares are available for issuance, and no

additional shares will be issued, in connection with the TestEquity Merger Agreement.

Refer to Note 8 – Earnout Liabilities for information about the earnout derivative liability related to the TestEquity Holdback Shares.

Completion of the Gexpro Services Merger

On the Merger Date, the Gexpro Services Merger was consummated pursuant to the Gexpro Services Merger Agreement.

In accordance with and under the terms of the Gexpro Services Merger Agreement, at the closing of the Gexpro Services Merger, DSG:

In accordance with the Gexpro Services Merger Agreement, Merger Sub 2 merged with and into Gexpro Services, with Gexpro Services surviving as a wholly-owned subsidiary of DSG.

In accordance with and under the terms of the Gexpro Services Merger Agreement, in connection with the closing of the Gexpro Services Merger on the Merger Date, DSG:

(i) issued to the Gexpro Services Stockholder 14,000,000 shares of DSG common stock, (ii) on behalf of Gexpro Services, paid certain indebtedness of Gexpro Services and (iii) on behalf of Gexpro Services, paid certain specified transaction expenses of Gexpro Services.

The Gexpro Services Merger Agreement provides that an additional 1,000,000 shares of DSG common stock (the “Gexpro Services Holdback Shares”) may be issued to the Gexpro Services Stockholder or forfeited in accordance with two earnout provisions of the Gexpro Services Merger Agreement.

The amount of Gexpro Services Holdback Shares issuable under the first earnout opportunity is based on, among other factors, the consummation of one or more of three certain additional acquisitions by Gexpro Services during the period beginning after December 29, 2021 and ending 90 days after the Merger Date.

If any Gexpro Services Holdback Shares remain after the calculation of the first earnout opportunity, there is a second earnout opportunity based on, among other factors, the increase in Gexpro Services EBITDA (as defined in the Gexpro Services Merger Agreement) in calendar year 2022 over calendar year 2021 subject to the calculations within the Gexpro Services Merger Agreement.

As of April 1, 2022, approximately 538,000 Gexpro Services Holdback Shares were expected to be issued under the first earnout opportunity due to the consummation of the certain additional acquisitions which were completed prior to the Merger Date.

As of December 31, 2022, an additional 462,000 Gexpro Services Holdback Shares are expected to be issued under the second earnout opportunity based on certain performance metrics as specified in the Gexpro Services Merger Agreement, and such additional shares were remeasured at fair value immediately prior to and reclassified to equity at December 31, 2022.

Final issuance of the Gexpro Services Holdback Shares under the earnout opportunities is subject to customary terms and conditions as specified in the Gexpro Services Merger Agreement.

Refer to Note 8 – Earnout Derivative Liability for information about the earnout derivative liability related to the Gexpro Services Holdback Shares.

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 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.

As of April 1, 2022, approximately 1,076,000 of the Gexpro Services Holdback Shares had been expected to be issued under the first earnout opportunity in the Gexpro Services Merger Agreement based on certain earnout metrics related to the consummation of certain additional acquisitions which were completed prior to the Merger Date.

Under the Gexpro Services Merger Agreement, if any Gexpro Services Holdback Shares remained after the calculation of the first earnout opportunity, there was a second earnout opportunity under the Gexpro Services Merger Agreement based on certain earnout performance metrics.

On March 20, 2023, all 2,000,000 Gexpro Services Holdback Shares were issued under the earnout opportunities.

The incremental 924,000 Gexpro Services Holdback Shares that were issued in excess of the 1,076,000 Gexpro Services Holdback Shares that were originally expected to be issued had been remeasured at fair value immediately prior to and reclassified to equity at December 31, 2022.

Refer to Note 8 – Earnout Liabilities for information about the earnout derivative liability related to the Gexpro Services Holdback Shares.

Accounting for the Mergers

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.

Accordingly, periods prior to the Merger Date reflect the results of operations and financial position 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.

Accordingly, periods prior to the April 1, 2022 Merger Date 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.

Nature of Operations

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Lawson is a distributor of specialty products and services to the industrial, commercial, institutional and government maintenance, repair and operations market.

TestEquity is a distributor of test and measurement equipment and solutions, electronic production supplies, and tool kits from its leading manufacturer partners supporting the technology, aerospace, defense, automotive, electronics, education, and medical industries.

Gexpro Services is a global supply chain solutions provider, specializing in developing and implementing vendor managed inventory and kitting programs to high-specification manufacturing customers.

TestEquity is a distributor of test and measurement equipment and solutions, industrial and electronic production supplies, vendor managed inventory programs, and converting, fabrication and adhesive solutions from its leading manufacturer partners supporting the aerospace and defense, wireless and communication, semiconductors, industrial electronics and automotive, and electronics manufacturing industries.

Gexpro Services is a global supply chain solutions provider, specializing in the development of mission critical production line management, aftermarket and field installation programs.

Basis of Presentation and Consolidation

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All significant intercompany transactions and balances have been eliminated in consolidation.

2023 Stock Split

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.

Refer to Note 11 – Stockholders' Equity for additional information about the Stock Split.

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 ("ASC") 805, Business Combinations ("ASC 805").

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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 consolidated financial statements as of December 31, 2022 and December 31, 2021 and for the year ended December 31, 2022 and 2021 reflect the results of operations and financial position 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.

Accordingly, the consolidated financial statements for the year ended December 31, 2022 reflect the results of operations and financial position 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 consolidated financial statements for the year ended December 31, 2023.

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

Note 2 – Summary of Significant Accounting Policies

Revenue Recognition — The majority of the Company’s revenue is generated through the sale of a broad range of specialized products and components, with revenue recognized upon transfer of control, title and risk of loss, which is generally upon shipment.

Vendor Managed Inventory ("VMI") service revenue represents less than 5.0 % of total revenue and is recognized as the services are performed.

The Company offers VMI services only in conjunction with product sales.

The Company does not bill product sales and services separately.

A portion of selling expenses is allocated to cost of sales for reporting purposes based upon the estimated time spent on such services.

A portion of service revenue and cost of service is deferred, as not all services are performed in the same period as billed.

The Company includes shipping costs billed to customers in revenue and the related shipping costs in cost of goods and services.

The Company accrues for returns based on historical evidence of return rates.

Revenue Recognition —

Revenue from Contracts with Customers:

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring a product or providing a service.

A majority of the Company’s revenue is short cycle in nature with shipments within one year of the order.

A small portion of the Company’s revenue derives from contracts extending over one year and in some cases may have optional renewal terms if both parties agree to renew.

The Company’s payment terms generally range between 10 to 120 days and vary by contract, the types of products sold and the volume of products sold, among other factors.

Revenue includes product sales, services and billings for shipping charges, net of discounts, expected returns, rebates and sales tax.

Estimates for rebates and expected returns is based on historical experience.

The Company includes shipping costs billed to customers in Revenue and the related shipping costs in Cost of goods sold in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Performance Obligations :

A m ajority of the Company’s contracts have a performance obligation which represents, in most cases, the product being sold to the customer.

Some contracts include a second performance obligation to provide additional Vendor Managed Inventory ("VMI") services primarily related to monitoring and stocking.

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

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

A portion of the Company’s contracts offer assurance-type warranties in connection with the sale of a product to the customer.

Assurance-type warranties provide a customer with assurance that the related product will function as parties intended because it complies with the agreed-upon specifications.

Such warranties are not significant and do not represent a separate performance obligation.

Select contracts with customers include variable consideration primarily related to volume rebates if predetermined thresholds are met.

The Company estimates variable consideration using the expected-value method considering all reasonably available information, including experience, current, historical, and forecasted.

Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved.

Over 95 % of the Company’s performance obligations are recognized at a point in time, rather than over time, as the Company completes its performance obligations.

Specifically, revenue is recognized when control transfers to the customer, typically upon shipment or receipt by the customer.

Less than 5 % of the Company's revenue is recognized over time and relates to services, in which the Company transfers control of a good or service over time and the customer simultaneously receives and consumes the benefits.

That portion of expected consideration is deferred until the time that those services have been provided and the related performance obligations have been satisfied.

At December 31, 2023 and 2022, the deferred consideration for the service performance obligations that have not been satisfied was insignificant and will be recognized within twelve months of the respective balance sheet date.

For revenue recognized over time, the input method is utilized and is based on costs incurred relative to estimated total costs.

Contract Costs :

The Company has adopted the practical expedient within ASC 340, Other Assets and Deferred Costs ("ASC 340"), to recognize incremental costs to obtain a contract, primarily employee related costs, as expense when incurred since the amortization period of the asset that the Company otherwise would have recognized is one year or less.

The Company also operates as a lessor and recognizes lease revenue on a straight-line basis over the life of each lease.

The Company has adopted the practical expedient not to separate the non-lease components that would be within the scope of ASC 606, Revenue from Contracts with Customers ("ASC 606") from the associated lease component as the relevant criteria under ASC 842, Leases ("ASC 842") are met.

Cash Equivalents — The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Rental Revenue :

The Company determines if a contract contains a lease at inception.

A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Lawson and TestEquity segments operate as a lessor and rent certain equipment to customers through leases classified as operating leases under ASC 842, Leases ("ASC 842").

Lease revenue is recognized on a straight-line basis over the life of each lease.

As there are trivial non-lease components, the Company has adopted the practical expedient not to separate the non-lease components that would be within the scope of ASC 606, Revenue from Contracts with Customers ("ASC 606") from the associated lease component as the relevant criteria under ASC 842 are met.

Cash, Cash Equivalents, and Restricted Cash — The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents.

The carrying amount of the Company’s cash equivalents at December 31, 2023 and December 31, 2022 approximates fair value.

Cash balances at individual banks may exceed the federally insured limit by the Federal Deposit Insurance Corporation (the “FDIC”).

The Company has not experienced any material losses in such accounts.

Allowance for Doubtful Accounts — The Company evaluates the collectability of accounts receivable based on a combination of factors.

In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filings, substantial down-grading of credit ratings), a specific reserve for bad debts is recorded against amounts due to reduce the receivable to the amount the Company reasonably believes will be collected.

For all other customers, the Company recognizes reserves for bad debts based on the Company’s historical experience of bad debt write-offs as a percent of accounts receivable outstanding.

If circumstances change (e.g., higher than expected defaults or an unexpected material adverse change in a major customer's ability to meet its financial obligations), the estimates of the recoverability of amounts due the Company could be revised.

Inventories — Inventories principally consist of finished goods 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.

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.

For all other customers, the Company recognizes reserves for bad debts based on current and forecasted probability of collection, economic conditions, historical experience of bad debt write-offs as a percent of accounts receivable outstanding, and other significant events that may impact the collectibility of accounts receivable.

Uncollected trade receivables are written off when identified to be unrecoverable.

Inventories — Inventories principally consist of purchased finished products and manufactured electronic equipment offered for resale 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 write-down 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 write-downs 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.

depending on the product category, we write-down inventory with low turnover at higher rates than inventory with higher turnover.

Property, Plant and Equipment — Property, plant and equipment are stated at cost less accumulated depreciation and amortization.

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The costs of repairs, maintenance and minor renewals are charged to expense as incurred.

Amortization of financing and capital leases is included in depreciation expense.

Amortization of financing leases is included in depreciation expense.

When property, plant and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in the income from operations.

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Expense is computed primarily by the straight-line method over an estimated useful life of 3 to 7 years.

Upon sale or retirement of such assets, the related cost and accumulated depreciation are removed from the Consolidated Balance Sheet, and gains or losses are reflected in operating income (loss) within the Consolidated Statements of Operations and Comprehensive Income (Loss).

Upon sale or retirement of such assets, the related cost and accumulated depreciation are removed from the Consolidated Balance Sheets, and gains or losses are reflected in operating income (loss) within the Consolidated Statements of Operations and Comprehensive Income (Loss).

The costs of repairs, maintenance and minor renewals are charged to expense as incurred.

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These adjustments are the changes in contractual value of the individual plans and are recorded as a component of Other income (expense) in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Stock-Based Compensation — Compensation based on the share value of the Company’s common stock is valued at its fair value at the grant date and the expense is recognized over the vesting period.

Stock-Based Compensation — Compensation based on the share value of DSG common stock is valued at its fair value at the grant date and the expense is recognized over the vesting period.

Fair value is re-measured each reporting period for liability-classified awards that may be redeemable in cash.

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The determination of the amount of a valuation allowance to be provided on recorded deferred tax assets involves estimates regarding (1) the timing and amount of the reversal of taxable temporary differences, (2) expected future taxable income, (3) the impact of tax planning strategies and (4) the ability to carry back deferred tax assets to offset prior taxable income.

