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Item 7. Management’s Discussion and Analysis

2025-03-06 compared with 2024-03-07 · 399 added, 107 removed, 348 unchanged (59% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of DSG's financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included in this Annual Report on Form 10-K, the audited consolidated financial statements and accompanying notes included in DSG's Annual Report on Form 10-K filed for the year ended December 31, 2022 and the Lawson Products, Inc.

unaudited condensed consolidated financial statements and accompanying notes included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.

The following discussion and analysis of DSG’s financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and related notes included in this Annual Report on Form 10-K, the audited consolidated financial statements and accompanying notes included in DSG’s Annual Report on Form 10-K for the year ended December 31, 2023, filed on March 7, 2024, the audited consolidated financial statements and accompanying notes included in DSG’s Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 14, 2023 and the Lawson Products, Inc.

unaudited condensed consolidated financial statements and accompanying notes included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, filed on April 28, 2022.

This section of the Annual Report on Form 10-K generally discusses the years ended December 31, 2024 and 2023 and the year-over-year comparisons between the years ended December 31, 2024 and 2023.

As a result of the change in our operating and reportable segments during the third quarter of 2024, this section also presents year-over-year comparisons between the years ended December 31, 2023, and 2022 on a recasted basis to reflect the change.

For additional details about our segment realignment in the third quarter of 2024, see Note 1 – Nature of Operations and Basis of Presentation in Item 8.

Financial Statements and Supplementary Data.

References to “DSG”, the “Company”, “we”, “our” or “us” refer to Distribution Solutions Group, Inc.

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DSG is a multi-platform specialty distribution company providing high touch, value-added distribution solutions to the maintenance, repair and operations (“MRO”), the original equipment manufacturer (“OEM”) and the industrial technologies markets.

The Mergers that were consummated on April 1, 2022 resulted in the combination of Lawson, TestEquity and Gexpro Services.

For a description of the Mergers, refer to Item 1.

Business and Note 1 – Nature of Operations and Basis of Presentation in Item 8.

Financial Statements and Supplementary Data.

We manage and report our operating results through three reportable segments:

Lawson, TestEquity and Gexpro Services.

We manage and report our operating results through four reportable segments:

Lawson, TestEquity, Gexpro Services and Canada Branch Division.

A summary of our segments is presented below.

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

In addition to these three reportable segments, we have an “All Other” category which includes unallocated DSG holding company costs that are not directly attributable to the ongoing operating activities of our reportable segments and the results of a non-reportable segment.

Canada Branch Division combines the operations of our Bolt and Source Atlantic subsidiaries, which distribute industrial MRO supplies, safety products, fasteners, power tools and related value-add services to the Canadian MRO market through the sale of products and services via warehouse shipments and to its walk-up customers through 38 branch locations.

In addition to these four reportable segments, we have an “All Other” category which includes unallocated DSG holding company costs that are not directly attributable to the ongoing operating activities of our reportable segments.

Recent Events

HIS Company, Inc.

On June 8, 2023, DSG acquired all of the issued and outstanding capital stock of Hisco, a distributor of specialty products serving industrial technology applications, pursuant to the Purchase Agreement dated March 30, 2023.

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

DSG will also pay $37.5 million in cash or DSG common stock in retention bonuses to certain Hisco employees that remain employed with Hisco or its affiliates for at least twelve months after the closing of the Hisco Transaction.

In connection with the Hisco Transaction, DSG combined the operations of TestEquity and Hisco, creating one of the largest suppliers serving the electronics design, production, and repair industries.

Accordingly, Hisco results are included in the TestEquity reportable segment after the date of acquisition.

DSG funded the Hisco Transaction with borrowings under its 2023 Amended Credit Agreement and proceeds raised from the Rights Offering, both discussed below.

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

2024 Business and Asset Acquisitions

On November 18, 2024, DSG acquired the assets of ConRes Test Equipment, (“ConRes TE” and the “ConRes TE Transaction” ).

These assets were acquired to expand TestEquity’s test equipment offerings and value-add service capabilities

in all of our end markets.

The results of operations from the additional assets acquired from ConRes TE have been included in the TestEquity reportable segment subsequent to its acquisition date.

On October 30, 2024, DSG completed the acquisition of Tech-Component Resources Pte Ltd (“TCR” and the “TCR Transaction”).

TCR is a distributor of fasteners, mechanical components, and other industrial products in Southeast Asia.

TCR was acquired to provide us with a strategic foothold in this growing region.

The results of operations of TCR have been included in the Gexpro Services reportable segment subsequent to its acquisition date.

On August 14, 2024, DSG completed the acquisition of Source Atlantic Limited (“Source Atlantic” and the “Source Atlantic Transaction”).

Source Atlantic, headquartered in Saint John, New Brunswick, Canada, is a wholesale distributor of industrial MRO supplies, safety products, fasteners, and related value-add services for the Canadian MRO market.

Source Atlantic was acquired to expand DSG’s operating footprint in the Canadian market.

The results of operations of Source Atlantic have been included in the Canada Branch Division reportable segment subsequent to its acquisition date.

On May 1, 2024 , DSG completed the acquisition of S&S Automotive Inc.

(“S&S Automotive” and the “S&S Automotive Transaction”).

S&S Automotive is a distributor of automotive, industrial, and safety supplies primarily to the automotive dealership market based near Chicago in Woodridge, Illinois.

S&S Automotive was acquired to expand Lawson’s services and products to the automotive end market.

The results of operations of S&S Automotive have been included in the Lawson reportable segment subsequent to its acquisition date .

On January 19, 2024, DSG acquired the assets of Safety Supply Illinois LLC, conducting business as Emergent Safety Supply (“ESS” and the “ESS Transaction”) .

ESS is a national distributor of safety products based near Chicago in Batavia, Illinois.

ESS was acquired to expand Lawson’s safety product category.

The results of operations of ESS have been included in the Lawson reportable segment subsequent to its acquisition date .

Refer to Note 3 – Business and Asset Acquisitions in Item 8.

Financial Statements and Supplementary Data for additional information about these acquisitions.

Debt Amendment

On June 8, 2023, the Company entered into the First Amendment to Amended and Restated Credit Agreement (the “First Amendment”), which amended the Amended and Restated Credit Agreement, dated as of April 1, 2022 (as amended by the First Amendment, the “2023 Amended Credit Agreement”), by and among the Company, certain subsidiaries of the Company as borrowers or guarantors, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent.

The First Amendment provides for a $305 million incremental term loan.

Refer to Note 9 – Debt for additional information about the 2023 Amended Credit Agreement.

Rights Offering

On May 30, 2023, the Company raised gross proceeds of approximately $100 million pursuant to a Rights Offering of transferable subscription rights to holders of DSG common stock as of the close of business on May 1, 2023.

Refer to Note 11 – Stockholders' Equity for additional information about the Rights Offering.

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 .

On August 14, 2024, the Company entered into the Third Amendment to Amended and Restated Credit Agreement (the “Third Amendment”).

The Third Amendment provided for an additional $200 million incremental term loan and a $55 million increase in the senior secured revolving credit facility to $255 million, and permits the Company to increase the commitments under the agreement from time to time by up to $300 million in the aggregate, subject to, among other things, receipt of additional commitments from existing and/or new lenders and pro forma compliance with certain financial covenants.

Refer to Note 9 – Debt in Item 8.

