What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-06 compared with 2024-03-07 · 505 added, 360 removed, 1032 unchanged (46% of the section changed)

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

Los Angeles, California ;

Dallas, Texas ;

PCAOB ID# 248 )

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Board of Directors and Stockholders

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

(a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2024, and the related notes and financial statement schedule included under Item 15(a)(1) (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 as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2024, 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, 2024, 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 6, 2025 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.

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

Our responsibility is to express an opinion on the Company’s consolidated 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.

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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.

Business Acquisitions – Valuation of acquired Intangible Assets

As described further in Note 3 to the financial statements, the Company acquired S&S Automotive Inc.

(S&S Automotive) on May 1, 2024, and Source Atlantic Limited (Source Atlantic) on August 14, 2024, for a combined purchase price of approximately $183.2 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 $58.5 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.

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 rates, weighted average costs of capital (WACC), and royalty rates.

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

(i) we tested the design and operating effectiveness of the controls over the Company’s acquisition and valuation process, including review of the valuation models, 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.

(iii) with the assistance of our valuation specialists, we assessed the assumptions and methodologies used in developing the WACC and royalty 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.

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

Los Angeles, California

Dallas, Texas

March 6, 2025

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Opinion on the Consolidated Financial Statements

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 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.

We have audited the accompanying consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows and financial statement schedule listed in the accompanying index for the year ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”) of Distribution Solutions Group, Inc.

(the “Company”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of the Company’s 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.

Basis for Opinion

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Chicago, Illinois

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

March 14, 2023, except for the effects of the Stock Split described in Notes 1 and 11, as to which the date is March 7, 2024, and Note 14, as to which the date is March 6, 2025

Distribution Solutions Group, Inc.

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Year Ended December 31,

2024 2023 2022

Revenue $ 1,804,104 $ 1,570,402 $ 1,151,422

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

Net income (loss) — — — ( 7,332 ) — — ( 7,332 )

Foreign currency translation adjustment — — — — — ( 16,946 ) ( 16,946 )

Stock-based compensation — — 4,467 — — — 4,467

Stock-based compensation liability paid in shares — — 870 — — — 870

Shares issued 202,672 203 877 — — — 1,080

Repurchases of common stock ( 85,644 ) ( 86 ) 86 — ( 2,580 ) — ( 2,580 )

Tax withholdings related to net share settlements of stock-based compensation awards ( 18,630 ) ( 19 ) 19 — ( 617 ) — ( 617 )

Balance at December 31, 2024 46,856,757 $ 46,856 $ 677,473 $ ( 42,039 ) $ ( 19,631 ) $ ( 22,116 ) $ 640,543

(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.

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Year Ended December 31,

2024 2023 2022

Operating activities

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Change in fair value of earnout liabilities 988 ( 758 ) 483

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

Loss on sale of property, plant and equipment 294 —

(Gain) loss on sale of rental equipment ( 2,813 ) ( 2,675 ) ( 3,632 )

(Gain) loss on sale of property, plant and equipment ( 61 ) 294 —

Charge for step-up of acquired inventory 2,882 3,582 2,866

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Purchases of property, plant and equipment ( 13,684 ) ( 15,337 ) ( 8,307 )

Proceeds from sale of property, plant and equipment 3,662 — —

Business acquisitions, net of cash acquired ( 199,423 ) ( 259,835 ) ( 115,343 )

Asset acquisitions ( 15,853 ) — —

Purchases of rental equipment ( 9,509 ) ( 9,341 ) ( 11,794 )

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Year Ended December 31,

2024 2023 2022

Supplemental disclosure of cash flow information

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Settlement of related party obligations $ — $ — $ 5,276

Additions of property, plant and equipment included in accounts payable $ 457 $ 361 $ 177

Right of use assets obtained in exchange for finance lease liabilities $ 821 $ 616 $ 886

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(“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:

Lawson Products, Inc.