In assessing the need for a valuation allowance, we consider all available positive and negative evidence, including past operating results, projections of future taxable income and the feasibility of ongoing tax planning strategies.

In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including past operating results, projections of future taxable income and the feasibility of ongoing tax planning strategies.

The projections of future taxable income include a number of estimates and assumptions regarding our volume, pricing and costs.

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The Company recognizes interest and penalties related to unrecognized tax benefits as a component of Income tax expense (benefit) in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Leases — Leases are categorized as either operating or financing leases at commencement of the lease.

For both classes of leases, a Right Of Use ("ROU") asset and corresponding lease liability are recognized at commencement of the lease.

Operating leases consist of the Company headquarters, distribution and service centers, and Bolt branches.

Financing leases consist of equipment such as forklifts and copiers.

The value of the lease assets and liabilities are the present value of the total cash payments for each lease.

Leases — The Company determines if a contract contains a lease at inception.

A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

At the commencement date of a lease, the Company recognizes a liability to make lease payments and a Right Of Use ("ROU") asset representing the right to use the underlying asset during the lease term.

The Company includes options to extend or terminate a lease within the lease term when it is reasonably certain the option will be exercised.

Leases are categorized as either operating or financing leases at commencement of the lease.

Operating leases consist of office space, distribution and service centers, and Bolt branches.

Financing leases primarily consist of equipment such as forklifts and copiers.

The lease liability is measured at the present value of fixed lease payments over the lease term.

The lease liability includes payments allocated to lease components, while payments allocated to non-lease components are expensed as incurred for all asset classes.

The Company uses its incremental borrowing rate to discount the total cash payments to present value for each lease.

The Company reviews each lease to determine if there is a more appropriate discount rate to apply.

The initial measurement of the ROU asset includes the initial measurement of the lease liability, fixed lease payments made in advance of the lease commencement date and initial direct costs incurred by the Company and excludes lease incentives.

Variable lease payments, such as payments based on an index rate or usage, are expensed as incurred and excluded from lease liabilities and ROU assets.

Upon commencement of the lease, rent expense is recognized on a straight-line basis for each operating lease.

Each financing lease ROU asset is amortized on a straight-line basis over the lease period.

TestEquity and the Lawson Partsmaster business have equipment leasing programs for customers.

These leases are classified as operating leases.

The Company has elected the practical expedient to exclude any short-term lease, defined as a lease with an initial term of 12 months or less, from the provisions of ASC 842.

The short-term leases are not recorded in the consolidated balance sheets.

The lease expense for short-term leases is recognized on a straight-line basis over the lease term.

The Lawson and TestEquity segments operate as a lessor and rent certain equipment to customers through leases classified as operating leases.

The leased equipment is recognized in Rental equipment, net in the Consolidated Balance Sheets and the leasing revenue is recognized on a straight-line basis.

Earnings per Share — Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period.

Earnings per Share — Basic earnings per share ("EPS") is computed by dividing net income by the weighted-average number of common shares outstanding during the period.

Diluted earnings per share is computed using the weighted-average number of shares of common stock and, if dilutive, common stock equivalents outstanding during the period.

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Contingently issuable shares are considered outstanding common shares and included in basic EPS as of the date that all necessary conditions have been satisfied (i.e., when issuance of the shares is no longer contingent).

For diluted EPS, the contingently issuable shares should be included in

the denominator of the diluted EPS calculation as of the beginning of the interim period in which the conditions are satisfied and the earnout arrangements have been resolved.

For diluted EPS, the contingently issuable shares should be included in the denominator of the diluted EPS calculation as of the beginning of the interim period in which the conditions are satisfied and the earnout arrangements have been resolved.

In accordance with ASC 260, Earnings per Share ("ASC 260"), the historical EPS was retrospectively adjusted to reflect the impact of the two -for-one stock split that occurred during 2023.

For the reverse acquisition period prior to April 1, 2022, the Company calculates the basic EPS for each comparative period before the acquisition date presented in the consolidated financial statements by dividing the income of the accounting acquirer attributable to common shareholders in each of those periods by the accounting acquirer’s historical weighted-average number of common shares outstanding.

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Foreign currency transaction losses of $ 1.5 million and $ 0.9 million were recorded for 2023 and 2022, respectively, as a component of Other income (expense) in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Treasury Stock — The Company repurchased 54,089 shares of its common stock in 2022 and no shares of its common stock in 2021 through its previously announced stock repurchase plan.

The Company repurc hased 12,082 shares of its common stock i n 2022 from employees upon the vesting of restricted stock to offset the income taxes owed by those employees.

Treasury Stock — The Company repurchased 138,725 shares of its common stock during 2023 and 108,178 shares of its common stock during 2022 through its previously announced stock repurchase plan.

The Company repurc hased 11,378 shares of its common stock i n 2023 and 24,163 shares of its common stock in 2022 from employees upon the vesting of restricted stock to offset the income taxes owed by those employees.

The Company accounts for treasury stock using the cost method and includes treasury stock as a component of stockholders’ equity.

The cost of the common stock repurchased and held in treasury wa s $ 2.5 million in 2022.

The cost of the common stock repurchased during 2023 and held in treasury wa s $ 3.9 million .

Segment Information — ASC 280, Segment Reporting , establishes standards for reporting information about operating segments.

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The Company’s chief operating decision-maker (“CODM”) is the Chief Executive Officer of DSG.

The CODM reviews the financial performance and the results of operations of the segments when making decisions about allocating resources and assessing performance of the Company.

The Company has determined it has four operating segments:

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The Company’s three reportable segments include (i) Lawson, (ii) Gexpro Services and (iii) TestEquity.

The Company’s CODM reviews the operating results of these reportable segments for the purpose of allocating resources and evaluating financial performance.

There was no intersegment revenue.

The Company’s CODM reviews the operating results of the segments for the purpose of allocating resources and evaluating financial performance.

The reporting segments follow the same accounting policies used in the preparation of the Company’s consolidated financial statements.

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While the Company uses its best estimates and assumptions for the purchase price allocation process to value assets acquired and liabilities assumed at the acquisition date, the estimates are inherently uncertain and subject to refinement.

As a result, during the measurement period, which may be up

to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.

Fair Value Measurements — The Company applies the guidance in ASC 820, Fair Value Measurements to account for financial assets and liabilities measured on a recurring basis.

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Earnout Derivative Liability — The Company recorded an earnout derivative liability for the future contingent equity shares related to the TestEquity Holdback Shares and the Gexpro Services Holdback Shares provisions within the Merger Agreements.

The contingently issuable shares are not indexed to Company common stock and, therefore, are accounted for as liability classified instruments in accordance with ASC 815-40 , Contracts in Entity’s Own Equity , as the events that determine the number of contingently issuable shares required to be released or issued, as the case may be, include events that are not solely indexed to the fair value of Company common stock.

The contingently issuable shares are not indexed to DSG common stock and, therefore, are accounted for as liability classified instruments in accordance with ASC 815-40 , Contracts in Entity’s Own Equity , as the events that determine the number of contingently issuable shares required to be released or issued, as the case may be, include events that are not solely indexed to the fair value of DSG common stock.

The contingently issuable shares were initially measured at the Merger Date and were subsequently measured at each reporting date until settled, or when they met the criteria for equity classification.

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The contingently issuable shares are included in the denominator of the basic earnings per share calculation as of the date that all necessary conditions have been satisfied (i.e., when issuance of the shares is no longer contingent).

For diluted earnings per share, the contingently issuable shares are included in the denominator of the diluted earnings per share calculation as of the beginning of the interim period in which the conditions are satisfied and the earnout arrangements have been resolved.

earnings per share, the contingently issuable shares are included in the denominator of the diluted earnings per share calculation as of the beginning of the interim period in which the conditions are satisfied and the earnout arrangements have been resolved.

See Note 12 – Earnings Per Share for further information.

Use of Estimates — Preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported for service revenue, service cost, allowance for doubtful accounts, inventory reserves, goodwill and intangible assets valuation, stock-based compensation and income taxes in the consolidated financial statements and accompanying notes.

Use of Estimates — Preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported for service revenue, service cost, allowance for doubtful accounts, inventory write-offs, goodwill and intangible assets valuation, stock-based compensation and income taxes in the consolidated financial statements and accompanying notes.

Actual results could differ from these estimates.

Supplier Concentrations — During 2023 and 2022, TestEquity purchases of inventory from one unrelated supplier accounted for 5.4 % and 10.3 % of the Company's total inventory purchases, respectively.

Recent Accounting Pronouncements - Not Yet Adopted

Reclassifications — Certain prior period amounts have been reclassified to conform to the current period presentation, primarily relating to the presentation of accrued expenses and other liabilities.

These reclassifications did not result in any changes to previously reported total assets, stockholder’s equity, and net income.

Recent Accounting Pronouncements - Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which revises the requirements for how an entity should measure credit losses on financial instruments.

The pronouncement is effective for smaller reporting companies in fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and the new guidance will be applied on a prospective basis.

The Company is currently evaluating the effect of adopting this new standard and the impact on its financial position or results of operations.

The pronouncement was effective for smaller reporting companies in fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and the new guidance will be applied on a prospective basis.

The Company adopted this guidance January 1, 2023.

The adoption had no material impact on the Company's financial condition, results of operations or cash flows.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805):

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The pronouncement is effective in fiscal years beginning after December 15, 2022 and early adoption is permitted.

The Company is currently evaluating the effect of adopting this new standard and does not expect the adoption to have a material impact on its financial position or results of operations.

The Company adopted this guidance on January 1, 2023.

The adoption had no impact on the Company's financial condition, results of operations or cash flows and will be applied to business combinations on or after the adoption date.

Recent Accounting Pronoun cements - Not Yet Adopted

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses.

The pronouncement is effective for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The adoption of ASU 2023-07 should be applied retrospectively to all prior periods presented in the financial statements.

The Company is currently evaluating the impact that the adoption will have on its financial statement disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures to require greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid.

The pronouncement is effective on a prospective basis for annual periods beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of the adoption on its financial statement disclosures.

Note 3 – Business Acquisitions

Completion of Mergers

Combination with TestEquity and Gexpro Services

On April 1, 2022, the Mergers were completed via all-stock merger transactions.

Pursuant to the Merger Agreements, DSG issued an aggregate of 20.6 million shares of DSG common stock to the former owners of TestEquity and Gexpro Services.

An additional 1.7 million shares of DSG common stock remain potentially issuable upon meeting the conditions of certain earnout provisions.

On March 20, 2023, an additional 3.4 million shares of DSG common stock were issued.

Refer to Note 1 – Nature of Operations and Basis of Presentation for further information regarding the Mergers.

The business combination of Lawson, TestEquity and Gexpro Services combines three value added complementary distribution businesses.

Lawson is a distributor of products and services to the industrial, commercial, institutional, and governmental MRO marketplace.

Lawson is a distributor of specialty products and services to the industrial, commercial, institutional, and governmental MRO marketplace.

TestEquity is a distributor of parts and services to the industrial, commercial, institutional and governmental electronics manufacturing and test and measurement market.

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Number of DSG common shares 18,240,334

DSG closing price per common stock on March 31, 2022 $ 38.54

DSG common stock closing price per share on March 31, 2022 $ 19.27

Fair value of shares exchanged $ 351,491

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Goodwill generated from the Mergers is no t deductible for tax purposes.

During 2022, the Company recorded measurement period adjustments that resulted in a $ 8.4 million net decrease to goodwill.

The measurement period adjustments were associated with adjustments to the fair value of certain property, plant and equipment, changes in estimates related to leases and changes in the deferred tax liability related to intangible assets.

The following table summarizes the allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed at the Merger Date and after applying measurement period adjustments:

(in thousands) Merger Date Measurement Period Adjustments Final Purchase Price Allocation

The following table summarizes the allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed at the Merger Date after applying measurement period adjustments:

(in thousands) Final Purchase Price Allocation

Current assets $ 148,308

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Total other intangible assets $ 119,060

The Company incurred transaction costs related to the Mergers of $ 12.7 million for 2022 and $ 2.4 million for 2021 which are included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Unaudited Pro Forma Information

The following table presents estimated unaudited pro forma consolidated financial information for DSG as if the Mergers and other acquisitions disclosed below occurred on January 1, 2021 for the 2022 acquisitions and January 1, 2020 for the 2021 acquisitions.

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 been completed on the date indicated.

Year Ended December 31,

(in thousands) 2022 2021

Revenue $ 1,321,978 $ 1,158,798

Net income 20,943 369

Other Acquisitions

TestEquity and Gexpro Services acquired other businesses during 2022 and 2021.