Financial Statements and Supplementary Data for additional information about DSG’s credit agreement.

Sales Drivers

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A measure of the PMI index above 50 is generally viewed as indicating an expansion of the manufacturing sector while a measure below 50 is generally viewed as representing a contraction.

The average monthly PMI wa s 47.1 in the year ended December 31, 2023 compared to 53.5 in the year ended December 31, 2022 .

The average monthly PMI wa s 48.3 in the year ended December 31, 2024, compared to 47.1 in the year ended December 31, 2023, and 53.5 in the year ended December 31, 2022 .

Lawson Sales Drivers

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Lawson plans to continue concentrating its efforts on increasing the productivity and size of its sales team.

Additionally, Lawson drives revenue through the expansion of products sold to existing customers as well as attracting new customers and additional ship-to locations.

Additionally, Lawson drives revenue through the expansion of products sold to existing customers as well as attracting new customers and additional ship-

to locations.

Lawson also is expanding its inside sales team to help drive field sales representative productivity and also utilizes an e-commerce site to generate sales.

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The global supply chain solutions market is highly fragmented across Gexpro Services’ key vertical segments.

Gexpro Services’ competitors range from large global distributors and manufacturers to small regional domestic distributors and

manufacturers.

Gexpro Services’ competitors range from large global distributors and manufacturers to small regional domestic distributors and manufacturers.

Gexpro Services’ revenue is influenced by our OEMs’ production schedules, new product introduction launches, and service project needs.

Gexpro Services’ strategy is to increase revenue through increasing wallet share with existing customers, customer-led geographic expansion, new customer development in its six key vertical markets and leveraging its portfolio of recent acquisitions to expand its installation and aftermarket services.

Canada Branch Division Sales Drivers

Source Atlantic was acquired to expand DSG’s operating footprint in the Canadian market.

Canada Branch Division’s strategy is to grow revenue through increasing wallet share with existing customers, via introduction of new product lines and services in geographic areas that were underserviced previously.

Additionally, Canada Branch Division will engage new customers and additional ship-to locations with its national sales team.

Supply Chain Disruptions

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Because of the nature of the information that may have been compromised, DSG was required to notify the parties whose information was potentially compromised of the incident as well as various governmental agencies and has taken other actions, such as offering credit monitoring services.

At December 31, 2023, DSG had not incurred material costs as a result of the Cyber Incident.

On April 4, 2023, a putative class action lawsuit was filed against DSG related to the Cyber Incident (the “Cyber Incident Suit”).

At December 31, 2024, DSG had not incurred material costs as a result of the Cyber Incident.

For more information about the Cyber Incident Suit, refer to Note 15 – Commitments and Contingencies within Item 8.

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Factors Affecting Comparability to Prior Periods

Our results of operations for the year ended December 31, 2023 are not directly comparable to prior results for the year ended December 31, 2022 due to the Mergers that were completed on April 1, 2022.

The Mergers were accounted for as a reverse merger under the acquisition method of accounting in accordance with the accounting guidance for reverse acquisitions as provided in Accounting Standards Codification 805, Business Combinations ("ASC 805").

Our results of operations are not directly comparable on a year-over-year basis due to various business combinations.

We account for acquisitions under Accounting Standards Codification 805, Business Combinations (“ASC 805”).

Accordingly, the results of acquisitions are only included subsequent to their respective acquisition dates.

Business combinations that affected the year-over-year comparability of our financial results were as follows:

2024 Comparability Factors

Refer to the 2024 Business Acquisitions section above for a description of each acquisition completed in 2024 and the reportable segment that each acquisition’s respective results of operations is included in.

2023 Comparability Factors

On June 8, 2023, we completed the acquisition of HIS Company, Inc.

The results of operations of HIS Company, Inc.

have been included in the TestEquity reportable segment subsequent to the acquisition date .

2022 Comparability Factors

On April 1, 2022 (the “Merger Date”) we completed the Mergers whereby TestEquity and Gexpro Services became wholly-owned subsidiaries of DSG.

The Mergers were accounted for as a reverse merger under the accounting guidance for reverse acquisitions as provided in ASC 805.

Under this guidance, TestEquity and Gexpro Services were treated as a combined entity as the accounting acquirer for financial reporting purposes, and DSG was identified as the accounting acquiree.

This determination was primarily made as TestEquity and Gexpro Services were under the common control of an entity that owned a majority of the voting rights of the combined entity, and therefore, only DSG experienced a change in control.

Accordingly, the consolidated financial statements for the year ended December 31, 2022 reflect the results of operations of TestEquity and Gexpro Services on a consolidated basis for the full year, 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 full year ended December 31, 2023.

Accordingly, the results of operations for the year ended December 31, 2022 include the results of operations of TestEquity and Gexpro Services on a consolidated basis for the full year, and the results of operations of DSG’s legacy Lawson, Canada Branch Division and All Other have only been included subsequent to the April 1, 2022 Merger Date.

2022 Supplemental Information - Lawson and Canada Branch Division Pro Forma Operating Income and Non-GAAP Adjusted EBITDA

For management to discuss Lawson’s and Canada Branch Division’s operating results on a comparable basis, Lawson’s and Canada Branch Division’s GAAP results of operations were adjusted to include Lawson’s and Canada Branch Division’s historical pre-merger components of operating income, prior to the April 1, 2022 Merger Date, along with pre-merger pro forma adjustments prepared under SEC Regulation S-X Article 11, in order to reflect the total operating activities attributable to Lawson and Canada Branch Division for each period presented.

Management believes this supplemental information provides the most meaningful basis of comparison for Lawson’s and Canada Branch Division’s operations, is more useful in identifying current business trends, and is important for the users of our financial statements in understanding Lawson’s and Canada Branch Division’s businesses.

Refer to Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business and Asset Acquisitions within Item 8.

Financial Statements and Supplementary Data for information about the Mergers.

This supplemental information may not reflect the actual results we would have achieved had the Mergers occurred at the beginning of 2022 and should not be viewed as a substitute for the results of operations presented in accordance with GAAP.

Lawson’s and Canada Branch Division’s historical operating results prior to the Mergers were obtained from the unaudited condensed consolidated financial statements included in the Lawson Products, Inc.

Quarterly Report on Form 10-Q filed for the quarterly period ended March 31, 2022.

The pro forma adjustments were obtained from the unaudited pro forma condensed combined financial information included in DSG’s Current Report on Form 8-K/A filed on August 24, 2023.

Non-GAAP Financial Measures

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Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain infrequently occurring, seasonal or non-operational items that impact the overall comparability.

These non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP.

These non-GAAP financial measures

should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP.

Non-GAAP Adjusted EBITDA

Management believes Adjusted EBITDA is an important measure of the Company's operating performance and may provide investors with additional meaningful comparisons between current results and results in prior operating periods because Adjusted EBITDA excludes certain non-operational or non-cash items whose fluctuations from period to period do not necessarily correspond to changes in the operating performance of our business and consequently may impact the overall

comparability from period to period.

We define Adjusted EBITDA as operating income plus depreciation and amortization, stock-based compensation, severance and acquisition related retention costs, costs related to the execution and integration of the Mergers and other acquisitions, inventory net realizable value adjustments, amortization of fair value step-up resulting from the Mergers and other acquisitions and other non-recurring items.