("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 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 Distribution Solutions Group, Inc., and all entities consolidated in the accompanying consolidated financial statements.

Combination with TestEquity and Gexpro Services

Reportable Segments and Nature of Operations

Change in Reportable Segments

In connection with the Source Atlantic Transaction (as defined in Note 3 – Business and Asset Acquisitions) during the third quarter of 2024, the Company realigned its reportable segments to align with our business strategy and the manner in which our chief operating decision maker (“CODM”) assesses performance and strategic execution and makes decisions regarding the allocation of resources.

Prior to the third quarter of 2024, the Company had three reportable segments:

Lawson, TestEquity and Gexpro Services.

The Company also had an “All Other” category which included unallocated DSG holding company costs that were not directly attributable to the ongoing operating activities of our reportable segments and included the results of the Bolt Supply House (“Bolt”) non-reportable segment.

Beginning in the third quarter of 2024, the Company has four reporting segments:

Lawson, TestEquity, Gexpro Services and Canada Branch Division.

Canada Branch Division includes the results of Bolt and Source Atlantic (which we acquired during the third quarter of 2024 as described in Note 3 – Business and Asset Acquisitions).

No changes were made to the Lawson, TestEquity and Gexpro Services reportable segments.

The “All Other” category now includes only unallocated DSG holding company costs that are not directly attributable to the ongoing operating activities of our reportable segments.

The segment realignment had no impact on our financial condition or results of operations.

Prior period segment results have been recast to reflect our new reportable segments.

Additional information regarding DSG’s reportable segments is presented in Note 14 – Segment Information.

Nature of Operations

A summary of the nature of operations for our reportable segments is presented below .

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

Lawson primarily distributes MRO products to its customers through a network of sales representatives and an inside sales channel throughout the United States and Canada.

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.

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 throu gh 38 branch loc ations.

Combination with TestEquity and Gexpro S ervices

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”).

• 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 (“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) 301 HW Opus Holdings, Inc., conducting business as Gexpro Services (“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.

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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.

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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 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

A summary of the nature of operations for each of DSG's operating companies is presented below.

Information regarding DSG's reportable segments is presented in Note 14 – Segment Information.

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

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

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, Canada Branch Division and All Other are only included subsequent to the April 1, 2022 Merger Date.

Basis of Presentation and Consolidation

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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 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.

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, and the results of operations of DSG’s legacy Lawson, Canada Branch Division and All Other 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 years ended December 31, 2024 and 2023.

The financial statements as of December 31, 2024 and 2023 reflect the financial position of TestEquity, Gexpro Services and DSG’s legacy Lawson,

Canada Branch Division and All Other on a consolidated basis.

Note 2 – Summary of Significant Accounting Policies

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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.

At December 31, 2024 and 2023, the deferred consideration for the service performance obligations that have not been satisfied was $ 3.7 million and $ 0.8 million and will be recognized within twelve months of the respective balance sheet date.

Revenue recognized for the years ended December 31, 2024 and 2023 from amounts included in contract liabilities at the beginning of the respective periods was $ 0.8 million and $ 2.3 million, respectively.

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

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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.

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.

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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.

Allowance for Credit Losses — The Company evaluates the collectibility 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.

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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.

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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.

In general, 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 change in the cash surrender value of the life insurance policies, which is recorded as a component of Other income (expense) in the Consolidated Statements of Operations and Comprehensive Income (Loss), is the change in the policies’ contractual values.

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 Lawson U.S.

independent sales representatives to employees.

The security bonuses for those converted employees continue to vest, but their accounts are no longer credited with a percentage of net commissions.

For financial reporting purposes, amounts are charged to operations over the vesting period.

The security bonus plan is partially funded by an $ 8.4 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, 2024, the $ 7.6 million liability is primarily included in Other liabilities in the Consolidated Balance Sheets with the remaining portion included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

Deferred Compensation — The Company’s Executive Deferral Plan (“Deferral Plan”) allows certain executives to defer payment of a portion of their earned compensation.