The consideration exchanged for the acquired businesses included various combinations of cash, sellers notes, and forms of share based payments.

DSG and its operating companies acquired other businesses during the years ended December 31, 2023 and 2022.

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

For each acquisition, the allocation of consideration exchanged to the assets acquired and liabilities assumed was based on estimated acquisition-date fair values.

Certain estimated values for the acquisitions, including the valuation of intangibles, contingent consideration, and income taxes (including deferred taxes and associated valuation allowances), are not yet finalized, and the preliminary purchase price allocations are subject to change as the Company completes its analysis of the fair value at the date of acquisition.

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

During 2022, TestEquity acquired Interworld Highway, LLC, National Test Equipment, and Instrumex, and Gexpro Services acquired Resolux ApS ("Resolux") and Frontier Technologies Brewton, LLC and Frontier Engineering and Manufacturing Technologies, Inc.

("Frontier").

The accounting for the Interworld Highway, LLC, Resolux and Frontier acquisitions was complete as of December 31, 2022.

The purchase consideration for each business acquired and the allocation of the consideration exchanged to the estimated fair values of assets acquired and liabilities assumed is summarized below:

(in thousands) Interworld Highway, LLC Resolux Frontier National Test Equipment Instrumex

Acquisition date April 29, 2022 January 3, 2022 March 31, 2022 June 1, 2022 December 1, 2022 Total

Current assets $ 15,018 $ 10,210 $ 2,881 $ 2,187 $ 3,495 $ 33,791

Purchase of HIS Company, Inc.

On June 8, 2023, DSG acquired all of the issued and outstanding capital stock of HIS Company, Inc., a Texas corporation ("Hisco" and the "Hisco Transaction"), a distributor of specialty products serving industrial technology applications, pursuant to a Stock Purchase Agreement dated March 30, 2023 (the "Purchase Agreement").

In connection with this transaction, DSG combined the operations of TestEquity and Hisco, further expanding the product and service offerings at TestEquity, as well as all of our operating businesses under DSG.

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 offers customers a broad range of products, including adhesives, chemicals and tapes, as well as specialty materials such as electrostatic discharge, thermal management materials and static shielding bags.

Hisco also offers vendor-managed inventory and Radio Frequency Identification ("RFID") programs with specialized warehousing for chemical management, logistics services and cold storage.

The total purchase consideration exchanged for the Hisco Transaction was $ 267.3 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.

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.

For the year ended December 31, 2023, $ 22.8 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 Consolidated Statements of Operations and Comprehensive Income (Loss).

DSG funded the Hisco Transaction with borrowings under its 2023 Amended Credit Agreement (as defined below) and proceeds raised from the Rights Offering (as defined below).

Refer to Note 9 – Debt for information about the 2023 Amended 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 2023, the Company issued 144,608 shares of DSG common stock to the eligible Hisco employees and received approximately $ 3.3 million.

During 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 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) June 8, 2023

Acquisition Date Measurement Period Adjustments Adjusted Total

Accounts Receivable (1)

$ 66,792 $ ( 2,269 ) $ 64,523

Inventory 61,300 ( 645 ) 60,655

Other current assets 3,858 350 4,208

Property, plant and equipment 48,326 — 48,326

3 unchanged sentences

Trade names 25,600 ( 300 ) 25,300

Deferred tax liability, net of deferred tax asset ( 2,544 ) 81 ( 2,463 )

Other assets 2,495 — 2,495

Accounts payable ( 16,689 ) — ( 16,689 )

Current portion of long term debt — — — ( 2,073 ) — ( 2,073 )

Lease liabilities ( 22,372 ) 293 ( 22,079 )

Accrued expenses and other liabilities ( 8,961 ) ( 289 ) ( 9,250 )

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

Goodwill 49,718 232 49,950

1 unchanged sentence

Cash consideration $ 252,007 $ — $ 252,007

Seller's notes — — — 1,169 — 1,169

Deferred consideration (2)

12,418 2,741 15,159

Contingent consideration 6,000 ( 5,900 ) 100

Total purchase consideration exchanged, net of cash acquired $ 270,425 $ ( 3,159 ) $ 267,266

Following the initial fair value measurement, the Company updated the purchase price allocations as follows:

• Resolux was adjusted for changes in the deferred tax liability related to intangible assets.

The adjustments to these balances resulted in a $ 3.8 million increase to goodwill.

• Frontier was adjusted for the valuation of intangible assets, working capital, accrued expenses and other liabilities.

The adjustments to these balances resulted in a $ 1.2 million increase to goodwill and $ 0.5 million increase to the total purchase consideration, net of cash acquired.

• National Test Equipment was adjusted to reflect changes in working capital, accrued expenses and other liabilities.

The adjustments to these balances resulted in a $ 0.3 million decrease to goodwill.

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

As of March 31, 2022 and December 31, 2022, the fair value of the earn-out was $ 0.9 million and $ 1.7 million, respectively, with amounts recorded in Accrued expenses and other current liabilities and Other liabilities in the Consolidated Balance Sheets.

Changes in the fair value of the earn-out are recorded as a component of Change in fair value of earnout liability in the Consolidated Statements of Operations and Comprehensive Income (Loss).

During 2021, TestEquity acquired MCS Test Group Limited ("MCS"), and Gexpro Services acquired Omni Fasteners Inc.

("Omni"), National Engineered Fasteners ("NEF") and State Industrial Supply ("SIS").

These acquisitions were provisionally accounted for as of December 31, 2021.

The accounting was completed during the year ended December 31, 2022.

The purchase consideration for each business acquired during 2021 and the allocation of the consideration exchanged to the estimated fair values of assets acquired and liabilities assumed is summarized below:

(in thousands) Omni NEF SIS MCS

Acquisition date June 8, 2021 November 1, 2021 December 31, 2021 July 31, 2021 Total

(1) Accounts receivable had an estimated fair value of $ 64.5 million and a gross contractual value of $ 66.8 million.

The difference represents the Company’s best estimate of the contractual cash flows that will not be collected.

(2) The Company paid $ 7.8 million of the Hisco deferred consideration during 2023.

Certain estimated values for the Hisco Transaction, including the valuation of intangibles, property, plant and equipment, contingent consideration, and income taxes (including deferred taxes and associated valuation allowances), are not yet finalized, and the preliminary purchase price allocation is subject to change as the Company completes its analysis of the fair value at the date of acquisition.

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 sheets 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 $ 0.2 million increase to goodwill and a $ 3.2 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.

As a result of the Hisco Transaction, the Company recorded tax deductible goodwill of $ 41.4 million in 2023 that may result in a tax benefit in future periods and is primarily attributable to the benefits we expect to derive from expected synergies including expanded product and service offerings and cross-selling opportunities.

Purchases of Other Companies in 2022

During the year ended December 31, 2022, TestEquity acquired Interworld Highway, LLC, National Test Equipment, and Instrumex, and Gexpro Services acquired Resolux ApS ("Resolux") and Frontier Technologies Brewton, LLC and Frontier Engineering and Manufacturing Technologies, Inc.

("Frontier").

The consideration exchanged for these acquired businesses included various combinations of cash and sellers' notes.

The accounting for each acquisition was completed within the one-year measurement periods following the respective acquisition dates and any adjustments were recorded in the

period in which the adjustments were determined.

The purchase consideration for each business acquired and the allocation of the consideration exchanged to the estimated fair values of assets acquired and liabilities assumed is summarized below:

(in thousands) Interworld Highway, LLC Resolux Frontier National Test Equipment Instrumex

Acquisition date April 29, 2022 January 3, 2022 March 31, 2022 June 1, 2022 December 1, 2022 Total

Current assets $ 15,018 $ 10,210 $ 2,881 $ 2,187 $ 3,495 $ 33,791

4 unchanged sentences

Trade names 4,600 6,100 3,000 — — 13,700

Other intangible assets 9 — 380 — 389

Other assets 10 86 — — 14 110

Accounts payable ( 8,856 ) ( 3,058 ) ( 778 ) ( 196 ) ( 1,305 ) ( 14,193 )

Current portion of long-term debt — — — ( 2,073 ) — ( 2,073 )

Accrued expenses and other liabilities — ( 4,747 ) ( 1,462 ) ( 1,171 ) ( 626 ) ( 8,006 )

Lease obligation — ( 1,774 ) ( 799 ) ( 2,573 )

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

Gain on bargain purchase — ( 1,363 ) — — ( 1,363 )

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

1 unchanged sentence

Seller's notes — — — 1,169 — 1,169

Shared based payments — 2,752 — 4,194 6,946

Deferred consideration — — — — 474 474

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

A gain on bargain purchase related to the acquisition of NEF was recognized within Other income (expense), net in the Consolidated Statements of Operations and Comprehensive Income (Loss) in the fourth quarter of 2021.

The gain of $ 1.4 million was calculated as the excess of net assets recognized over the consideration transferred.

The bargain purchase was primarily attributable to owners that were highly motivated to sell.

The Company incurred transaction costs related to the other closed acquisitions listed above and other potential future acquisitions of $ 2.8 million for 2022 and $ 6.4 million for 2021.

As a result of acquisitions completed, the Company recorded tax deductible goodwill of $ 53.6 million in 2022 and $ 5.6 million in 2021 that may result in a tax benefit in future periods.

Other Acquisitions Pro Forma Information - The pro forma information for other acquisitions was included in the estimated unaudited pro forma consolidated financial information for DSG, which is presented above under Pro Forma Information .

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.

During 2023, the Company completed the purchase price allocation for Instrumex with adjustments to accrued expenses and other liabilities and long-term debt based on the final fair value measurements.

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.

Unaudited Pro Forma Information

The following table presents estimated unaudited pro forma consolidated financial information for DSG as if the Mergers and other acquisitions disclosed above occurred on January 1, 2022 for the acquisition completed during 2023 and January 1, 2021 for the acquisitions completed during 2022.

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.

Year Ended December 31,

(in thousands) 2023 2022

Revenue $ 1,752,465 $ 1,753,939

Net income ( 37,114 ) ( 6,264 )

Actual Results of Business Acquisitions

6 unchanged sentences

Net Income $ — $ ( 14,478 ) $ ( 14,478 ) $ 15,283 $ 8,670 $ 23,953

The Company incurred transaction and integration costs related to the Mergers and other completed and contemplated acquisitions of $ 11.6 million for the year ended December 31, 2023 and $ 15.4 million for the year ended December 31, 2022, which are included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Note 4 – Revenue Recognition

Under the definition of a contract as defined by ASC 606, the Company considers contracts to be created at the time an order to purchase product and services is agreed upon regardless of whether there is a written contract.

Revenue from customers is recognized when obligations under the terms of a contract are satisfied;

this generally occurs with the delivery of products or services.

Revenue from customers is measured as the amount of consideration the Company expects to receive in exchange for the delivery of goods or services.

Contracts may last from one month to one year or more and may have renewal terms that extend indefinitely at the option of either party.

Price is typically based on market conditions, competition, changes in the industry and product availability.

Volumes fluctuate primarily as a result of customer demand and product availability.

Consistent with the way the Company manages its businesses, the Company refers to sales under service agreements, which includes both goods (such as parts, equipment and equipment upgrades) and related services (such as monitoring, maintenance and repairs) as sales of “services,” which is an important part of the Company’s operations.

The Company has no significant financing components in its contracts with customers.

The Company records revenue net of certain taxes, such as sales taxes, that are assessed by governmental authorities on the Company’s customers.

The Company also operates as a lessor and recognizes lease revenue on a straight-line basis over the life of each lease.

The Company has adopted the practical expedient not to separate the non-lease components that would be within the scope of ASC 606 from the associated lease component as the relevant criteria under ASC 842 are met.

The Company does not incur significant costs to obtain contracts.

Incidental items that are immaterial in the context of the contract are recognized as expenses.

Sales of products and services to customers are invoiced and settled on a monthly basis.

ASC 606 requires an entity to present a contract liability in instances where the customer is entitled to a volume rebate based on purchases made during the period.

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;

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

Accounts receivable represents the Company’s unconditional right to receive consideration from its customers.

Lawson Segment

The Lawson segment has two distinct performance obligations offered to its customers:

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.

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

Lawson generates revenue primarily from the sale of MRO products to its customers.

Revenue related to product sales is recognized at the time that control of the product has been transferred to the customer;

either at the time the product is shipped or the time the product has been received by the customer.

Lawson does not commit to long-term contracts to sell customers a certain minimum quantity of products.

Lawson offers a VMI service proposition to its customers.