Management believes Adjusted EBITDA is an important measure of the Company’s operating performance and may provide investors with additional meaningful comparisons between current results and results in prior operating periods because Adjusted EBITDA excludes certain non-operational or non-cash items whose fluctuations from period to period do not necessarily correspond to changes in the operating performance of our business and consequently may impact the overall comparability from period to period.

We define Adjusted EBITDA as operating income plus depreciation and amortization, stock-based compensation, severance and acquisition related retention costs, costs related to the execution and integration of acquisitions, inventory net realizable value adjustments, amortization of fair value step-up resulting from acquisitions and other non-recurring items.

Management uses operating income and Adjusted EBITDA to evaluate the performance of its reportable segments.

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Year Ended December 31, 2024

(in thousands) Lawson TestEquity Gexpro Services All Other Consolidated

(in thousands) Lawson TestEquity Gexpro Services Canada Branch Division All Other Consolidated

Net income (loss) $ (7,332)

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4,937 17,791 460 49 (1) 23,236

Merger and acquisition related costs (3)

Acquisition related costs (3)

7,023 2,251 1,501 23 (656) 10,142

Inventory net realizable value adjustment (4)

Inventory step-up (5)

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Year Ended December 31, 2023

(in thousands) Lawson TestEquity Gexpro Services Canada Branch Division All Other Consolidated

Net income (loss) $ (8,967)

Income tax expense (benefit) 6,960

Other income (expense), net 2,982

Change in fair value of earnout liabilities (758)

Interest expense 42,774

Operating income (loss) $ 32,498 $ (16,465) $ 27,000 $ 5,731 $ (5,773) $ 42,991

Depreciation and amortization 19,532 26,002 15,986 2,068 — 63,588

Stock-based compensation (1)

7,940 — — — — 7,940

Severance and acquisition related retention expenses (2)

476 23,949 238 3 — 24,666

Acquisition related costs (3)

3,015 6,215 1,081 — 1,250 11,561

Inventory net realizable value adjustment (4)

Inventory step-up (5)

— 3,582 — — — 3,582

Other non-recurring (6)

202 — 886 — 1,620 2,708

Adjusted EBITDA $ 63,663 $ 43,283 $ 45,191 $ 7,802 $ (2,903) $ 157,036

Year Ended December 31, 2022

(in thousands) Lawson (7)

TestEquity Gexpro Services All Other (7)

TestEquity Gexpro Services Canada Branch Division (7)

All Other (7)

Net income (loss) $ 7,406

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1,429 1,095 266 6 — 2,796

Merger and acquisition related costs (3)

Acquisition related costs (3)

4,698 4,786 5,957 — — 15,441

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(1) Expense (benefit) primarily for stock-based compensation, of which a portion varies with the Company’s stock price.

(2) Includes severance expense from actions taken in 2023 and 2022 not related to a formal restructuring plan and acquisition related retention expenses for the Hisco Transaction.

(3) Transaction and integration costs related to the Mergers and other acquisitions.

(2) Includes severance expense from actions taken not related to a formal restructuring plan and acquisition related retention expenses.

(3) Transaction and integration costs related to acquisitions.

(4) Inventory net realizable value adjustment recorded to reduce inventory related to discontinued products where the anticipated net realizable value was lower than the cost reflected in our records.

(5) Inventory fair value step-up adjustment for Lawson resulting from the reverse merger acquisition accounting and acquisition accounting for additional acquisitions completed by Gexpro Services or TestEquity.

(6) Other non-recurring costs consist of non-capitalized deferred financing costs incurred in conjunction with the 2023 Amended Credit Agreement, certain non-recurring strategic projects and other non-recurring items.

(7) Includes the operating results of Lawson and All Other subsequent, but not prior, to the April 1, 2022 Merger Date in accordance with GAAP accounting guidance for reverse acquisitions.

Supplemental Information - Lawson Pro Forma Operating Income and Non-GAAP Adjusted EBITDA

For management to discuss Lawson's operating results on a comparable basis, Lawson's GAAP results of operations were adjusted to include Lawson's historical pre-merger components of operating income, prior to the April 1, 2022 Merger Date, along with pre-merger pro forma adjustments prepared under SEC Regulation S-X Article 11, in order to reflect the total operating activities attributable to Lawson for each period presented.

Management believes this supplemental information provides the most meaningful basis of comparison for Lawson's operations, is more useful in identifying current business trends, and is important for the users of our financial statements in understanding Lawson's business.

Refer to Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business Acquisitions within Item 8.

Financial Statements and Supplementary Data for information about the Mergers.

This supplemental information may not reflect the actual results we would have achieved had the Mergers occurred at the beginning of 2022, and should not be viewed as a substitute for the results of operations presented in accordance with GAAP.

Lawson's historical operating results prior to the Mergers were obtained from the unaudited condensed consolidated financial statements included in the Lawson Products, Inc.

Quarterly Report on Form 10-Q filed for the quarterly period ended March 31, 2022.

The pro forma adjustments were obtained from the unaudited pro forma condensed combined financial information included in DSG's Current Report on Form 8-K/A filed on August 24, 2023.

Lawson Pro Forma Results - Calculation of Supplemental Information (Unaudited)

(in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022

Lawson Operating Income GAAP Results (1)

GAAP Results (2)

Pre-Merger Results (3)

Pro-Forma Adjustments (4)

Pro Forma Results (5)

(5) Inventory fair value step-up adjustment for acquisition accounting related to acquisitions completed.

(6) Other non-recurring costs consist of certain non-recurring strategic projects and other non-recurring items.

(7) Includes the operating results of Lawson, Canada Branch Division and All Other subsequent, but not prior, to the April 1, 2022 Merger Date in accordance with GAAP accounting guidance for reverse acquisitions.

Composition of Results of Operations

The following results of operations for the years ended December 31, 2024 and 2023 include the combined operations of DSG, while the following results of operations for the year ended December 31, 2022 include the accounts of the TestEquity and Gexpro Services combined entity, as the accounting acquirer, for the full year, and the results of DSG’s legacy Lawson, Canada Branch Division and All Other businesses have only been included for activity subsequent, and not prior, to the April 1, 2022 Merger Date.

Segment revenue and Operating income (loss) by reportable segment includes sales to external customers and sales transactions between our segments, referred to as intersegment revenue, and the impact of those intersegment revenue transactions on operating activities.

Reconciliations of segment revenue and Operating income (loss) to our consolidated results of operations in the consolidated financial statements are provided in Note 14 – Segment Information within Item 8.

Financial Statements and Supplementary Data.