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Such amounts are adjusted, as appropriate, to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse.

A valuation allowance is established to offset any deferred tax assets if, based upon the available evidence, it is more likely than not (i.e.

A valuation allowance is established to offset any deferred tax assets if,

based upon the available evidence, it is more likely than not (i.e.

greater than 50% likely) that some or all of the deferred tax assets will not be realized.

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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.

At the commencement date of a lease, the Company recognizes a liability to make lease payments and a Right Of Use 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.

Operating leases consist of office space, distribution and service centers, and branch locations.

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

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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.

The initial measurement of the right of use 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 right of use 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.

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

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.

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Gains and losses resulting from foreign intercompany transactions are included as a component of net income or loss each reporting period unless the transactions are of a long-term-investment nature and settlement is not planned or anticipated in the foreseeable future, in which case the gains and losses are recorded as a component of Accumulated other comprehensive income or loss in the Consolidated Balance Sheets.

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 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.

Foreign currency transaction losses of $ 0.4 million, $ 1.5 million and $ 0.9 million were recorded for 2024, 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 85,644 shares of its common stock during 2024, 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 18,630 shares of its common stock i n 2024, 11,378 shares of its common stock in 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 during 2023 and held in treasury wa s $ 3.9 million .

The cost of the common stock repurchased and held in treasury during 2024, 2023 and 2022 wa s $ 3.2 million, $ 3.9 million and $ 2.5 million, respectively.

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 Company has determined it has four operating segments:

(i) Lawson, (ii) Gexpro Services, (iii) TestEquity and (iv) All Other.

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

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

For each reportable segment, the CODM uses segment operating income (loss) to evaluate financial performance and allocate resources (including employees and financial resources) in a way to manage and grow margins.

The Company has determined it has five operating segments:

(i) Lawson, (ii) Gexpro Services, (iii) TestEquity, (iv) Canada Branch Division and (v) All Other.

The Company’s four reportable segments are (i) Lawson, (ii) Gexpro Services, (iii) TestEquity and (iv) Canada Branch Division.

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

See Note 14 – Segment Information for further details.

Acquisitions — The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values.

Acquisitions — When applicable, the Company accounts for the acquisition of a business in accordance with the guidance in ASC 805.

The Company recognizes identifiable assets acquired and liabilities assumed at their acquisition date fair values.

Goodwill as of the acquisition date is measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.

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.

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.

When an acquisition does not meet the definition of a business combination, the Company accounts for the acquisition as an asset acquisition.

In an asset acquisition, goodwill is not recognized, but rather, any difference in purchase consideration compared to the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable net assets as of the acquisition date and any direct acquisition-related transaction costs are capitalized as part of the purchase consideration.

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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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).

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 write-offs, goodwill and intangible assets valuation, stock-based compensation and income taxes in the consolidated financial statements and accompanying notes.

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.

revenue, service cost, allowance for credit losses, inventory write-offs, initial and on-going goodwill and intangible asset valuations, 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.

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 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):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an entity to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination.

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

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.

The pronouncement was 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 has been applied retrospectively to all prior periods presented in the financial statements.

The Company adopted this guidance on January 1, 2024.

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

Recent Accounting Pronoun cements - Not Yet Adopted

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

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

Note 3 – Business Acquisitions

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.

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 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.

Gexpro Services is a provider of supply chain solutions, specializing in developing and implementing VMI and kitting programs to high-specification manufacturing customers.

Gexpro Services provides critical products and services to customers throughout the lifecycle of highly technical OEM products.

Refer to Note 1 – Nature of Operations and Basis of Presentation for more information on the nature of operations for these businesses.

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

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

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

Allocation of Consideration Exchanged

Under the acquisition method of accounting, the consideration exchanged was calculated as follows:

(in thousands, except share data) April 1, 2022

Number of DSG common shares 18,240,334

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

Fair value of shares exchanged $ 351,491

Other consideration (1)

Total consideration exchanged $ 353,401

(1) Fair value adjustment of stock-based compensation awards.