A portion of these services, primarily related to stocking of product and maintenance of the MRO inventory, is provided over a short period of time after control of the purchased product has been transferred to the customer.

Since certain obligations pursuant to the VMI service agreement have not been provided at the time the control of the product transfers to the customer, that portion of expected consideration is deferred until the time that those services have been provided and the related performance obligations have been satisfied.

TestEquity Segment

TestEquity’s contracts with customers generally represent a single performance obligation to sell its products.

Revenue from contracts with customers reflects the transaction prices for contracts reduced by variable consideration.

TestEquity provides a rebate to select customers if predetermined purchase thresholds are met.

The rebate consideration is not in exchange for a distinct good or service.

Variable consideration is estimated using the expected-value method considering all reasonably available information, including TestEquity’s historical experience and current expectations, and is reflected in the transaction price when sales are recorded.

Sales returns are generally accepted by TestEquity, however, sales returns are not material to the Company’s operations.

TestEquity provides an assurance type warranty which is not sold separately and does not represent a separate performance obligation.

TestEquity generates revenue from contracts with customers through the sale of new and used electronic test and measurement products.

Typically, TestEquity has a purchase order or master service agreement with the customer that specifies the goods and/or services to be provided.

TestEquity generally invoices customers as goods are shipped.

Fees are typically due and payable 30 days after date of shipment.

Generally, customers gain control of the goods upon providing the product to the carrier, or when services are completed.

For the majority of transactions, TestEquity recognizes revenue at the time of shipment, when control passes to the customer.

For consigned inventory, revenue is recognized when inventory is removed from TestEquity’s stock location and control passes to the customer.

Gexpro Services Segment

Gexpro Services’ contracts with customers generally represent a single performance obligation to sell its products.

Revenue from sales of Gexpro Services’ products are recognized upon transfer of control to the customer, which is typically when the product has been shipped from its distribution facilities.

The transaction price is the amount of consideration to which Gexpro Services expects to be entitled in exchange for transferring goods to the customer.

Revenue is recorded based on the transaction price, which includes fixed consideration and an estimate of variable consideration such as, early payment/volume discounts and rebates.

The amount of variable consideration included in the transaction price is constrained and is included only to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

Gexpro Services’ products are marketed and sold primarily to original equipment manufacturers globally.

Sales of products are subject to economic conditions and may fluctuate based on changes in the industry, trade policies and financial markets.

Payment terms on invoiced amounts range from 10 to 120 days.

In instances where the timing of revenue recognition differs from the timing of the right to invoice, the Company has determined that a significant financing component does not exist.

Disaggregation of Revenue

The Company’s revenue is primarily comprised of product sales to customers.

The Company has disaggregated revenue by geographic area and by segment as it most reasonably depicts the amount, timing and uncertainty of revenue and cash flows generated from our contracts with customers.

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

7 unchanged sentences

Other 9,841 3,681

Intersegment revenue elimination ( 1,700 ) —

Total revenue $ 1,570,402 $ 1,151,422

See Note 14 – Segment Information for disaggregation of revenue by segment.

Rental Revenue

TestEquity rents new and used electronic test and measurement equipment to customers in many industries.

These leases are classified as operating leases under ASC 842.

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

The TestEquity rental program generated revenue of $ 13.8 million and $ 13.7 million during 2022 and 2021, respectively.

The unearned rental revenue related to customer prepayments on equipment leases of $ 0.3 million at December 31, 2022 and $ 0.5 million at December 31, 2021 was included in Accrued expenses and other current liabilities in the Consolidated Balance Sheet and is expected to be earned in its entirety during the next twelve months.

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

These leases are classified as operating leases under ASC 842.

The leased machines are included in Rental equipment, net, in the Consolidated Balance Sheet, and the leasing revenue is recognized on a straight-line basis.

The Torrents machine leasing program generated $ 3.9 million of revenue during 2022.

The unearned rental revenu e, which was included as a component of Accrued expenses and other current liabilities in the Consolidated Balance Sheet, was no minal at December 31, 2022 and is expected to be earned during the next twelve months.

Note 5 – Supplemental Financial Statement Information

Inventories, net

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

(in thousands) 2022 2021

Inventories, gross $ 275,072 $ 140,544

Reserve for obsolete and excess inventory ( 10,698 ) ( 7,827 )

Inventories, net $ 264,374 $ 132,717

Changes in the reserve for obsolete and excess inventory were as follows:

TestEquity rents new and used electronic test and measurement equipment to customers in multiple industries.

Lawso n leases parts washer machines to customers.

This leased equipment is included in Rental equipment, net in the Consolidated Balance Sheets, and rental revenue is included in Revenue in the Consolidated Statements of Operations and Comprehensive Income (Loss) .

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

Rental revenue from operating leases:

Year Ended December 31,

(in thousands) 2023 2022

Balance at beginning of period $ ( 7,827 ) $ ( 7,895 )

Provision charged to expense (net) ( 6,547 ) ( 1,224 )

Write-offs 3,676 1,292

Balance at end of period $ ( 10,698 ) $ ( 7,827 )

Revenue from operating leases $ 17,186 $ 17,675

Note 5 – Supplemental Financial Statement Information

Restricted Cash

The Company has agreed to maintain restricted cash of $ 15.7 million under agreements with outside parties.

An escrow account of $ 12.5 million was established in conjunction with the Hisco Transaction, to be released upon Hisco meeting certain working capital and other post-closing requirements as of the one year post-acquisition date with a balance of $ 7.3 million at December 31, 2023 .

The Company is restricted from withdrawing this balance without the prior consent of the sellers.

The remaining restricted cash balance of $ 8.4 million represents collateral for certain borrowings under the 2023 Amended Credit Agreement, and the Company is restricted from withdrawing this balance without the prior consent of the respective lenders.

Property, Plant and Equipment, net

11 unchanged sentences

Property, plant and equipment, net $ 113,811 $ 64,395

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

(1) Construction in progress primarily relates 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 $ 13.1 million in 2023 and $ 6.5 million in 2022.

12 unchanged sentences

Accrued compensation $ 25,371 $ 24,094

Accrued customer rebates 5,053 2,657

Accrued severance and acquisition related retention bonus 21,128 927

Accrued and withheld taxes, other than income taxes 8,661 4,885

Deferred acquisition payments and accrued earnout liabilities 7,513 1,383

Accrued stock-based compensation 5,573 3,340

Deferred revenue 2,313 485

Accrued customer rebates 5,473 5,053

Accrued interest 3,301 1,775

Accrued health benefits 1,306 59

Accrued severance 852 —

Accrued income taxes 1,994 731

Accrued health benefits 1,728 1,306

Deferred revenue 810 2,313

Other 15,689 16,870

Total accrued expenses and other current liabilities $ 97,241 $ 62,677

Other Liabilities

Other liabilities consisted of the following:

(in thousands) 2023 2022

Security bonus plan $ 8,666 $ 9,651

Deferred compensation 11,041 9,962

Other 5,736 4,036

Total other liabilities $ 25,443 $ 23,649

Security Bonus Plan

The Company has a security bonus plan which was previously created for the benefit of its Lawson independent sales representatives, under the terms of which participants are credited with a percentage of their annual net commissions.

The aggregate amounts credited to participants’ accounts vest 25 % after five years , and an additional 5 % vests each year thereafter upon qualification for the plan.

On January 1, 2013, the Company converted all of its U.S.

On January 1, 2013, the Company converted all of its Lawson U.S.

independent sales representatives to employees.

2 unchanged sentences

Expenses incurred for the security bonus plan were $ 0.2 million for the year ended December 31, 2023 .

The security bonus plan is partially funded by an $ 8.0 million investment in the cash surrender value in life insurance of certain employees which is included as a component of Cash value of life insurance in the Consolidated Balance Sheet .

As of December 31, 2022, t he $ 9.7 million liability is included in the Security bonus plan in the Consolidated Balance Sheet.

The security bonus plan is partially funded by an $ 8.2 million investment in the cash surrender value in life insurance of certain employees which is included as a component of Cash value of life insurance in the Consolidated Balance Sheets .

As of December 31, 2023, t he $ 8.9 million liability is primarily included in the Security bonus plan in the Consolidated Balance Sheets with the remaining portion included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Note 6 – Goodwill and Intangible Assets

3 unchanged sentences

Acquisitions 156,133 43,992 21,849 24,887 246,861

— 7,245 3,963 — 11,208

Impact of foreign exchange rates ( 360 ) — ( 527 ) ( 2,137 ) ( 3,024 )

Balance at December 31, 2022 155,773 114,104 55,421 22,750 348,048

23 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 years ended December 31, 2022 and 2021 were as follows (in thousands):

The expenses related to our leasing activity for the years ended December 31, 2023 and 2022 was as follows (in thousands):

Year Ended December 31,

7 unchanged sentences

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

The value of net assets and liabilities generated by leasing activity as of December 31, 2022 and December 31, 2021 were as follows (in thousands):

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

Lease Type 2023 2022

9 unchanged sentences

Total long term lease obligation $ 67,065 $ 39,828

(1) Operating lease assets were recorded net of accumulated amortization of $ 14.8 million as of December 31, 2022 a nd $ 4.3 million as of December 31, 2021.

(2) Financing lease assets were recorded net of accumulated amortization as a component of Other assets in the Consolidated Balance Sheet of $ 0.9 million as of December 31, 2022 and $ 0.0 million as of December 31, 2021.

The value of lease liabilities generated by leasing activities as of December 31, 2022 were as follows (in thousands):

The value of lease liabilities related to our operating and finance leases as of December 31, 2023 was as follows (in thousands):

Maturity Date of Lease Liabilities Operating Leases Financing Leases Total

Year one $ 13,063 $ 605 $ 13,668

Year two 11,220 434 11,654

Year three 10,316 271 10,587

Year four 6,977 196 7,173

Year five 5,261 71 5,332

Subsequent years 12,355 — 12,355

2024 $ 18,555 $ 615 $ 19,170

2025 18,299 435 18,734

2026 14,488 344 14,832

2027 12,371 117 12,488

2028 10,440 4 10,444

Thereafter 29,841 1 29,842

Total lease payments 103,994 1,516 105,510

1 unchanged sentence

Present value of lease liabilities $ 79,244 $ 1,370 $ 80,614

The weighted average lease terms and interest rates of leases held as of December 31, 2022 were as follows:

Lease Type Weighted Average Term in Years Weighted Average Interest Rate

The weighted average lease terms and interest rates of leases held as of December 31, 2023 and 2022 were as follows:

Year Ended December 31,

Operating Leases

Financing Leases 3.1 6.6 %

Finance Leases

Operating Leases

Finance Leases

Weighted average remaining lease term

6.6 years 2.8 years 5.6 years 3.1 years

Weighted average interest rate

7.8 % 7.1 % 7.1 % 6.6 %

The cash outflows of leasing activity for the years ended December 31, 2023 and 2022 were as follows (in thousands):

5 unchanged sentences

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

Note 8 – Earnout Derivative Liability

Note 8 – Earnout Liabilities

Combination with TestEquity and Gexpro Services

On the Merger Date, the Company recorded an earnout derivative liability for the two earnout provisions within the Merger Agreements.

The Company estimated the fair value of the earnout derivative liability based on an aggregate of 1,162,000 additional shares available to be issued under the two earnout provisions of the Merger Agreements.

The aggregate of 1,162,000 shares is comprised of 700,000 shares of DSG common stock that are contingently issuable to (or forfeitable by) the TestEquity Equityholder and 462,000 shares of DSG common stock that are contingently issuable to (or forfeitable by) the Gexpro Services Stockholder.

The additional 538,000 shares of the remaining potential shares of the earnout were not recorded as an earnout derivative liability as the acquisition contingency for these shares was met at the Merger Date.

The Company's earnout derivative liability is classified as a Level 3 instrument and is measured at fair value on a recurring basis.

The Company estimated the initial fair value of the earnout derivative liability based on an aggregate of 2,324,000 additional shares available to be issued under the two earnout provisions of the Merger Agreements.

The aggregate of 2,324,000 shares was comprised of 1,400,000 shares of DSG common stock that were contingently issuable to (or forfeitable by) the TestEquity Equityholder and 924,000 shares of DSG common stock that were contingently issuable to (or forfeitable by) the Gexpro Services Stockholder, in each case as of the Merger Date.

The additional 1,076,000 shares that were potentially issuable as of the Merger Date under the earnouts were not recorded as an earnout derivative liability as the acquisition contingency for these shares was determined to have been met at the Merger Date.

The Company's earnout derivative liability was classified as a Level 3 instrument and was measured at fair value on a recurring basis.