RESULTS OF OPERATIONS FOR 2024 AS COMPARED TO 2023

Consolidated Results of Operations

Year Ended December 31,

(Dollars in thousands) Amount % of Revenue Amount % of Revenue

Lawson $ 469,044 26.0 % $ 468,711 29.8 %

TestEquity 771,180 42.7 % 641,768 40.9 %

Gexpro Services 440,723 24.4 % 405,733 25.8 %

Canada Branch Division 125,099 6.9 % 55,890 3.6 %

Intersegment revenue elimination (1,942) (0.1) % (1,700) (0.1) %

Total Revenue 1,804,104 100.0 % 1,570,402 100.0 %

Cost of goods sold

Lawson 211,784 11.7 % 203,251 12.9 %

TestEquity 595,368 33.0 % 499,916 31.8 %

Gexpro Services 302,228 16.8 % 284,664 18.1 %

Canada Branch Division 82,897 4.6 % 32,396 2.1 %

Intersegment cost of goods sold elimination (1,948) (0.1) % (1,700) (0.1) %

Total Cost of goods sold 1,190,329 66.0 % 1,018,527 64.9 %

Gross profit 613,775 34.0 % 551,875 35.1 %

Selling, general and administrative expenses

Lawson 242,705 13.5 % 232,962 14.8 %

TestEquity 171,845 9.5 % 158,317 10.1 %

Gexpro Services 101,962 5.7 % 94,069 6.0 %

Canada Branch Division 36,178 2.0 % 17,763 1.1 %

All Other 5,130 0.3 % 5,773 0.4 %

Total Selling, general and administrative expenses 557,820 30.9 % 508,884 32.4 %

Operating income (loss) 55,955 3.1 % 42,991 2.7 %

Interest expense (55,145) (3.1) % (42,774) (2.7) %

Change in fair value of earnout liabilities (988) (0.1) % 758 — %

Other income (expense), net (358) — % (2,982) (0.2) %

Income (loss) before income taxes (536) — % (2,007) (0.1) %

Income tax expense (benefit) 6,796 0.4 % 6,960 0.4 %

Net income (loss) $ (7,332) (0.4) % $ (8,967) (0.6) %

Overview of Consolidated Results of Operations

Our consolidated revenue increased $233.7 million for 2024 compared to 2023 primarily driven by $268.2 million of revenue from acquisitions completed in 2023 and 2024 offset by a decline in organic revenue of $34.5 million.

Consolidated Gross profit and Selling, general and administrative expenses also increased over the prior year primarily driven by the inclusion of the Hisco, ESS, S&S, Source Atlantic, TCR and ConRes TE acquisitions completed in 2023 and 2024.

Refer to Results by Reportable Segment below for a complete discussion of our results of operations.

Results by Reportable Segment

Lawson Segment

Year Ended December 31, Change

(Dollars in thousands) 2024 2023 Amount %

Revenue from external customers $ 468,976 $ 468,379 $ 597 0.1 %

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Operating income (loss) $ 14,555 $ 32,498 $ (17,943) (55.2) %

Lawson Adjusted EBITDA (6)

Gross profit margin 54.8 % 56.6 %

Adjusted EBITDA (1)

$ 56,399 $ 63,663 $ (7,264) (11.4) %

(1) Operating income prepared in accordance with GAAP.

No pre-merger or pro-forma adjustments were necessary because these results represent Lawson’s total operating activities for the full year ended December 31, 2023.

(2) Operating income prepared in accordance with GAAP, which includes Lawson’s results of operations subsequent, but not prior, to the April 1, 2022 Merger Date.

See Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business Acquisitions within Item 8.

Financial Statements and Supplementary Data .

(3) Lawson's results of operations for the three months ended March 31, 2022, which occurred prior to the April 1, 2022 Merger Date and were not included in the Company's GAAP operating results under reverse merger acquisition accounting.

(4) Pro-forma adjustments include the incremental expense related to the fair value adjustment of share-based compensation awards of $1.9 million and the net impact of $2.2 million from the elimination of historical depreciation and amortization expense and recognition of new depreciation expense on the fair value of property, plant and equipment and amortization expense related to identifiable intangible assets.

(5) Lawson's pro forma results of operations adjusted for comparability on a period-over-period basis.

These results represent Lawson’s total operating activities for the year ended 2022 , regardless of the Merger Date (that is, they reflect both pre- and post-Merger results of Lawson, including the pro forma adjustments related to the pre-Merger period).

(6) Refer to the Non-GAAP Adjusted EBITDA section above for a reconciliation of operating income to Adjusted EBITDA.

Composition of Results of Operations

The following results of operations for the year ended December 31, 2023 include the combined operations of DSG.

The following results of operations for the year ended December 31, 2022 include the accounts of the TestEquity and Gexpro Services combined entity, as the accounting acquirer, for the full year, and the results of DSG's legacy Lawson business have only been included for activity subsequent, and not prior, to the April 1, 2022 Merger Date.

Financial Statements and Supplementary Data.

(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.

Revenue and Gross Profit

Revenue increased $0.3 million , or 0.1% , to $469.0 million in 2024 compared to revenue of $468.7 million in 2023.

The increase was primarily driven by $39.8 million of revenue generated from the acquisitions completed in 2024 and strengthening sales within the automotive end market of $2.9 million, offset by a decline in sales to Lawson’s core, governmental and strategic customers of $42.4 million primarily as a result of fewer sales representatives .

Gross profit decreased $8.2 million , or 3.1%, to $257.3 million in 2024 compared to gross profit of $265.5 million in 2023 primarily due to a shift in sales toward larger lower margin profile customers and the amortization of the fair value step-up of inventory of $1.1 million related to the S&S Automotive Transaction.

Lawson gross profit as a percent of revenue was 54.8% in 2024 compared to gross profit as a percent of revenue of 56.6% in the prior year.

The gross profit margin percentage decrease for 2024 was primarily the result of the amortization of the fair value step-up of inventory of $1.1 million related to the S&S Automotive Transaction, a shift in sales toward larger lower margin profile customers and a lower margin profile from the 2024 acquisitions than its organic margin profile.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and support for Lawson sales representatives as well as expenses to operate Lawson’s distribution network and overhead expenses.

Selling, general and administrative expenses increased $9.7 million to $242.7 million in 2024 compared to $233.0 million in 2023.

Approximately $10.3 million of the increased expenses was driven by the acquisitions completed in 2024 in addition to higher severance and merger and acquisition expenses of $4.5 million and $4.0 million , respectively.

These costs were partially offset by a decrease in stock-based compensation expense of $3.8 million and a decrease in variable compensation as a result of lower sales.

Adjusted EBITDA

During 2024 , Lawson generated Adjusted EBITDA of $56.4 million , a decrease of 11.4% or $7.3 million from the prior year p rimarily driven by lower organic revenue and gross profit margin partially offset by contributions of approximately $6.2 million generated by the acquisitions completed in 2024.

TestEquity Segment

Year Ended December 31, Change

(Dollars in thousands) 2024 2023 Amount %

Revenue from external customers $ 770,866 $ 641,643 $ 129,223 20.1 %

Intersegment revenue 314 125 189 151.2 %

Revenue 771,180 641,768 129,412 20.2 %

Cost of goods sold 595,368 499,916 95,452 19.1 %

Gross profit 175,812 141,852 33,960 23.9 %

Selling, general and administrative expenses 171,845 158,317 13,528 8.5 %

Operating income (loss) $ 3,967 $ (16,465) $ 20,432 (124.1) %

Gross profit margin 22.8 % 22.1 %

Adjusted EBITDA (1)

$ 56,288 $ 43,283 $ 13,005 30.0 %

(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income (loss) to Adjusted EBITDA.

Revenue and Gross Profit

Revenue increased $129.4 million , or 20.2%, to $771.2 million in 2024 compared to $641.8 million in 2023 .

The increase was primarily driven by $157.4 million of revenue generated from acquisitions completed in 2024 and 2023, partially offset by a $28.0 million decline in legacy TestEquity revenue due to a slowdown in the electronics assembly market causing softening in the electronic production supplies end markets.

Gross profit increased $34.0 million to $175.8 million in 2024 compared to $141.9 million in 2023 primarily as a result of the inclusion of the acquisitions completed in 2024 and 2023, which generated $39.5 million of additional gross profit during 2024, partially offset by a decrease in gross profit on the decline in legacy TestEquity revenue.