Due to the publicly traded nature of shares of DSG common stock, the equity issuance of shares of DSG common stock based on this value was considered to be a more reliable measurement of the fair market value of the transaction compared to the equity interests of the accounting acquirer.

The allocation of consideration exchanged to the tangible and identifiable intangible assets acquired and liabilities assumed was based on estimated fair values as of the Merger Date.

The accounting for the Mergers was complete as of December 31, 2022.

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

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

In November 2024, the FASB issued ASU 2024-03, Income Statement (Topic 220):

Reporting Comprehensive Income, which requires disclosure of disaggregated information about certain income statement expense line items within the notes to the consolidated financial statements.

The pronouncement is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted.

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

Note 3 – Business and Asset Acquisitions

DSG and its operating companies acquired businesses during 2024, 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.

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

2024 Acquisitions

ConRes Test Equipment

On November 18, 2024 , DSG acquired the assets of ConRes Test Equipment, (“ConRes TE” and the “ConRes TE Transaction” ), for a purchase price of approximately $ 17.0 million .

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 are included within the TestEquity reportable segment.

The acquisition was funded using

DSG’s cash on hand and its revolving credit facility.

This acquisition was accounted for as an asset acquisition as substantially all of the fair value of the assets being acquired was concentrated in property, plant and equipment.

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

(in thousands)

November 18, 2024 Acquisition Date

Inventory $ 789

Property, plant and equipment 16,211

Right of use assets 414

Lease liabilities ( 414 )

Total purchase consideration exchanged, net of cash acquired $ 17,000

Cash consideration $ 15,725

Deferred consideration (1)

Total purchase consideration exchanged, net of cash acquired $ 17,000

(1) The Company paid $ 0.0 million of the ConRes TE deferred consideration during the year ended December 31, 2024 .

Tech-Component Resources Pte Ltd

On October 30, 2024, DSG acquired all of the issued and outstanding capital stock of Tech- Component Resources Pte LTD (“TCR” and the “TCR Transaction” ) for a purchase price of approximately $ 5.9 million , net of cash acquired of $ 1.9 million .

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 are included within

the Gexpro Services reportable segment.

The acquisition was funded using DSG’s cash on hand and its revolving credit facility.

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

Tech-Component Resources Pte Ltd

(in thousands)

October 30, 2024 Acquisition Date

Accounts receivable $ 923

Inventory 793

Other current assets 526

Property, plant and equipment 17

Right of use assets 5

Other intangible assets:

Customer relationships 2,250

Trade names 1,000

Deferred tax liability, net of deferred tax asset ( 641 )

Accounts payable ( 295 )

Lease liabilities ( 5 )

Accrued expenses and other liabilities ( 65 )

Goodwill 1,372

Total purchase consideration exchanged, net of cash acquired $ 5,880

Cash consideration $ 4,925

Deferred consideration (1)

Total purchase consideration exchanged, net of cash acquired $ 5,880

(1) The Company paid $ 0.0 million of the TCR deferred consideration during the year ended December 31, 2024 .

Certain estimated values for the TCR Transaction , including working capital and other liability adjustments, right of use assets, the valuation of intangibles and property, plant and equipment and income taxes 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 customer relationships and trade names intangible assets have estimated useful lives of ten years .

Goodwill generated from the TCR Transaction is no t deductible for tax purposes and is primarily attributable to the benefits we expect to derive from expected synergies, including expanded product and service offerings and cross-selling opportunities.

Source Atlantic

On August 14, 2024, DSG acquired all of the issued and outstanding capital stock of Source Atlantic Limited (“Source Atlantic” and the “Source Atlantic Transaction”) for a purchase price of approximately $ 103.1 million, net of cash acquired of $ 4.4 million .

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 has 24 branch locations across Canada with a heavy focus in Eastern Canada.

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

The results of operations of Source Atlantic are included within the Canada Branch Division reportable segment.