The fair value of the earnout derivative liability was measured using the Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis for the year ended December 31, 2022.

Inputs to that model include the expected time to liquidity, the risk-free interest rate over the term, expected volatility based on representative peer companies and the estimated fair value of the underlying class of common stock.

The significant unobservable inputs used in the fair value measurement of the earnout derivative liability are the fair value of the underlying stock at the valuation date and the estimated term of the earnout arrangement periods.

Inputs to that model included the expected time to liquidity, the risk-free interest rate over the term, expected volatility based on representative peer companies and the estimated fair value of the underlying class of common stock.

The significant unobservable inputs used in the fair value measurement of the earnout derivative liability were the fair value of the underlying stock at the valuation date and the estimated term of the earnout arrangement periods.

Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement.

The estimated aggregate fair value of the earnout derivative liability recorded on the 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 met.

Immediately prior to reclassifications, the respective shares were remeasured to fair value.

For the year ended December 31, 2022, the Company recorded income of $ 0.3 million as a component of Change in fair value of earnout liability in the Consolidated Statements of Operations and Comprehensive Income (Loss) due to changes in the fair value of the earnout derivative liability.

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, 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.

Immediately prior to the reclassifications, the respective shares were remeasured to fair value.

For the year ended December 31, 2022, the Company recorded income of $ 0.3 million as a component of Change in fair value of earnout liabilities in the Consolidated Statements of Operations and Comprehensive Income (Loss) due to changes in the fair value of the earnout derivative liability.

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

See Fair Value Measurements in Note 2 – Summary of Significant Accounting Policies for further information.

The change in the fair value of the earnout derivative liability was as follows:

(in thousands) Amount

Balance at December 31, 2021 $ —

Initial recognition on Merger Date 43,900

Change in fair value ( 276 )

Reclassifications to equity at fair value ( 43,624 )

Balance at December 31, 2022 $ —

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.

Hisco Acquisition

The Hisco Transaction includes a potential earn-out payment of up to $ 12.6 million, subject to Hisco achieving certain performance targets.

The earn-out payment is calculated based on the gross profit of Hisco and its affiliates for the twelve months ending October 31, 2023, subject to certain adjustments and exclusions set forth in the Purchase Agreement.

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 December 31, 2023, the fair value of the earn-out was $ 0.1 million and $ 0.0 million , respectively, with amounts recorded in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Frontier Acquisition

During the first quarter of 2023, a $ 1.0 million earn-out payment was made based on the achievement of certain milestones in 2022.

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 December 31, 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 Consolidated Balance Sheets.

The Company recorded income of $ 0.7 million for changes in the fair value of the earn-out liability for the year ended December 31, 2023 as a component of Change in fair value of earnout liabilities in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Note 9 – Debt

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Senior secured delayed draw term loan 46,875 50,000

Incremental term loan 297,375 —

Other revolving line of credit 2,301 1,352

Previous revolving credit facilities — 38,707

Previous term loans — 190,337

Total debt 574,676 417,102

Less current portion of long-term debt ( 16,352 ) ( 134,405 )

Less deferred financing costs ( 4,925 ) ( 1,505 )

current portion of long-term debt ( 32,551 ) ( 16,352 )

deferred financing costs ( 6,244 ) ( 4,925 )

Total long-term debt $ 535,881 $ 395,825

Amended and Restated Credit Agreement - April 1, 2022

On April 1, 2022 (the "Closing Date"), DSG and certain of its subsidiaries entered into an Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) by and among DSG, certain subsidiaries of DSG as borrowers or guarantors, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.

Pursuant to the Amended and Restated Credit Agreement, the Company's previous credit agreement was amended and restated in its entirety.

The Amended and Restated Credit Agreement provides for (i) a $ 200 million senior secured revolving credit facility, with a $ 25 million letter of credit sub-facility and a $ 10 million swingline loan sub-facility, (ii) a $ 250 million senior secured initial term loan facility and (iii) a $ 50 million senior secured delayed draw term loan facility.

In addition, the Amended and Restated Credit Agreement permits the Company to increase the commitments under the Amended and Restated Credit Agreement from time to time by up to $ 200 million in the aggregate, subject to, among other things, the receipt of additional commitments from existing and/or new lenders and pro forma compliance with the financial covenants in the Amended and Restated Credit Agreement.

The revolving credit facility is available to be drawn in U.S.

dollars, Canadian dollars and any other additional currencies that may be agreed.

On April 1, 2022, in connection with the Mergers, the Company borrowed $ 250.0 million of initial term loan facility loans and approximately $ 86.0 million of revolving credit facility loans under the Amended and Restated Credit Agreement.

These borrowings were used to 1) repay all obligations and refinance the Company's previous credit agreement, 2) repay certain existing indebtedness of TestEquity and Gexpro Services and their respective subsidiaries, 3) pay fees and expenses in connection with the Mergers, and 4) finance the working capital needs and general corporate purposes of the Company.

A $ 2.8 million loss on the extinguishment of debt for remaining unamortized deferred financing costs associated with the previous indebtedness was recorded in the second quarter of 2022 in connection with the payoff.

The extinguishment is recorded in Loss on extinguishment of debt in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The Amended and Restated Credit Agreement requires that the proceeds of any revolving credit facility loans be used for working capital and general corporate purposes (including, without limitation, permitted acquisitions), and requires that the proceeds of any delayed draw term loan facility be used solely to finance the payment of consideration for (i) the potential acquisition by TestEquity of a certain business that had been previously identified to DSG as a potential acquisition candidate by TestEquity prior to the date of the TestEquity Merger Agreement and (ii) other acquisitions permitted under the Amended and Restated Credit Agreement, and for any fees, costs and expenses incurred in connection therewith.

On April 29, 2022, the Company borrowed the $ 50.0 million available under the delayed draw term loan facility to finance the acquisition of Interworld Highway, LLC.

As of December 31, 2022 , there were $ 243.8 million of term loan facility loans outstanding, $ 50.0 million of delayed draw term loans outstanding and approximately $ 122.0 million of revolving credit facility loans outstanding under the Amended and Restated Credit Agreement.

2023 Amended Credit Agreement

On June 8, 2023, the Company and certain of its subsidiaries entered into the First Amendment to Amended and Restated Credit Agreement (the “First Amendment” and as amended, the "2023 Amended Credit Agreement"), which amended and replaced the previous credit agreement, dated as of April 1, 2022.

The 2023 Amended Credit Agreement provides for (i) a $ 200 million senior secured revolving credit facility, with a $ 25 million letter of credit sub-facility and a $ 10 million swingline loan sub-facility, (ii) a $ 250 million senior secured initial term loan facility, (iii) a $ 305 million incremental term loan, (iv) a $ 50 million senior secured delayed draw term loan facility and (v) the Company to increase the commitments thereunder from time to time by up to $ 200 million in the aggregate, subject to, among other things, the receipt of additional commitments from existing and/or new lenders and pro forma compliance with the financial covenants in the 2023 Amended Credit Agreement.

On June 8, 2023, in connection with the Hisco Transaction, the Company borrowed the $ 305 million under the

incremental term loan.

These borrowings were used, among other things, to partially fund the Hisco Transaction, to repay certain existing indebtedness of Hisco and to pay fees and expenses incurred in connection with the Hisco Transaction and the First Amendment.

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

Net of outstanding letters of credit, there w as $ 198.3 million of borrowi ng availability under the revolving credit facility as of December 31, 2023.

The weighted average interest rate on the outstanding facilities from April 1, 2022 through December 31, 2022 was 5.1 %.

The loans under the Amended and Restated 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 Amended and Restated 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 Amended and Restated Credit Agreement or (ii) the Adjusted Term SOFR Rate or the CDOR Rate (each as defined in the Amended and Restated 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 Amended and Restated Credit Agreement.

Certain closing fees, arrangement fees, administration fees, commitment fees and letter of credit fees are payable to the lenders and the agents under the Amended and Restated Credit Agreement, including a commitment fee on the daily unused amount of the revolving credit facility that will accrue at a rate ranging from 0.15 % to 0.35 % 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 Amended and Restated Credit Agreement.

In addition, the Amended and Restated Credit Agreement provides that the delayed draw term loan facility shall accrue a ticking fee at a rate ranging from 0.15 % to 0.35 % 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 Amended and Restated Credit Agreement, and that such ticking fee shall be payable during the period from the Closing Date to the date on which the lenders’ delayed draw term loan facility commitments terminate.

The fees outlined above are reported as interest expense and vary depending on the total net leverage ratio as defined in the Amended and Restated Credit Agreement.

Fees from the Closing Date through December 31, 2022 were $ 0.4 million.

In connection with the Amended and Restated Credit Agreement, deferred financing costs of $ 4.0 million were incurred.

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

As of December 31, 2022, deferred financing costs net of accumulated amortization were $ 8.0 million of which $ 4.9 million were included in Long-term debt, less current portion, net (related to the senior secured term loan and senior secured delayed draw term loan) and $ 3.1 million were included in Other assets (related to the senior secured revolving credit facility) in the Consolidated Balance Sheets.

Each of the loans under the Amended and Restated Credit Agreement matures on April 1, 2027, at which time all outstanding loans, together with all accrued and unpaid interest, must be repaid and the revolving credit facility commitments will terminate.

The Company is required to repay principal on the term loans each quarter in the following amounts (subject to potential adjustment):

(i) $ 3,125,000 , in the case of the initial term loan facility, and (ii) an amount equal to 1.25 % of the funded delayed draw term loan facility, in the case of the delayed draw term loan facility.

The 2023 Amended Credit Agreement requires that the proceeds of any revolving credit facility loans be used for working capital and general corporate purposes (including, without limitation, permitted acquisitions), and requires that the proceeds of any delayed draw term loan facility be used solely to finance the payment of consideration for acquisitions permitted under the 2023 Amended Credit Agreement, and for any fees, costs and expenses incurred in connection therewith.

The loans under the 2023 Amended 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 Amended 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 Amended Credit Agreement or (ii) the Adjusted Term SOFR Rate or the CDOR Rate (each as defined in the 2023 Amended 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 Amended Credit Agreement.

The 2023 Amended Credit Agreement requires the Company to pay certain closing fees, arrangement fees, administration fees, commitment fees, ticking fees and letter of credit fees.

These fees are reported as a component of Interest expense in the Consolidated Statements of Operations and Comprehensive Income (Loss) and vary depending on the total net leverage ratio as defined in the 2023 Amended Credit Agreement.

Fees were nominal in both 2023 and 2022.

On June 8, 2023, deferred financing costs of $ 3.4 million were incurred in connection with the 2023 Amended Credit Agreement, and deferred financing costs of $ 4.0 million were incurred during 2022 in connection with the previous credit agreement.

Deferred financing costs are amortized over the life of the debt instrument and reported as a component of Interest expense in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Amortization of deferred financing costs was $ 2.4 million and $ 1.9 million for 2023 and 2022, respectively.

As of December 31, 2023, deferred financing costs net of accumulated amortization were $ 8.6 million of which $ 6.2 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 $ 2.3 million are included in Other assets (related to the senior secured revolving credit facility) in the Consolidated Balance Sheets.

Each of the loans under the 2023 Amended Credit Agreement matures on April 1, 2027, at which time all outstanding loans, together with all accrued and unpaid interest, must be repaid and the revolving credit facility commitments will terminate.

Future maturities of long-term debt are $ 30.3 million per year payable in equal quarterly installments in 2024, 2025 and 2026, with the remaining balance of $ 481.6 million due in 2027 upon maturity.

The Company is also required to prepay the term loans with the net cash proceeds from any disposition of certain assets (subject to reinvestment rights) or from the incurrence of any unpermitted debt.

The Company may borrow, repay and reborrow the revolving loans until April 1, 2027, prepay any of the term loans, and terminate any of the commitments, in whole or in part, at any time without premium or penalty, subject to certain conditions and the reimbursement of certain lender costs in the case of prepayments of certain types of loans.

Subject to certain exceptions as set forth in the Amended and Restated Credit Agreement, the obligations of the Company and its U.S.

subsidiaries under the Amended and Restated Credit Agreement are guaranteed by the Company and certain of the Company’s U.S.

subsidiaries and the obligations of each of the Company’s Canadian subsidiaries under the Amended and Restated Credit Agreement are guaranteed by the Company and certain of its U.S.

Subject to certain exceptions as set forth in the 2023 Amended Credit Agreement, the obligations of the Company and its U.S.

subsidiaries under the 2023 Amended Credit Agreement are guaranteed by the Company and certain of the Company’s U.S.

subsidiaries and the obligations of each of the Company’s Canadian subsidiaries under the 2023 Amended Credit Agreement are guaranteed by the Company and certain of its U.S.

and Canadian subsidiaries.