TestEquity gross profit as a percent of revenue increased to 22.8% in 2024 compared to 22.1% in the prior year.

2023 included expense of $3.6 million for the amortization of the fair value step-up of inventory related to the acquisition completed in 2023.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of compensation and support for TestEquity’s sales representatives and expenses to operate TestEquity’s distribution network and overhead expenses.

Selling, general and administrative expenses increased $13.5 million to $171.8 million in 2024 compared to $158.3 million in 2023 .

Approximately $17.3 million of the increased expenses, including depreciation, was driven by the acquisitions completed in 2024 and 2023.

These costs were partially offset by lower merger and acquisition expenses of $4.0 million and lower personnel expenses in 2024 compared to 2023 inclusive of severance and acquisition related retention expenses.

Adjusted EBITDA

During 2024 , TestEquity generated Adjusted EBITDA of $56.3 million , an increase of $13.0 million from the same period a year ago with an increase of approximately $16.2 million driven by the acquisitions completed in 2024 and 2023, partially offset by a reduction of $3.2 million in legacy TestEquity primarily due to a decline in organic revenue.

Gexpro Services Segment

Year Ended December 31, Change

(Dollars in thousands) 2024 2023 Amount %

Revenue from external customers $ 439,163 $ 404,490 $ 34,673 8.6 %

Intersegment revenue 1,560 1,243 317 25.5 %

Revenue 440,723 405,733 34,990 8.6 %

Cost of goods sold 302,228 284,664 17,564 6.2 %

Gross profit 138,495 121,069 17,426 14.4 %

Selling, general and administrative expenses 101,962 94,069 7,893 8.4 %

Operating income (loss) $ 36,533 $ 27,000 $ 9,533 35.3 %

Gross profit margin 31.4 % 29.8 %

Adjusted EBITDA (1)

$ 55,775 $ 45,191 $ 10,584 23.4 %

(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.

Revenue and Gross Profit

Revenue increased $35.0 million, or 8.6%, to $440.7 million in 2024 compared to $405.7 million in 2023.

There were two more selling days in the year ended December 31, 2024, compared to the same period a year ago .

A selling day generally represents a business day in which Gexpro Services ships products to its customers.

Average daily sales increased 7.8% over the same period a year ago.

The increase in revenue was primarily driven by increased sales in the renewable energy vertical market of $21.8 million, increased sales in the aerospace and defense vertical market of $6.4 million, strengthening sales within the technology vertical market of $6.7 million and $0.6 million of revenue generated from the acquisition completed in 2024, partially offset by softness within the consumer and industrial vertical market.

Gross profit increased $17.4 million to $138.5 million in 2024 compared to $121.1 million in 2023.

Gexpro Services’ gross profit as a percent of revenue was 31.4% in 2024 compared to 29.8% in the prior year period.

The gross profit margin percentage improvement for 2024 was primarily the result of strategic sourcing initiatives, supply chain improvements and end market sales mix.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of sales and marketing expenses primarily relating to compensation, costs associated with supporting Gexpro Services’ service facilities, overhead expenses within finance, legal, human resources and information technology, and other costs required to operate Gexpro Services’ business.

Selling, general, and administrative expenses increased $7.9 million to $102.0 million in 2024 compared to $94.1 million in 2023.

The increase was primarily driven by additional consulting costs of $1.8 million to support non-recurring strategic projects, non-recurring legal fees of $1.0 million and investments to support future growth and additional compensation.

Adjusted EBITDA

During 2024 , Gexpro Services generated Adjusted EBITDA of $55.8 million , an increase of $10.6 million, or 23.4% from 2023 primarily driven by higher organic revenue and managing gross profit margins, partially offset by an increase in Selling, general, and administrative expenses.

Canada Branch Division Segment

Year Ended December 31, Change

(Dollars in thousands) 2024 2023 Amount %

Revenue from external customers $ 125,099 $ 55,890 $ 69,209 123.8 %

Intersegment revenue — — — — %

Revenue 125,099 55,890 69,209 123.8 %

Cost of goods sold 82,897 32,396 50,501 155.9 %

Gross profit 42,202 23,494 18,708 79.6 %

Selling, general and administrative expenses 36,178 17,763 18,415 103.7 %

Operating income (loss) $ 6,024 $ 5,731 $ 293 5.1 %

Gross profit margin 33.7 % 42.0 %

Adjusted EBITDA (1)

$ 11,651 $ 7,802 $ 3,849 49.3 %

(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.

Revenue and Gross Profit

Revenue increased $69.2 million , or 123.8% , to $125.1 million in 2024 compared to $55.9 million in 2023 .

The increase was primarily driven by $70.3 million of revenue generated from the acquisition of Source Atlantic completed in 2024, partially offset by a decline in organic Canada Branch Division revenue of $1.1 million.

Gross profit increased $18.7 million to $42.2 million in 2024 compared to gross profit of $23.5 million in 2023 primarily as a result of the inclusion of the acquisition of Source Atlantic completed in 2024, which generated $18.7 million of additional gross profit during 2024.

G ross profit as a percent of revenue decreased to 33.7% in 2024 compared to 42.0% in the prior year primarily due to the lower gross profit margin profile of Source Atlantic as compared to Bolt .

Selling, General and Administrative Expenses

Selling, general and administrative expenses for Canada Branch Division consist of compensation, expenses to operate its distribution network and branch locations and overhead expenses.

Selling, general and administrative expenses increased $18.4 million to $36.2 million in 2024 compared to $17.8 million in 2023.

Approximately $18.1 million of the increased expenses, including depreciation, was driven by the acquisition of Source Atlantic completed in 2024.

Adjusted EBITDA

During 2024 , Canada Branch Division generated Adjusted EBITDA of $11.7 million, an increase of $3.8 million from the same period a year ago with an increase of approximately $4.1 million driven by the acquisition of Source Atlantic completed in 2024.

Consolidated Non-operating Income and Expense

Year Ended December 31, Change

(Dollars in thousands) 2024 2023 Amount %

Interest expense $ (55,145) $ (42,774) $ (12,371) 28.9 %

Change in fair value of earnout liabilities $ (988) $ 758 $ (1,746) N/M

Other income (expense), net $ (358) $ (2,982) $ 2,624 (88.0) %

Income tax expense (benefit) $ 6,796 $ 6,960 $ (164) (2.4) %

N/M Not meaningful

Interest Expense

Interest expense increased $12.4 million in 2024 compared to 2023 primarily due to an increase in interest rates and higher outstanding borrowings related to the acquisitions of Hisco, S&S Automotive, Source Atlantic, TCR and ConRes TE.

Change in Fair Value of Earnout Liabilities

The $1.0 million expense in 2024 and the $0.8 million benefit in 2023 related to the change in fair value of the earnout liabilities associated with the Frontier acquisition.

Other Income (Expense), Net

Other income (expense), net consists of effects of changes in foreign currency exchange rates, interest income, net and other non-operating income and expenditures.

The $2.6 million change in 2024 compared to 2023 was partly due to favorable increases in interest income and favorable changes in foreign currency exchange rates.

Income Tax Expense (Benefit)

Income tax expense was $6.8 million, a (1,267.9)% effective tax rate for the year ended December 31, 2024 compared to income tax expense of $7.0 million and a (346.8)% effective tax rate for the prior year.