The acquisition was funded with borrowings under the Company’s Amended Credit Agreement.

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

Source Atlantic

(in thousands) August 14, 2024 Acquisition Date Measurement Period Adjustments Adjusted Total

Accounts receivable (1)

$ 33,679 $ — $ 33,679

Inventory 28,427 — 28,427

Other current assets 1,846 — 1,846

Property, plant and equipment 21,217 ( 22 ) 21,195

Right of use assets 6,780 — 6,780

Other intangible assets:

Customer relationships 11,035 1,242 12,277

Trade names 10,012 804 10,816

Deferred tax liability, net of deferred tax asset ( 10,314 ) ( 448 ) ( 10,762 )

Accounts payable ( 17,857 ) — ( 17,857 )

Lease liabilities ( 6,780 ) — ( 6,780 )

Accrued expenses and other liabilities ( 5,422 ) — ( 5,422 )

Goodwill 30,518 ( 1,576 ) 28,942

Total purchase consideration exchanged, net of cash acquired $ 103,141 $ — $ 103,141

Cash consideration $ 98,756 $ — $ 98,756

Deferred consideration (2)

4,385 — 4,385

Total purchase consideration exchanged, net of cash acquired $ 103,141 $ — $ 103,141

(1) Accounts receivable had an estimated fair value of $ 33.7 million and a gross contractual value of $ 34.3 million.

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

(2) The Company paid $ 0.0 million of the Source Atlantic deferred consideration during the year ended December 31, 2024.

Certain estimated values for the Source Atlantic Transaction, including working capital and other liability adjustments, right of use assets, the valuation of intangibles and property, plant and equipment and income taxes 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.

Following the initial fair value measurement, the Company updated the purchase price allocation for Source Atlantic primarily related to the ongoing review of the opening balance sheet and revised certain assumptions used in estimating the fair value.

The adjustments resulted in a $ 2.0 million increase to customer relationships and trade names and a $ 1.6 million decrease to goodwill.

The customer relationships and trade names intangible assets have estimated useful lives of 17 years and 8 years, respectively.

Goodwill generated from the Source Atlantic Transaction is not deductible for tax purposes and is primarily attributable to the benefits we expect to derive from expected synergies, including expanded product and service offerings and cross-selling opportunities.

S&S Automotive

On May 1, 2024, DSG acquired all of the issued and outstanding capital stock of S&S Automotive Inc.

(“S&S Automotive” and the “S&S Automotive Transaction”), with a purchase price of approximately $ 80.1 million, net of cash acquired of $ 0.7 million.

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 are included within the Lawson reportable segment.

The acquisition was funded using DSG’s cash on hand and its revolving credit facility.

S&S Automotive

(in thousands) May 1, 2024 Acquisition Date Measurement Period Adjustments Adjusted Total

Accounts receivable $ 4,100 $ — $ 4,100

Inventory 7,100 ( 203 ) 6,897

Other current assets 306 — 306

Property, plant and equipment 2,351 ( 223 ) 2,128

Right of use assets 7,581 — 7,581

Other intangible assets:

Customer relationships 30,200 ( 6,700 ) 23,500

Trade names 12,200 ( 300 ) 11,900

Other assets 35 3 38

Current liabilities ( 71,165 )

Long-term obligations ( 25,746 )

Lease and financing obligations ( 28,827 )

Derivative earnout liability ( 43,900 )

Accounts payable ( 1,120 ) — ( 1,120 )

Lease liabilities ( 7,604 ) — ( 7,604 )

Accrued expenses and other liabilities ( 1,989 ) — ( 1,989 )

Goodwill 26,892 7,423 34,315

Total consideration exchanged $ 353,401

The allocation of consideration exchanged to other intangible assets acquired is as follows:

(in thousands) Fair Value Estimated Life

Total purchase consideration exchanged, net of cash acquired $ 80,052 $ — $ 80,052

Cash consideration $ 78,659 $ — $ 78,659

Deferred consideration (1)

1,393 — 1,393

Total purchase consideration exchanged, net of cash acquired $ 80,052 $ — $ 80,052

(1) The Company paid $ 0.9 million of the S&S Automotive deferred consideration during the year ended December 31, 2024 .