Subject to certain exceptions as set forth in the Amended and Restated Credit Agreement, the obligations under the Amended and Restated Credit Agreement are secured by a first priority security interest in and lien on substantially all assets of the Company, each other borrower and each guarantor.

The Amended and Restated Credit Agreement contains various affirmative 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 Amended and Restated Credit Agreement.

The Company was in compliance with all affirmative and financial covenants as of December 31, 2022 .

The Amended and Restated Credit Agreement contains various events of default (subject to exceptions, thresholds and grace periods as set forth in the Amended and Restated Credit Agreement).

Subject to certain exceptions as set forth in the 2023 Amended Credit Agreement, the obligations under the 2023 Amended Credit Agreement are secured by a first priority security interest in and lien on substantially all assets of the Company, each other borrower and each guarantor.

The 2023 Amended 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 Amended Credit Agreement.

The 2023 Amended Credit

Agreement contains various events of default (subject to exceptions, thresholds and grace periods as set forth in the 2023 Amended Credit Agreement).

Under certain circumstances, a default interest rate will apply on all obligations at a rate equal to 2.0 % per annum above the applicable interest rate.

The Company was in compliance with all financial covenants as of December 31, 2023 .

Previous Credit Agreements

2022 Amended and Restated Credit Agreement

On April 1, 2022, DSG and certain of its subsidiaries entered into an Amended and Restated Credit Agreement (the “2022 Credit Agreement”) by and among DSG, certain subsidiaries of DSG as borrowers or guarantors, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.

The 2022 Credit Agreement provided for (i) a $ 200 million senior secured revolving credit facility, with a $ 25 million letter of credit sub-facility and a $ 10 million swingline loan sub-facility, (ii) a $ 250 million senior secured initial term loan facility and (iii) a $ 50 million senior secured delayed draw term loan facility.

In addition, the 2022 Credit Agreement permitted the Company to increase the commitments from time to time by up to $ 200 million in the aggregate, subject to, among other things, the receipt of additional commitments from existing and/or new lenders and pro forma compliance with the financial covenants in the Amended and Restated Credit Agreement.

On April 1, 2022, in connection with the Mergers, the Company borrowed the $ 250.0 million under the initial term loan facility and approximately $ 86.0 million of the revolving credit facility loans.

These borrowings were used to 1) repay all obligations and refinance the Company’s previous credit agreement, 2) repay certain existing indebtedness of TestEquity and Gexpro Services and their respective subsidiaries, 3) pay fees and expenses in connection with the Mergers, and 4) finance the working capital needs and general corporate purposes of the Company.

On April 29, 2022, the Company borrowed the $ 50.0 million available under the delayed draw term loan facility to finance the acquisition of Interworld Highway, LLC.

A $ 2.8 million loss on the extinguishment of debt for unamortized deferred financing costs was recorded in 2022 in connection with the payoff of previous indebtedness.

The extinguishment is recorded in Loss on extinguishment of debt in the Consolidated Statements of Operations and Comprehensive Income (Loss).

On June 8, 2023, the 2022 Credit Agreement was replaced entirely with the 2023 Amended Credit Agreement discussed above.

Gexpro Services - January 3, 2022 Gexpro Services Credit Agreement

On January 3, 2022, Gexpro Services entered into a credit agreement ("2022 Gexpro Services Credit Agreement") with a financial institution under which Gexpro Services obtained an initial $ 137 million term loan ("2022 Gexpro Services Term Loan"), a $ 25 million revolving line of credit ("2022 Gexpro Services Revolver") and a delayed $ 83 million term loan ("2022 Gexpro Services Delayed Term Loan").

The proceeds of the 2022 Gexpro Services Term Loan and 2022 Gexpro Services Delayed Term Loan were used to fund the Resolux acquisition, repay all borrowings under the 2020 Gexpro Services Credit Agreements (as defined below) and seller’s promissory note from SIS acquisition (refer to Note 3 – Business Acquisitions for

further details of these acquisitions).

In connection with the 2022 Gexpro Services Credit Agreement, deferred financing costs of $ 7.4 million were incurred.

Gexpro Services - February 24, 2020 Gexpro Services Term Loan Credit Agreement

On February 24, 2020, Gexpro Services entered into a credit agreement ("2020 Gexpro Services Term Loan Credit Agreement") under which Gexpro Services obtained a $ 60 million term loan ("2020 Gexpro Services Term Loan").

Also on February 24, 2020, Gexpro Services entered into a credit agreement ("2020 Gexpro Services Revolver Credit Agreement" and together with the 2020 Gexpro Services Term Loan Credit Agreement, "2020 Gexpro Services Credit Agreements") under which Gexpro Services obtained a $ 15 million revolving line of credit ("2020 Gexpro Services Revolver").

Availability of the 2020 Gexpro Services Revolver was reduced by issued and outstanding letters of credit, which were limited to $ 38.5 million.

As of December 31, 2021, there were $ 0.7 million outstanding letters of credit and $ 37.7 million outstanding on the 2020 Gexpro Services Revolver.

A loss on debt extinguishment of $ 0.6 million was recorded on January 3, 2022 in connection with the January 3, 2022 Gexpro Services Credit Agreements.

Gexpro Services - 2020 Gexpro Services Credit Agreements

On February 24, 2020, Gexpro Services entered into credit agreements under which Gexpro Services obtained a $ 60 million term loan a $ 15 million revolving line of credit.

A loss on debt extinguishment of $ 0.6 million was recorded on January 3, 2022 in connection with the January 3, 2022 Gexpro Services Credit Agreement.

TestEquity - 2017 TestEquity Credit Agreement

On April 28, 2017, TestEquity entered into a credit agreement ("2017 TestEquity Credit Agreement") with a financial institution under which TestEquity obtained a $ 101 million term loan ("2017 TestEquity Term Loan") and a $ 15.0 million revolving line of credit ("2017 TestEquity Revolver").

Availability of the 2017 TestEquity Revolver was reduced by issued and outstanding letters of credit, which were limited to $ 2.0 million.

There were no outstanding letters of credit as of December 31, 2021 and $ 1.0 million outstanding on the revolving line of credit.

A loss on debt extinguishment of $ 0.2 million was recorded on April 1, 2022 in connection with the April 1, 2022 Amended and Restated Credit Agreement executed in connection with the consummation of the Mergers .

On April 28, 2017, TestEquity entered into a credit agreement with a financial institution under which TestEquity obtained a $ 101 million term loan and a $ 15.0 million revolving line of credit.

A loss on debt extinguishment of $ 0.2 million was recorded on April 1, 2022 in connection with the 2022 Credit Agreement executed in connection with the consummation of the Mergers .

Note 10 – Stock-Based Compensation

The Company recorded stock-based compensation expense of $ 2.4 million for the year ended December 31, 2022 .

The Company recorded stock-based compensation expense of $ 7.9 million for the year ended December 31, 2023 and $ 2.4 million for the year ended December 31, 2022 in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss) and recognized a net tax benefit relating to stock-based compensation of $ 0.9 million and $ 2.1 million, respectively .

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

Accordingly, changes in the market value of the Company's common stock may result in a stock-based benefit in certain periods.

A stock-based compensation liability of $ 3.3 million a s of December 31, 2022 was included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

All Lawson stock-based equity compensation awards that were issued and outstanding prior to the Merger Date were treated like they were acquired concurrent with the Mergers in accordance with the acquisition method of accounting for reverse acquisitions.

Refer to Note 1 – Nature of Operations and Basis of Presentation for additional information about the Mergers.

No stock-based compensation expense was recorded during 2021 and there was no stock-based compensation liability as of December 31, 2021.

There were no shares related to stock-based compensation outstanding prior to the Merger Date.

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 $ 5.6 million a s of December 31, 2023 and $ 3.3 million as of December 31, 2022 was included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

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.

Equity Compensation Plans

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As of December 31, 2023, the Company had approximately 1,161,687 shares of common stock still available under the Amended and Restated Equity Plan.

The Company also has a Stock Performance Rights Plan (“SPR Plan”) that provides for the issuance of Stock Performance Rights (“SPRs”) that allow non-employee directors, officers and key employees to receive cash awards, subject

to certain restrictions, equal to the appreciation of the Company's common stock.

The SPR Plan is administered by the Compensation Committee of the Board of Directors.

Stock Performance Rights

SPRs entitle the recipient to receive a cash payment equal to the excess of the market value of Company common stock over the SPR exercise price when the SPRs are surrendered.

SPRs entitle the recipient to receive a cash payment equal to the excess of the market value of DSG common stock over the SPR exercise price when the SPRs are surrendered.

Expense, equal to the fair market value of the SPR at the date of grant and remeasured each reporting period, is recorded ratably over the vesting period.

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The SPRs are liability classified and included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

On December 31, 2022, the SPRs outstanding were re-measured at fair value using the Black-Scholes valuation model.

On December 31, 2023 and 2022 , the SPRs outstanding were re-measured at fair value using the Black-Scholes valuation model.

This model requires the input of subjective assumptions that may have a significant impact on the fair value estimate.

The weighted-average fair value of SPRs outstanding as of December 31, 2022 was $ 15.30 per SPR using the following assumptions:

The weighted-average fair value of SPRs outstanding as of December 31, 2023 and December 31, 2022 was $ 18.37 and $ 7.65 per SPR, respectively, using the following assumptions:

Expected volatility 41.1 % to 45.9 %

43.4 % to 52.2 %

Risk-free rate of return 4.5 % to 5.3 %

4.4 % to 4.7 %

Expected term (in years) 0.3 to 1.5

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

Compensation expense of $ 0.8 million was recorded in Selling, general and administrative expense for the year ended December 31, 2022.

Cash in the amount of $ 5.2 million was paid for SPR exercises in 2022.

A liability of $ 4.9 million reflecting the estimated fair value of future pay-outs is included as a component of Accrued expenses and other liabilities in the Consolidated Balance Sheets.

Activity related to the Company’s SPRs during the year ended December 31, 2023 was as follows:

Number of SPRs Weighted Average Exercise Price

Number of SPRs Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years)

Aggregate Intrinsic Value (in millions)

Outstanding on December 31, 2022 352,368 $ 7.65

Shares acquired concurrent with Mergers 575,536 26.66

Exercised ( 93,350 ) 28.16

Cancelled — —

Outstanding on December 31, 2023 259,018 18.37 1.5 $ 4.6

Exercisable on December 31, 2023 259,018 $ 18.37 1.5 $ 4.6

The SPRs outstanding had an intrinsic value of $ 2.2 million as of December 31, 2022.

The intrinsic value of SPRs exercised was $ 1.7 million for 2023 and $ 5.2 million for 2022.

All SPRs for plan participants were fully vested prior to the Mergers, as such, there is no unrecognized compensation associated with any SPRs.

At December 31, 2022, the weighted average remaining contractual term was 2.1 years for all outstanding SPRs.

Restricted Stock Awards

Restricted stock awards ("RSAs") generally vest over a one to three year period beginning on the first anniversary of the date of the grant.

Upon vesting, the vested restricted stock awards are exchanged for an equal number of the Company’s common stock.

The participants have no voting or dividend rights with the restricted stock awards.

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

Compensation expense of $ 0.8 million related to the RSAs was recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss) for 2022.

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 common stock on the date of grant and the expense is recorded ratably over the vesting period.

Activity related to the Company’s RSAs during the year ended December 31, 2023 was as follows:

Restricted Stock Awards

Restricted Stock Awards Weighted Average Grant Date Fair Value

Outstanding on December 31, 2022 113,174 $ 24.35

Shares acquired concurrent with Mergers 63,429

Granted 53,054 21.86

Cancelled ( 13,810 ) 25.89

Exchanged for common shares ( 54,202 ) 22.86

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As of December 31, 2023, there was $ 0.7 million of total unrecognized compensation cost related to RSAs that will be recognized over a weighted average period of 1.6 years.

The awards granted in 2022 had a weighted average grant date fair value of $ 37.49 per share.

The weighted average grant date fair value per share of awards granted during the year was $ 21.86 in 2023 and $ 18.75 in 2022 .

The fair value of RSAs exchanged for shares of DSG common stock during 2023 was $ 1.5 million and $ 0.5 million during 2022.

Market Stock Units

Market Stock Units ("MSUs") are exchangeable for between 0 % to 150 % of the Company's common shares at the end of the vesting period based on the trailing 60 -day average closing price of the Company's common stock.