The change in the year-over-year effective tax rate was primarily due to a change in valuation allowances related to interest expense limitation deferred tax assets.

The disproportionate effective tax rates were caused by limitations on the deductibility of interest expense and other permanent items on a small pre-tax loss amount.

RESULTS OF OPERATIONS FOR 2023 AS COMPARED TO 2022

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Gexpro Services 405,733 25.8 % 385,326 33.5 %

All Other (2)

Canada Branch Division (1)

55,890 3.6 % 48,955 4.3 %

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Gexpro Services 284,664 18.1 % 272,462 23.7 %

All Other (2)

Canada Branch Division (1)

32,396 2.1 % 31,052 2.7 %

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Gexpro Services 94,069 6.0 % 91,573 8.0 %

All Other (2)

Canada Branch Division (1)

17,763 1.1 % 13,289 1.2 %

All Other 5,773 0.4 % 2,030 0.2 %

Total Selling, general and administrative expenses 508,884 32.4 % 349,112 30.3 %

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Net income (loss) $ (8,967) (0.6) % $ 7,406 0.6 %

(1) Includes the operating results of Lawson subsequent, but not prior, to the April 1, 2022 Merger Date.

(2) Includes the operating results of All Other subsequent, but not prior, to the April 1, 2022 Merger Date.

(1) Includes the operating results of Lawson, Canada Branch Division and All Other subsequent, but not prior, to the April 1, 2022 Merger Date.

Overview of Consolidated Results of Operations

Our consolidated results of operations include the financial impact of the Mergers that were completed on April 1, 2022 and the other acquisitions completed in 2023 and 2022.

The increase in gross profit for 2023 compared to 2022 was primarily due to the inclusion of Lawson operations only subsequent, and not prior, to the Merger Date and the Hisco and other acquisitions completed in 2023 and 2 022.

Expenses for 2023 were impacted by the other acquisitions completed in 2023 and 2022.

The increase in gross profit for 2023 compared to 2022 was primarily due to the inclusion of Lawson and Canada Branch Division operations only subsequent, and not prior, to the Merger Date and to the Hisco and other acquisitions completed in 2023 and 2 022.

Expenses for 2023 were impacted by the other

acquisitions completed in 2023 and 2022.

Refer to Results by Reportable Segment below for a complete discussion of our results of operations.

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For management to discuss Lawson’s operating results on a comparable basis, Lawson’s GAAP results of operations were adjusted to include Lawson’s historical pre-merger components of operating income, prior to the April 1, 2022 Merger Date, along with pre-merger pro forma adjustments prepared under SEC Regulation S-X Article 11, in order to reflect the total operating activities attributable to Lawson for each period presented.

These pro forma results presented in the table below are referred to within this supplemental results of operations discussion as "pro forma".

These pro forma results presented in the tables below are referred to within this supplemental results of operations discussion concerning Lawson as “pro forma”.

Refer to the section titled 2022 Supplemental Information - Lawson and Canada Branch Division Pro Forma Operating Income and Non-GAAP Adjusted EBITDA above for further explanation of the calculation of this supplemental information.

Lawson Pro Forma Results - Calculation of Supplemental Information (Unaudited)

(in thousands) Year Ended December 31, 2022

Lawson Operating Income GAAP Results (1)

Pre-Merger Results (2)

Pro-Forma Adjustments (3)

Pro Forma Results (4)

Revenue from external customers $ 324,783 $ 104,902 $ — $ 429,685

Intersegment revenue — — — —

Revenue 324,783 104,902 — 429,685

Cost of goods sold 154,030 49,371 — 203,401

Gross profit 170,753 55,531 — 226,284

Selling, general and administrative expenses 164,217 44,435 4,086 212,738

Operating income (loss) $ 6,536 $ 11,096 $ (4,086) $ 13,546

Lawson Adjusted EBITDA (5)

$ 30,584 $ 8,042 $ 38,626

(1) Operating income prepared in accordance with GAAP, which includes Lawson’s results of operations subsequent, but not prior, to the April 1, 2022 Merger Date.

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

(2) Lawson’s results of operations for the three months ended March 31, 2022, which occurred prior to the April 1, 2022 Merger Date and were not included in the Company’s GAAP operating results under reverse merger acquisition accounting.

(3) Pro-forma adjustments include the incremental expense related to the fair value adjustment of share-based compensation awards of $1.9 million and the net impact of $2.2 million from the elimination of historical depreciation and amortization expense and recognition of new depreciation expense on the fair value of property, plant and equipment and amortization expense related to identifiable intangible assets.

(4) Lawson’s pro forma results of operations adjusted for comparability on a period-over-period basis.

(5) Refer to the Non-GAAP Adjusted EBITDA section above for a reconciliation of operating income to Adjusted EBITDA.

Lawson - 2023 as Compared to Pro Forma 2022 (Unaudited)

Year Ended December 31, Change

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(1) For comparability purposes, Lawson’s GAAP results of operations were adjusted to include the historical unaudited results of Lawson prior to the Merger Date and certain pro-forma adjustments including the incremental expense related to the fair value adjustment of share-based compensation awards and incremental depreciation and amortization expense related to the fair value adjustments of property, plant and equipment and identifiable intangible assets.

Refer to the section Factors Affecting Comparability to Prior Periods and the section Supplemental Information - Lawson Pro Forma Operating Income and Non-GAAP Adjusted EBITDA for more information related to the calculation of adjusted amounts.

Refer to the section Factors Affecting Comparability to Prior Periods and the section 2022 Supplemental Information - Lawson and Canada Branch Division Pro Forma Operating Income and Non-GAAP Adjusted EBITDA and the section Lawson Pro Forma Results - Calculation of Supplemental Information (Unaudited) for more information related to the calculation of adjusted amounts.

(2) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.

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The pro forma gross profit margin percentage for the same period of 2022 was impacted by increased supplier costs from inflation and supply chain disruptions and a sales shift toward lower margin customers.

P ro forma gross profit margin for 2022 was also impacted by an inventory charge of $1.7 million to reduce inventory related to discontinued products where

the anticipated net realizable value was lower than the cost reflected in our records and the amortization of the fair value step-up of inventory of $1.9 million related to the Mergers.

P ro forma gross profit margin for 2022 was also impacted by an inventory charge of $1.7 million to reduce inventory related to discontinued products where the anticipated net realizable value was lower than the cost reflected in our records and the amortization of the fair value step-up of inventory of $1.9 million related to the Mergers.

Selling, General and Administrative Expenses

1 unchanged sentence

Selling, general and administrative expenses increased $20.2 million to $233.0 million in 2023 compared to pro forma Selling, general and administrative expenses of $212.7 million in the same period of 2022.

The increase was primarily driven by additional depreciation and amortization of $9.2 million as a result of the fair value step-up adjustments related to the reverse merger acquisition accounting and higher stock-based compensation of $12.2 million due to expense of $7.9 million in 2023 and a benefit of $4.2 million realized in 2022, partially offset by lower acquisition related costs of $4.7 million in 2023 compared to the same period of 2022.

in 2023 and a benefit of $4.2 million realized in 2022, partially offset by lower acquisition related costs of $4.7 million in 2023 compared to the same period of 2022.