Certain estimated values for the S&S Automotive Transaction, including working capital and other liability adjustments, right of use assets, the valuation of intangibles and property, plant and equipment and income taxes 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.

Following the initial fair value measurement, the Company updated the purchase price allocation for S&S Automotive primarily related to the ongoing review of the opening balance sheet and revised certain assumptions used in estimating the fair value.

The adjustments resulted in a $ 7.0 million decrease to customer relationships and trade names and a $ 7.4 million increase to goodwill.

The customer relationships and trade names intangible assets have estimated useful lives of 17 years and 8 years, respectively.

As a result of the S&S Automotive Transaction, the Company recorded tax deductible goodwill of $ 34.3 million in 2024 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.

Emergent Safety Supply

On January 19, 2024, DSG acquired the assets of Safety Supply Illinois LLC, conducting business as Emergent Safety Supply (“ESS” and the “ESS Transaction”), with a purchase price of $ 9.9 million.

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 are included within the Lawson reportable segment.

The acquisition was funded using DSG’s cash on hand.

Emergent Safety Supply

(in thousands) January 19, 2024 Acquisition Date Measurement Period Adjustments Adjusted Total

Accounts receivable $ 1,363 $ — $ 1,363

Inventory 1,399 — 1,399

Other current assets 10 — 10

Property, plant and equipment 228 — 228

Right of use assets 550 — 550

Other intangible assets:

Customer relationships 2,700 100 2,800

Trade names 1,400 — 1,400

Total other intangible assets $ 119,060

Other Acquisitions

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.

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").

Other assets 11 — 11

Accounts payable ( 205 ) — ( 205 )

Lease liabilities ( 550 ) — ( 550 )

Accrued expenses and other liabilities ( 25 ) 11 ( 14 )

Goodwill 2,973 ( 111 ) 2,862

Total purchase consideration exchanged, net of cash acquired $ 9,854 $ — $ 9,854

Cash consideration $ 8,904 $ — $ 8,904

Deferred consideration (1)

Total purchase consideration exchanged, net of cash acquired $ 9,854 $ — $ 9,854

(1) The Company paid $ 0.2 million of the ESS deferred consideration during the year ended December 31, 2024 .

Following the initial fair value measurement, the Company updated the purchase price allocation for ESS primarily related to the ongoing review of the opening balance sheet and revised certain assumptions used in estimating the fair value.

The adjustments resulted in a $ 0.1 million increase to customer relationships and a $ 0.1 million decrease to goodwill.

The accounting for the ESS Transaction was completed during the fourth quarter of 2024.

The customer relationships and trade names intangible assets have estimated useful lives of 16 years and 8 years, respectively.

As a result of the ESS Transaction, the Company recorded tax deductible goodwill of $ 2.9 million in 2024 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.

2023 Acquisition

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 “Hisco 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 results of operations of Hisco are included within the TestEquity reportable segment.

The total purchase consideration exchanged for the Hisco Transaction was $ 267.2 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).

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.

The remaining balance of $ 1.1 million will be paid in 2025.

Compensation expense is recorded 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).

Compensation expense inclusive of payroll taxes was $ 16.3 million for the year ended December 31, 2024 and $ 22.8 million for the year ended December 31, 2023.

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

Refer to Note 9 – Debt for information about the 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.

The Hisco 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.

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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.

(2) The Company paid $ 7.2 million of the Hisco deferred consideration during 2024 and $ 7.8 million during 2023.

As of December 31, 2024, there is no deferred consideration remaining.

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

The adjustments to these balances resulted in a $ 0.1 million increase to goodwill and a $ 3.3 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.

The accounting for the Hisco Transaction was completed during the second quarter of 2024.