The value of the MSUs was determined using a geometric brownian motion model that, based on certain variables, generates a large number of random trials simulating the price of the Company common stock over the measurement period.

Expense of $ 0.3 million related to MSUs was recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss) during the year ended December 31, 2022.

Market Stock Units ("MSUs") are exchangeable for between 0 % to 150 % of the DSG common shares at the end of the vesting period based on the trailing 60 -day average closing price of DSG common stock.

As of December 31, 2023 all MSUs are fully vested.

The fair value of MSUs exchanged for shares of DSG common stock during 2023 was $ 0.6 million and $ 0.9 million during 2022.

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

Number of Market Stock Units Maximum Shares Potentially Issuable

Number of Market Stock Units Maximum Shares Potentially Issuable Weighted Average Grant Date Fair Value

Outstanding on December 31, 2022 162,936 234,586 $ 19.90

Shares acquired concurrent with Mergers 118,057 168,156

Granted 518 777 30.54

Cancelled ( 32,732 ) ( 49,098 ) 30.54

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Stock options vest through the fifth anniversary from the grant date.

Each option can be exchanged for one share of the Company's common stock at the stated exercise price.

Each stock option can be exchanged for one share of DSG common stock at the stated exercise price.

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

Activity related to the Company’s stock options during the year ended December 31, 2023 was as follows:

Number of Stock Options Weighted Average Exercise Price

Number of Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years)

Aggregate Intrinsic Value (in millions)

Outstanding on December 31, 2022 576,000 $ 38.80

Shares acquired concurrent with Mergers 80,000 27.70

Granted 1,402,605 37.03

Exercised — —

Cancelled ( 98,538 ) 33.89

Outstanding on December 31, 2023 1,880,067 37.53 9.0 $ 3.1

Exercisable on December 31, 2023 180,800 $ 29.74 4.9 $ 1.7

Compensation expense of $ 0.3 million was recorded in Selling, general and administrative expense for the year ended December 31, 2022.

Unrecognized compensation related to stock options as of December 31, 2022 was $ 2.0 million, which is expected to be recognized over a weighted-average p eriod of 2.7 years.

The weighted average exercise price per stock option granted was $ 37.03 for 2023 and $ 42.88 for 2022.

Unrecognized compensation cost related to stock options as of December 31, 2023 was $ 9.3 million, which is expected to be recognized over a weighted-average p eriod of 2.3 years.

T here were 1,699,267 unvested and 180,800 fully vested stock options outstanding on December 31, 2023 with a weighted average exercise price of $ 29.74 .

The grant date fair value of the stock options issued for the year ended December 31, 2022 was estimated using a Black-Scholes valuation model.

The intrinsic value of stock options exercised was $ 0.0 million during 2023 and $ 0.6 million during 2022.

The grant date fair value of the stock options issued for the year ended December 31, 2023 and 2022 was estimated using a Black-Scholes valuation model.

The weighted average fair value assumptions used in the model were as follows:

Expected volatility 45.2 % to 45.6 %

43.7 % to 44.6 %

Risk-free rate of return 3.6 % to 4.5 %

2.7 % to 3.1 %

Expected term (in years) 6.2 years

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Performance Awards

Performance Awards ("PAs") are exchangeable for between 0 % to 150 % of the Company's common shares, or the equivalent amount in cash, based upon the achievement of certain financial performance metrics at the end of the vesting period.

Performance Awards ("PAs") are exchangeable for between 0 % to 150 % of DSG common shares, or the equivalent amount in cash, based upon the achievement of certain financial performance metrics at the end of the vesting period.

The PAs are liability classified and included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Expense of $ 0.2 million related to the PAs was recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss) for 2022.

Unrecognized compensation related to PAs as of December 31, 2022 was $ 0.2 million , which is expected to be recognized over a weighted-average p eriod of 1.0 year.

The intrinsic value of PAs exercised was $ 0.2 million during 2023 and $ 0.1 million during 2022.

There was no unrecognized compensation cost related to PAs as of December 31, 2023.

Activity related to the Company’s PAs during the year ended December 31, 2023 was as follows:

Number of Performance Awards Maximum Shares Potentially Issuable

Number of Performance Awards Maximum Shares Potentially Issuable Weighted Average Grant Date Fair Value

Outstanding on December 31, 2022 43,826 65,739 $ 24.08

Shares acquired concurrent with Mergers 23,341 35,012

Granted 326 489 25.55

Exercised ( 11,404 ) ( 17,106 ) 21.54

Cancelled ( 6,668 ) ( 10,002 ) 20.85

Outstanding on December 31, 2023 26,080 39,120 $ 25.70

Note 11 – Stock Repurchase Program

In 2019, the Board of Directors authorized a program pursuant to which the Company was authorized to repurchase up to $ 7.5 million of Company common stock from time to time in open market transactio ns, privately negotiated transactions or by other methods.

On November 2, 2022, the Board of Directors increased the existing repurchase program from $ 7.5 million to $ 12.5 million.

During 2022, the Company repurchased 54,089 shares of Company common stock at an average cost of 35.86 per share for a total cost of $ 1.9 million.

No shares were repurchased during the year ended December 31, 2021.

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 in the Consolidated Balance Sheets .

In order to implement the Stock Split, on August 31, 2023, DSG filed a Third Amended and Restated Certificate of Incorporation of DSG 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.

The Stock Split did not change the $ 1.00 par value of DSG common stock.

Rights Offering

On May 9, 2023, the Company commenced a subscription rights offering to raise gross proceeds of up to approximately $ 100 million (the "Rights Offering").

The Rights Offering provided one transferable subscription right for each share of DSG common stock held by holders of DSG common stock on record as of the close of business on May 1, 2023.

subscription right entitled the holder to purchase 0.0525 shares of DSG common stock at a subscription price of $ 22.50 per share.

The subscription rights were transferable, but were not listed for trading on any stock exchange or market.

In addition, holders of subscription rights who fully exercised their subscription rights were entitled to oversubscribe for additional shares of DSG common stock, subject to proration.

The Rights Offering closed on May 30, 2023 and was fully subscribed (taking into account the exercise of over-subscription rights) and raised net proceeds of approximately $ 98.5 million and resulted in the issuance of 4,444,444 shares of DSG common stock, at a purchase price of $ 22.50 per share.

The Company incurred transaction costs related to the issuance of DSG common stock for the Rights Offering of $ 1.5 million, which were recorded against Capital in excess of par value in the Consolidated Balance Sheets .

DSG used the proceeds from the Rights Offering, in combination with borrowings under the 2023 Amended Credit Agreement, to fund the Hisco Transaction.

Stock Repurchase Program

In 2019, the Board of Directors authorized a program pursuant to which the Company was authorized to repurchase up to $ 7.5 million of DSG common stock from time to time in open market transactio ns, privately negotiated transactions or by other methods.

T he Board of Directors increased the repurchase program by $ 5.0 million in November 2022, and $ 25.0 million in December 2023, bringing the total authorized to $ 37.5 million.

During 2023, the Company repurchased 138,725 shares of DSG common stock at an average cost of 26.09 per share for a total cost of $ 3.6 million.

During 2022, the Company repurchased 108,178 shares of DSG common stock 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 $ 29.0 million at December 31, 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 and number of shares and numbers of equity awards were retroactively adjusted.

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

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Stock compensation ( 5.0 ) ( 0.5 )

Compensation deduction limitation ( 7.0 ) —

State and local taxes, net 67.1 4.5

Life insurance ( 3.4 ) —

Meals & entertainment ( 17.3 ) 1.4

Change in uncertain tax positions 18.1 ( 2.9 )

Provision to return differences ( 45.3 ) —

GILTI, Section 78, FDII, and Section 250 — 3.2

Transaction costs — 8.3

Branch income ( 81.6 ) —

Earn Out Revaluation — 0.8

Change in deferred balances 79.4 —

Other items, net 1.7 1.7

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The effective tax rate for the year ended December 31, 2023 was ( 346.8 )% compared to a 42.8 % effective tax rate for the year ended December 31, 2022.

The change in the year over year effective tax rate was primarily due to changes in the valuation allowance and merger costs incurred during 2022, and the creation of a consolidated group for federal income tax purposes as a result of the completion of the Mergers referenced in Note 3 – Business Acquisitions.

The change in the year-over-year effective tax rate was primarily due to an increase in the partial valuation allowance against the Company's excess interest expense carryforward balance, state taxes, foreign income and a pre-tax loss in the current year.

Relative to the U.S.

statutory rate, the effective tax rate for the year ended December 31, 2022 was impacted by state taxes, foreign operations and liabilities and transaction expenses related to the Mergers.

At December 31, 2022 , the Company had $ 24.2 million of U.S.

federal net operating loss carryforwards which are subject to expiration beginning in 2026 and $ 28.7 million of various state net operating loss carryforwards which expire at varying dates between 2023 and 2034.

statutory rate, the effective tax rate for the year ended December 31, 2023 was impacted by the items listed above.

Deferred income tax assets and liabilities contain the following temporary differences:

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Federal & state NOL carryforward $ 10,158 $ 8,218

Research & other credits — 281

Inventory reserve 8,815 6,990

Transaction costs 673 1,620

Reserves and accruals — 464

Stock based compensation 3,602 2,531

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Deferred revenue 77 86

Investment in Foreign Subsidiaries — —

Other 4,005 2,822

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Deferred state income tax 17 —

Other 1,591 188

Total deferred liabilities 84,906 73,051

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Net deferred tax liabilities $ ( 18,231 ) $ ( 23,645 )

At December 31, 2023 , the Company had $ 21.4 million of U.S.

federal net operating loss carryforwards ("NOLs") which are subject to expiration beginning in 2027 and $ 53.5 million of various state net operating loss carryforwards which expire at varying dates between 2024 and 2035.

At December 31, 2023 the Company had a total valuation allowance of $ 8.5 million.

The change in the valuation allowance during 2023 was primarily related to a valuation allowance established against its Section 163(j) interest expense limitation deferred tax asset as the Company does not expect that its future taxable income will be sufficient to realize existing deferred tax assets.

At December 31, 2022 , a valuation allowance of $ 0.8 million was established against state NOLs.

Earnings from the Company's foreign subsidiaries are considered to be indefinitely reinvested.

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The recognition of the unrecognized tax benefits would have a favorable effect on the effective tax rate.

The unrecognized tax benefits as of December 31, 2022 include $ 2.4 million of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes.

It is reasonably possible that an additional reduction of up to $ 0.8 million of unrecognized tax benefits may occur within the next twelve months, a portion of which would impact our effective tax rate.

The actual amount could vary due to the uncertainty of both timing and resolution of income tax examinations.

The unrecognized tax benefits as of December 31, 2023 included $ 1.1 million of tax benefits that, if recognized, would impact the effective tax rate in future periods.

The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense.

The unrecognized tax benefits are recorded as a component of Other Liabilities in the Consolidated Balance Sheets.

Interest and penalties related to unrecognized tax benefits are recorded as a component of Income tax expense in the Consolidated Statements of Operations and Comprehensive Income (Loss).

Including the impact of interest and the impact of net operating losses, the unrecognized tax benefit was $ 3.0 million and $ 0.0 million as of December 31, 2022 and December 31, 2021, respectively, which is recorded in Other liabilities on the Consolidated Balance Sheets.

The total amount accrued for interest and penalties in the liability for uncertain tax positions was $ 0.8 million and $ 0.9 million as of December 31, 2023 and December 31, 2022, respectively.

It is reasonably possible that the amount of unrecognized tax benefits will change in the next twelve months;

however, the Company does not expect the change to have a material impact on the Consolidated Statements of Operations and Comprehensive Income (Loss) or the Consolidated Balance Sheets.

Interest and penalties are recognized over uncertain tax positions that arose from income tax matters in Canada.

The Company has substantially concluded all Canadian income tax matters through the year ended December 31, 2015.

Years 2016 through present are open and subject to examination.

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

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Note 14 – Segment Information

As a result of the Mergers described in Note 1 – Nature of Operations and Basis of Presentation, the Company evaluated its operational, reporting and management structures and identified three reportable segments based on the nature of the products and services and type of customer for those products and services.

Based on operational, reporting and management structures, the Company has identified three reportable segments based on the nature of the products and services and type of customer for those products and services.

A description of our reportable segments is as follows:

Lawson is a distributor of specialty products and services to the industrial, commercial, institutional and government maintenance, repair and operations market.

• TestEquity is a distributor of test and measurement equipment and solutions, electronic production supplies, and tool kits from its leading manufacturer partners supporting the technology, aerospace, defense, automotive, electronics, education, and medical industries.