Adjusted EBITDA

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During 2023 , Gexpro Services generated Adjusted EBITDA of $45.2 million , an increase of $2.0 million, or 4.6% from the same period a year ago primarily driven by increased revenue and gross profit margin, partially offset by an increase in Selling, general, and administrative expenses.

Canada Branch Division Segment

Year Ended December 31, Change

(Dollars in thousands) 2023 2022 Amount %

Revenue from external customers $ 55,890 $ 48,955 $ 6,935 14.2 %

Intersegment revenue — — — — %

Revenue 55,890 48,955 6,935 14.2 %

Cost of goods sold 32,396 31,052 1,344 4.3 %

Gross profit 23,494 17,903 5,591 31.2 %

Selling, general and administrative expenses 17,763 13,289 4,474 33.7 %

Operating income (loss) $ 5,731 $ 4,614 $ 1,117 24.2 %

Gross profit margin 42.0 % 36.6 %

Adjusted EBITDA (1)

$ 7,802 $ 7,318 $ 484 6.6 %

(1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.

Revenue and Gross Profit

Revenue increased $6.9 million, or 14.2% , to $55.9 million in 2023 compared to revenue of $49.0 million in the same period of 2022 primarily due to $14.6 million of revenue in the first quarter of 2023 with no comparable amount in 2022 due to the inclusion of Canada Branch Division operations beginning on the Merger Date and not including any Canada Branch Division operations prior to the Merger Date.

This was partially offset by a decrease in the sale of fasteners to corporate customers in 2023 compared to 2022 .

Gross profit increased $5.6 million, or 31.2%, to $23.5 million in 2023 compared to gross profit of $17.9 million in the same period of 2022 primarily due to $6.1 million of gross profit in the first quarter of 2023 with no comparable amount in 2022 due to the inclusion of Canada Branch Division operations beginning on the Merger Date and not including any Canada Branch Division operations prior to the Merger Date.

Canada Branch Division gross profit as a percent of revenue was 42.0% in 2023 compared to gross profit as a percent of revenue of 36.6% in the prior year period.

Gross profit margin for 2022 was impacted by the amortization of the fair value step-up of inventory of $0.8 million related to the Mergers and a shift in sales mix to lower margin products, specifically fasteners sold to corporate customers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for Canada Branch Division consist of compensation, expenses to operate its distribution network and branch locations and overhead expenses.

Selling, general and administrative expenses increased $4.5 million to $17.8 million in 2023 compared to Selling, general and administrative expenses of $13.3 million in the same period of 2022 primarily due to $4.5 million of Selling, general and administrative expenses in the first quarter of 2023 with no comparable amount in 2022 due to the inclusion of Canada Branch Division operations beginning on the Merger Date and not including any Canada Branch Division operations prior to the Merger Date.

Adjusted EBITDA

During 2023 , Canada Branch Division generated Adjusted EBITDA of $7.8 million, an increase of 6.6% or $0.5 million from the same period a year ago primarily due to $2.1 million of Adjusted EBITDA in the first quarter of 2023 with no

comparable amount in 2022 due to the inclusion of Canada Branch Division operations beginning on the Merger Date and not including any Canada Branch Division operations prior to the Merger Date.

Supplemental Information

For management to discuss Canada Branch Division’s operating results on a comparable basis, Canada Branch Division’s GAAP results of operations were adjusted to include Canada Branch Division’s historical pre-merger components of operating income, prior to the April 1, 2022 Merger Date, along with pre-merger pro forma adjustments prepared under SEC Regulation S-X Article 11, in order to reflect the total operating activities attributable to Canada Branch Division for each period presented.

These pro forma results presented in the tables below are referred to within this supplemental results of operations discussion concerning Canada Branch Division as “pro forma”.

Canada Branch Division Pro Forma Results - Calculation of Supplemental Information (Unaudited)

(in thousands) Year Ended December 31, 2022

Canada Branch Division Operating Income

GAAP Results (1)

Pre-Merger Results (2)

Pro-Forma Adjustments (3)

Pro Forma Results (4)

Revenue from external customers $ 48,955 $ 12,975 $ — $ 61,930

Intersegment revenue — — — —

Revenue 48,955 12,975 — 61,930

Cost of goods sold 31,052 8,008 — 39,060

Gross profit 17,903 4,967 — 22,870

Selling, general and administrative expenses 13,289 3,987 — 17,276

Operating income (loss) $ 4,614 $ 980 $ — $ 5,594

Canada Branch Division Adjusted EBITDA (5)

$ 7,318 $ 1,128 $ — $ 8,446

(1) Operating income prepared in accordance with GAAP, which includes Canada Branch Division’s results of operations subsequent, but not prior, to the April 1, 2022 Merger Date.

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

(2) Canada Branch Division’s results of operations for the three months ended March 31, 2022, which occurred prior to the April 1, 2022 Merger Date and were not included in the Company’s GAAP operating results under reverse merger acquisition accounting.

(3) There were no significant pro-forma adjustments for Canada Branch Division.

(4) Canada Branch Division’s pro forma results of operations adjusted for comparability on a period-over-period basis.

These results represent Canada Branch Division’s total operating activities for the year ended 2022 , regardless of the Merger Date (that is, they reflect both pre- and post-Merger results of Canada Branch Division, including the pro forma adjustments related to the pre-Merger period).

(5) Refer to the Non-GAAP Adjusted EBITDA section above for a reconciliation of operating income to Adjusted EBITDA.

Canada Branch Division - 2023 as Compared to Pro Forma 2022 (Unaudited)

Year Ended December 31, Change

(Dollars in thousands) 2023 Pro Forma 2022 (1)

Revenue from external customers $ 55,890 $ 61,930 $ (6,040) (9.8)%

Intersegment revenue — — — —%

Revenue 55,890 61,930 $ (6,040) (9.8)%

Cost of goods sold 32,396 39,060 (6,664) (17.1)%

Gross profit 23,494 22,870 624 2.7%

Selling, general and administrative expenses 17,763 17,276 487 2.8%

Operating income (loss) $ 5,731 $ 5,594 $ 137 2.4%

Gross profit margin 42.0 % 36.9 %

Adjusted EBITDA (2)

$ 7,802 $ 8,446 $ (644) (7.6)%

(1) For comparability purposes, Canada Branch Division’s GAAP results of operations were adjusted to include the historical unaudited results of Canada Branch Division prior to the Merger Date and certain pro-forma adjustments including the incremental expense related to the fair value adjustment of share-based compensation awards and incremental depreciation and amortization expense related to the fair value adjustments of property, plant and equipment and identifiable intangible assets.

Refer to the section Factors Affecting Comparability to Prior Periods and the section 2022 Supplemental Information - Lawson and Canada Branch Division Pro Forma Operating Income and Non-GAAP Adjusted EBITDA and the section Canada Branch Division Pro Forma Results - Calculation of Supplemental Information (Unaudited) for more information related to the calculation of adjusted amounts.

(2) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.

Revenue and Gross Profit

Revenue decreased $6.0 million, or 9.8% , to $55.9 million in 2023 compared to pro forma revenue of $61.9 million in the same period of 2022 primarily driven by a decrease in the sale of fasteners to corporate customers of $7.2 million and an unfavorable currency impact of $2.0 million, partially offset by an increase in branch sales of $3.2 million.

Gross profit increased $0.6 million to $23.5 million in 2023 compared to pro forma gross profit of $22.9 million in the same period of 2022 primarily as a result of a shift in sales mix to higher margin products.