The customer relationships and trade names intangible 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.

2022 Acquisitions

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.

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.

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

Allocation of Consideration Exchanged

Under the acquisition method of accounting, the consideration exchanged was calculated as follows:

(in thousands, except share data) April 1, 2022

Number of DSG common shares 18,240,334

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

Fair value of shares exchanged $ 351,491

Other consideration (1)

Total consideration exchanged $ 353,401

(1) Fair value adjustment of stock-based compensation awards.

The allocation of consideration exchanged to other intangible assets acquired is as follows:

(in thousands) Fair Value Estimated Life

Customer relationships $ 76,050 19

Trade names 43,010 8

Total other intangible assets $ 119,060

Purchases of Other Companies in 2022

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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

Property, plant and equipment 313 459 1,189 642 30 2,633

Right of use assets — 1,125 9,313 — — 10,438

Other intangible assets:

Customer relationships 6,369 11,400 9,300 2,100 800 29,969

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

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 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

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

Cash consideration $ 54,690 $ 30,755 $ 25,674 $ 6,023 $ 1,818 $ 118,960

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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 following table presents estimated unaudited pro forma consolidated financial information for DSG as if the acquisitions disclosed above occurred on January 1, 2023 for the acquisition completed during 2024, January 1, 2022 for the acquisitions 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.

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 acquisitions been completed on the date indicated.

Year Ended December 31,

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Actual Results of Business Acquisitions

The following table presents actual results attributable to our business combinations that were included in the consolidated financial statements for the years ended December 31, 2023 and 2022.

The 2023 and 2022 results only reflect the results attributable to the acquisitions completed in those respective years.

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

Year Ended December 31, 2023 Year Ended December 31, 2022

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

The following table presents actual results attributable to our acquisitions that were included in the consolidated financial statements for the years ended December 31, 2024, 2023 and 2022.

The results for these acquisitions are only included subsequent to their respective acquisition dates provided above.

Year Ended December 31,

(in thousands)

2024 2023 2022

Revenue $ 111,566 $ 229,358 $ 524,955

Net income $ 4,095 $ ( 14,478 ) $ 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).

The Company incurred transaction and integration costs related to completed and contemplated acquisitions of $ 10.1 million for the year ended December 31, 2024, $ 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

26 unchanged sentences

The Company has agreed to maintain restricted cash of $ 15.2 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 .

During 2024, escrow accounts of $ 9.0 million were established in conjunction with certain business acquisitions, to be released upon meeting certain working capital and other post-closing requirements as of the one-year post-acquisition dates with a balance of $ 7.9 million at December 31, 2024 .

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

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Property, plant and equipment, net $ 125,524 $ 113,811

(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.

Amortization expense for capitalized software was $ 2.6 million in 2023 and $ 1.6 million in 2022.

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

Depreciation expense for property, plant and equipment and amortization expense for capitalized software, which are included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss), were as follows:

Year Ended December 31,

(in thousands) 2024 2023 2022

Depreciation expense for property, plant and equipment $ 16,125 $ 13,052 $ 6,534

Amortization expense for capitalized software $ 3,287 $ 2,642 $ 1,583

Rental Equipment, net

4 unchanged sentences

Rental equipment, net $ 39,376 $ 24,575

Depreciation expense included in cost of sales for rental equipment was $ 7.6 million and $ 8.0 million for 2023 and 2022, respectively.