• Gexpro Services is a global supply chain solutions provider, specializing in developing and implementing vendor managed inventory and kitting programs to high-specification manufacturing customers.

The Company also identified 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 includes the inconsequential results of the Bolt Supply House ("Bolt") non-reportable segment.

Revenue within the All Other category represent the results of Bolt.

Bolt generates revenue primarily from the sale of MRO products to its walk-up customers and service to its customers through their 14 branch locations.

Gexpro Services is a global supply chain solutions provider, specializing in the development of mission critical production line management, aftermarket and field installation programs.

The Company also has 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 includes the results of the Bolt Supply House ("Bolt") non-reportable segment.

Revenue within the All Other category represents the results of Bolt.

Bolt generates revenue primarily from the sale of MRO products to its walk-up customers and service to its customers through its 14 branch locations.

Bolt does not provide VMI services for its customers or provide services in addition to product sales to customers.

Revenue is recognized at the time that control of the product has been transferred to the customer which is either upon delivery or shipment depending on the terms of the contract.

Financial information for the Company's segments is presented below.

Financial information for the Company's segments and reconciliations of that information to the consolidated financial statements is presented below.

Year Ended December 31,

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All Other (2)

55,890 48,955

Intersegment revenue elimination ( 1,700 ) —

Total revenue $ 1,570,402 $ 1,151,422

Operating income (loss)

$ 32,498 $ 6,536

TestEquity ( 16,465 ) 11,375

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(2) Includes the operating results of All Other only subsequent to the Merger Date of April 1, 2022 and not All Other operating results prior to the Mergers.

Long-lived assets, which includes property and equipment, rental equipment, goodwill, intangibles, right of use assets, and other assets, were as follows:

Segment revenue includes revenue from sales to external customers and intersegment revenue from sales transactions between segments.

The Company accounts for intersegment sales similar to third party transactions that are conducted on an arm's-length basis and reflect current market prices.

Intersegment revenue is eliminated in consolidation and is not included in consolidated revenue on the financial statements.

Segment revenue and the elimination of intersegment revenue was as follows:

(in thousands) Lawson TestEquity Gexpro Services All Other Elimination Total

Year Ended December 31, 2023

Revenue from external customers $ 468,379 $ 641,643 $ 404,490 $ 55,890 $ — $ 1,570,402

Intersegment revenue 332 125 1,243 — ( 1,700 ) —

Revenue $ 468,711 $ 641,768 $ 405,733 $ 55,890 $ ( 1,700 ) $ 1,570,402

Year Ended December 31, 2022

Revenue from external customers $ 324,783 $ 392,358 $ 385,326 $ 48,955 $ — $ 1,151,422

Intersegment revenue — — — — — —

Revenue $ 324,783 $ 392,358 $ 385,326 $ 48,955 $ — $ 1,151,422

Long-lived assets, which includes property, plant and equipment, rental equipment, goodwill, intangibles, right of use operating lease assets, and other assets, were as follows:

(in thousands) 2023 2022

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Capital expenditures

$ 6,626 $ 3,737

TestEquity 2,955 250

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Depreciation and amortization

$ 19,532 $ 10,594

TestEquity 26,002 17,480

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Note 15 – Commitments and Contingencies

Shareholder Lawsuits

Merger Litigation

In February 2022, three purported DSG stockholders made demands pursuant to Section 220 of the Delaware General Corporation Law to inspect certain books and records of DSG (collectively, the “Books and Records Demands”).

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Lawson Products, Inc., Case No.

2022-0270, in the Court of Chancery of the State of Delaware against DSG (the “Edelman Action”).

2022-0270, in the Court of Chancery of the State of Delaware against

DSG (the “Edelman Action”).

The Garfield Action and the Edelman Action, which were consolidated and re-captioned as Lawson Products, Inc.

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John Bryan King et al., Case No.

2022-0886, in the Court of Chancery of the State of Delaware.

2022-0886, in the Court of Chancery of the State of Delaware (the "Delaware Chancery Court").

The Derivative Action names as defendants J.

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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.

On October 24, 2022, the plaintiffs

voluntarily dismissed PDLP Lawson, LLC and LKCM Investment Partnership, L.P.

On October 24, 2022, the plaintiffs voluntarily dismissed PDLP Lawson, LLC and LKCM Investment Partnership, L.P.

from the Derivative Action without prejudice.

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.

On October 25, 2023, Plaintiff Garfield voluntarily dismissed his appeal.

The voluntary dismissal did not impact the appeal by Plaintiff Edelman, who continued to advance his appeal.

Plaintiff’s opening brief on appeal was filed on November 30, 2023.

Defendants’ joint answering brief was filed on January 5, 2024.

Plaintiff’s optional reply brief was filed on January 25, 2024.

The Delaware Supreme Court has scheduled oral argument in the appeal to occur on May 22, 2024.

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

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No assurance can be given that additional lawsuits will not be filed against DSG and/or its directors and officers and/or other persons or entities in connection with the Mergers.

Cyber Incident Litigation

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.

Lawson Products, Inc., Case No.

1:23-cv-02118, in the United States District Court for the Northern District of Illinois, Eastern Division.

The plaintiff in this case, who purports to represent the class of individuals harmed by alleged actions and/or omissions by DSG in connection with the Cyber Incident, asserts a variety of common law and statutory claims seeking monetary damages, injunctive relief and other related relief related to the potential unauthorized access by third parties to personal identifiable information and protected health information.

DSG disagrees with and intends to vigorously defend against the Cyber Incident Suit.

The Cyber Incident Suit could result in additional costs and losses to DSG, although, at this time, DSG is unable to reasonably estimate the amount or range of reasonably possible losses, if any, that might result from adverse judgments, settlements, fines, penalties or other resolution of these proceedings based on the early stage of this proceeding, the absence of specific allegations as to alleged

damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and the lack of resolution of significant factual and legal issues.

Accordingly, no amounts have been recorded in the consolidated financial statements for the Cyber Incident Suit.

No assurance can be given that additional lawsuits will not be filed against DSG and/or its directors and officers and/or other persons or entities in connection with the Cyber Incident.

Environmental Matter

In 2012, it was determined a Company owned site in Decatur, Alabama, contained hazardous substances in the soil and groundwater as a result of historical operations prior to the Company's ownership.

In 2012, it was determined that a Company owned site in Decatur, Alabama, contained hazardous substances in the soil and groundwater as a result of historical operations prior to the Company's ownership.

The Company retained an environmental consulting firm to further investigate the contamination, prepare a remediation plan, and enroll the site in the Alabama Department of Environmental Management (“ADEM”) voluntary cleanup program.

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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 December 31, 2022 the Company had less than $ 0.1 million accrued for potential monitoring costs included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

At December 31, 2023 the Company had approximately $ 0.1 million accrued for potential monitoring costs included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

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

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The Company made contributions to the 401(k) plan of $ 7.2 million and $ 5.5 million for the years ended December 31, 2023 and 2022, respectively.

Purchase Commitments

The Company enters into inventory purchase commitments with third parties in the ordinary course of business.

As of December 31, 2022, we had contractual commitments to purchase approximately $ 168 million of product from our suppliers and contractors which is expected to be paid in the next twelve months.

Note 16 – Related Party Transactions

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During the first three months of 2022, expense of $ 0.5 million was recorded within Selling, general and administrative expenses within the Consolidated Statements of Operations and Comprehensive Income (Loss), reflecting expenses accrued under these management agreements from January 1, 2022 through the April 1, 2022 Merger Date.

As of December 31, 2021, $ 4.8 million was included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets in connection with these management agreements.

As of April 1, 2022, the prior obligation of $ 5.3 million was effectively settled in connection with the Mergers and considered to be a deemed equity contribution by LKCM recorded to additional paid in

As of April 1, 2022, the prior obligation of $ 5.3 million was effectively settled and considered to be a deemed equity contribution by LKCM recorded to additional paid in capital.

As a result of the Novations, no additional expense under these management agreements has been incurred subsequent to the Mergers.

Consulting Services

Subsequent to the Mergers, individuals employed by LKCM Headwater Operations, LLC, a related party of Luther King Capital Management Corporation (“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 December 31, 2022 expense of $ 0.2 million was recorded within Selling, general and administrative expenses within the Consolidated Statements of Operations and Comprehensive Income (Loss), reflecting expenses accrued for these consulting services.

Subsequent to the Mergers, individuals employed by LKCM Headwater Operations, LLC, a related party of LKCM, have provided the Company with certain consulting services for interim executive management in addition to assisting in identifying cost savings, revenue enhancements and operational synergies of the combined companies.

For the year ended 2023 and 2022, expense of $ 0.6 million and $ 0.2 million, respectively, was recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss), reflecting expenses accrued for these consulting services.

Principal Executive Office Lease

In connection with the Company’s headquarters move to Fort Worth, Texas in 2023, the Company has been utilizing office space in a building that is leased by LKCM.

The Company is not charged any rent or other amounts for the use of the office space.

TestEquity and Gexpro Services Mergers

Immediately prior to the Mergers, entities affiliated with Luther King Capital Management Corporation (“LKCM”) and J.

Bryan King (the Chairman of the DSG board of directors), including private investment partnerships for which LKCM serves as investment manager, owned a majority of the ownership interests in the TestEquity Equityholder (which in turn owned all of the outstanding equity interests of TestEquity as of immediately prior to the completion of the TestEquity Merger).

Immediately prior to the Mergers, entities affiliated with LKCM and J.

Bryan King (President and Chief Executive Officer of DSG and Chairman of the DSG Board of Directors), including private investment partnerships for which LKCM serves as investment manager, owned a majority of the ownership interests in the TestEquity Equityholder (which in turn owned all of the outstanding equity interests of TestEquity as of immediately prior to the completion of the TestEquity Merger).

As of the Merger Date, Mr.

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Immediately prior to the Mergers, entities affiliated with LKCM and Mr.

King owned approximately 48 % of the shares of DSG common stock then outstanding.

As a result of and after the consummation of the Mergers, entities affiliated with LKCM and J.

Bryan King (the Chairman of the DSG board of directors) owned in the aggregate approximately 14,640,000 shares of DSG common stock as of the Merger Date, which shares represented approximately 75 % of the shares of DSG common stock then outstanding after giving effect to the issuance of shares as of the Merger Date in connection with the consummation of the Mergers.

Such aggregate share amount does not include any of the up to 700,000 additional shares of DSG common stock or any of the up to 1,000,000 additional shares of DSG common stock potentially issuable to the TestEquity Equityholder and the Gexpro Services Stockholder, respectively, in accordance with the earnout provisions of the TestEquity Merger Agreement and the Gexpro Services Merger Agreement, respectively, summarized in Note 1 – Nature of Operations and Basis of Presentation.

King beneficially owned approximately 48 % of the then-outstanding shares of DSG common stock.

As a result of the issuance of 20.6 million shares at the closing of the Mergers and the issuance of the additional 3.4 million shares in accordance with the earnout provisions of the TestEquity Merger Agreement and the Gexpro Services Merger Agreement on March 20, 2023, entities affiliated with LKCM and Mr.

King beneficially owned in the aggregate approximately 32.6 million shares of DSG common stock representing approximately 77.4 % of the outstanding shares of DSG common stock as of March 31, 2023.

Rights Offering

Certain entities affiliated with LKCM and J.

Bryan King exercised their basic subscription rights and over-subscription rights in the Rights Offering and purchased approximately 3.6 million additional shares of DSG common stock at a purchase price of $ 22.50 per share.

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

King beneficially owned in the aggregate approximately 36.4 million shares of DSG common stock as of June 1, 2023, representing approximately 77.8 % of the outstanding shares of DSG common stock as of December 31, 2023 .

Board of Directors

Bradley Wallace, who became a director of the Company upon his election at the Company's 2023 annual stockholders meeting on May 19, 2023, is a Founding Partner of LKCM Headwater Investments, the private capital investment group of LKCM.

Note 17 – Subsequent Event

On January 22, 2024, DSG completed the acquisition of Safety Supply Illinois LLC, conducting business as Emergent Safety Supply ("ESS"), with a preliminary purchase price of $ 9.9 million .

ESS is a national distributor of safety products based near Chicago in Batavia, Illinois that generates annual sales of approximately $ 13 million.

ESS was acquired to expand Lawson's safety product category.

The acquisition was funded through DSG's cash on hand.

Due to the recent acquisition date, the purchase accounting for ESS was not final at the time of this filing, and a preliminary allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed was not complete.

The final valuation will be completed within the one-year measurement period following the acquisition date.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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-K

Item 8. Financial Statements and Supplementary Data