Canada Branch Division gross profit as a percent of revenue was 42.0% in 2023 compared to pro forma gross profit as a percent of pro forma revenue of 36.9% in the prior year period.

The pro forma gross profit margin percentage for 2022 was impacted by the amortization of the fair value step-up of inventory of $0.8 million related to the Mergers and a shift in sales mix to lower margin products, specifically fasteners sold to corporate customers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for Canada Branch Division consist of compensation, expenses to operate its distribution network and branch locations and overhead expenses.

Selling, general and administrative expenses increased $0.5 million to $17.8 million in 2023 compared to pro forma Selling, general and administrative expenses of $17.3 million in the same period of 2022.

T he increase was primarily driven by higher employee compensation costs.

Adjusted EBITDA

During 2023 , Canada Branch Division generated Adjusted EBITDA of $7.8 million, a decrease of 7.6% or $0.6 million from the same period a year ago primarily driven by a decrease in Canada Branch Division revenue partially offset by an increase in gross profit margin and Selling, general and administrative expenses.

Consolidated Non-operating Income and Expense

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The Company believes its current balances of cash and cash equivalents, availability under its Amended Credit Agreement and cash flows from operations will be sufficient to meet its liquidity needs for the next twelve months.

On August 14, 2024, the Company borrowed $200 million under the incremental term loan of the Amended Credit Agreement.

The Company used a portion of these proceeds to fund the Source Atlantic Transaction.

As of December 31, 2024, the Company had $66.5 million of cash and cash equivalents and $253.0 million of bo rrowing availability remaining, net of outstanding letters of credit, under the Amended Credit Agreement.

On June 2, 2023, the Company raised net proceeds of approximately $98.5 million from the Rights Offering, in which 4,444,444 shares of DSG common stock were sold at a purchase price of $22.50 per share.

On June 8, 2023, the Company borrowed $305 million under the incremental term loan of the 2023 Amended Credit Agreement.

The Company used these combined proceeds primarily to fund the Hisco Transaction and to pay down its revolving credit facility.

Our primary short-term and long-term liquidity and capital resource needs are to finance operating expenses, working capital, capital expenditures, potential business acquisitions, strategic initiatives and general corporate purposes.

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Cash Provided by (Used in) Operating Activities

Net cash provided by operations for the year ended December 31, 2024 was $56.5 million primarily due to non-cash items, partially offset by a net loss, payments of $34.6 million related to the Hisco retention bonuses and other net cash flow items.

Net cash provided by operations for the year ended December 31, 2023 was $102.3 million, primarily due to non-cash items, partially offset by a net loss and improvements in working capital.

Net cash used in operations for the year ended December 31, 2022 was $11.0 million, excluding non-cash items, primarily due to increased accounts receivables driven by higher sales and increased inventories due to increased supplier costs driven by inflation and global supply chain disruptions.

Cash Provided by (Used in) Investing Activities

Net cash used in investing activities for the year ended December 31, 2024 was $229.7 million, primarily due to the purchase of ESS, S&S Automotive, Source Atlantic , TCR and certain assets of ConRes TE as well as purchases of property, plant and equipment and rental equipment.

This was partially offset by the sale of property, plant and equipment and rental equipment.

Net cash used in investing activities for the year ended December 31, 2023 was $278.5 million, primarily due to the Hisco Transaction, as well as purchases of property, plant and equipment and rental equipment which was partially offset by the sale of rental equipment.

Net cash used in investing activities for the year ended December 31, 2022 was $126.7 million, primarily due to acquisitions completed by TestEquity and Gexpro Services, as well as purchases of property, plant and equipment and rental equipment which was partially offset by the sale of rental equipment.

Cash Provided by (Used in) Financing Activities

Net cash provided by financing activities for the year ended December 31, 2023 was $250.4 million due to proceeds from the 2023 Amended Credit Agreement and the Rights Offering partially offset by repayment of previous indebtedness and principal payments on the term loans.

In conjunction with the Hisco Transaction, the Company borrowed $305.0 million under the incremental term loan facility on June 8, 2023 and raised approximately $98.5 million, net of offering costs, through the Rights Offering which closed during the second quarter of 2023.

Net cash provided by financing activities for the year ended December 31, 2024 was $159.3 million primarily due to borrowings under the Company’s credit facility partially offset by principal payments on the term loans.

In conjunction with the Source Atlantic Transaction, the Company borrowed $200 million under the incremental term loan facility on August 14, 2024.

During 2024, deferred financing costs of $2.1 million were incurred related to the Amended Credit Agreement.

Net cash provided by financing activities for the year ended December 31, 2022 was $148.5 million, primarily due to proceeds from term loans and revolving credit facilities to finance the Mergers and other acquisitions, partly offset by repayment of previous indebtedness.

Deferred financing costs of $12.0 million were incurred during 2022 related to these financing activities.

Net cash provided by financing activities for the year ended December 31, 2023 was $250.4 million, due to borrowings under the Company’s credit facility and proceeds from a rights offering that we completed during the second quarter of 2023, partially offset by repayment of previous indebtedness and principal payments on the term loans.

During 2023, deferred financing costs of $3.4 million were incurred related to the First Amendment, dated June 8, 2023, to the Company’s credit facility.

Financing and Capital Requirements

Credit Facility

On June 8, 2023, in connection with the Hisco Transaction, DSG entered into the First Amendment, which amended and replaced the Amended and Restated Credit Agreement dated April 1, 2022 with the 2023 Amended Credit Agreement, and provided for a $305 million incremental term loan facility.

The 2023 Amended Credit Agreement also provides for the Company to increase the commitments from time to time by up to $200 million in the aggregate, subject to, among other things, receipt of additional commitments from existing and/or new lenders and pro forma compliance with certain financial covenants.

The 2023 Amended Credit Agreement includes a $200 million senior secured revolving credit facility, a $250 million senior secured initial term loan facility, a $305 million incremental term loan and a $50 million senior secured delayed draw term loan facility.

On August 14, 2024, in connection with the Source Atlantic Transaction, DSG entered into the Third Amendment, which provided for an additional $200 million incremental term loan and a $55 million increase in the Company’s senior secured revolving credit facility, and permits the Company to increase the commitments under the credit facility from time to time by up to $300 million in the aggregate, subject to, among other things, receipt of additional commitments from existing and/or new lenders and pro forma compliance with certain financial covenants.

As amended, the Amended Credit Agreement includes a $255 million senior secured revolving credit facility, a $250 million senior secured initial term loan facility, $505 million of incremental term loans, and a $50 million senior secured delayed draw term loan facility.

Refer to Note 9 – Debt within Item 8.

18 unchanged sentences

Retention Bonuses

As part of the Purchase Agreement, 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.

Pursuant to the Purchase Agreement, the Company paid $1.8 million of the retention bonuses during 2023 and will pay $34.6 million during 2024, with the remaining balance of $1.1 million to be paid in 2025.

Under the Hisco Purchase Agreement, DSG became obligated to 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.

Pursuant to the Hisco Purchase Agreement, the Company paid $1.8 million of the retention bonuses in 2023 and $34.6 million in 2024, with the remaining balance of $1.1 million to be paid in 2025.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

23 unchanged sentences

We allocate goodwill to the reporting units of the business that are expected to benefit from the business combination.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

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 7. Management’s Discussion and Analysis