Depreciation expense for rental equipment, which is included in Cost of goods sold in the Consolidated Statements of Operations and Comprehensive Income (Loss), was as follows:

Year Ended December 31,

(in thousands) 2024 2023 2022

Depreciation expense for rental equipment $ 7,481 $ 7,631 $ 7,972

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

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Accrued compensation $ 23,800 $ 25,371

Accrued severance and acquisition related retention bonus 21,128 927

Accrued and withheld taxes, other than income taxes 10,178 8,661

Deferred acquisition payments and accrued earnout liabilities 6,384 7,513

Accrued stock-based compensation 5,573 3,340

Accrued customer rebates 6,366 5,473

Deferred revenue 3,727 810

Accrued severance and acquisition related retention bonus 2,864 21,128

Accrued health benefits 2,234 1,728

Accrued interest 2,030 3,301

Accrued stock-based compensation 1,960 5,573

Accrued income taxes 1,703 1,994

Accrued health benefits 1,728 1,306

Deferred revenue 810 2,313

Other 20,013 15,689

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Total other liabilities $ 26,525 $ 25,443

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 Lawson U.S.

independent sales representatives to employees.

The security bonuses for those converted employees continue to vest, but their accounts are no longer credited with a percentage of net commissions.

For financial reporting purposes, amounts are charged to operations over the vesting period.

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 $ 8.2 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

Changes in the carrying amount of goodwill by segment were as follows:

(in thousands) Lawson TestEquity Gexpro Services All Other Total

(in thousands) Lawson TestEquity Gexpro Services Canada Branch Division Total

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

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Balance at December 31, 2024 $ 192,598 $ 164,880 $ 56,342 $ 48,969 $ 462,789

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

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

Intangible Assets

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

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

December 31, 2024 December 31, 2023

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

Amortization expense for definite-lived intangible assets was $ 40.3 million in 2023 and $ 29.1 million in 2022.

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

Amortization expense for definite-lived intangible assets is included in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss) as follows:

Year Ended December 31,

(in thousands) 2024 2023 2022

Amortization expense for intangible assets $ 47,483 $ 40,263 $ 29,097

The remaining weighted-average useful lives of intangible assets as of December 31, 2024 was 3.6 years for trade names and 5.2 years for customer relationships.

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

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

The components of lease cost were as follows (in thousands):

Year Ended December 31,

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Financing lease expense 720 639 507

Sublease income (2)

Net lease cost $ 24,253 $ 21,770 $ 15,658

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

(2) The Company subleases one of its leased properties with a remaining lease term of approximately 1.5 years that terminates on June 30, 2026.

Sublease income is recognized on a straight-line basis over the sublease agreement and is recorded as an offset to operating lease expense.

The value of net assets and liabilities related to our operating and finance leases as of December 31, 2024 and December 31, 2023 was as follows (in thousands):

Lease Type 2024 2023

Total ROU operating lease assets

$ 76,340 $ 46,755

Total ROU financing lease assets

Total right of use operating lease assets $ 91,962 $ 76,340

Total right of use financing lease assets 1,702 1,560

Total lease assets $ 93,664 $ 77,900

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Total current financing lease obligation 538 539

Total current lease obligations $ 13,549 $ 9,964

Total current lease obligation $ 18,951 $ 13,549

Total long-term operating lease obligation $ 76,759 $ 66,234

1 unchanged sentence

Total long-term lease obligation $ 77,758 $ 67,065

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

The value of lease liabilities related to our operating and finance leases and sublease income as of December 31, 2024 was as follows (in thousands):

Maturity Date of Lease Liabilities Operating Leases Financing Leases Total Sublease Income

2025 $ 24,854 $ 628 $ 25,482 $ 640

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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.

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 or 2024.

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

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

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

As of June 8, 2023 (the Hisco Transaction date), December 31, 2023 and December 31, 2024, the fair value of the earn-out was $ 0.1 million, $ 0.0 million and $ 0.0 million , respectively, with amounts recorded in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

As the performance targets were not achieved, no earn-out payment was made.

Frontier Acquisition

On March 31, 2022, Gexpro Services acquired Frontier Technologies Brewton, LLC and Frontier Engineering and Manufacturing Technologies, Inc.

(“Frontier”).

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, with payments made annually beginning in 2023 and ending in 2025.

No earn-out payment was made in 2024 based on certain milestones not met in 2023.

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).

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, 2023 and 2024, the fair value of the earn-out was $ 0.9 million, $ 1.7 million, $ 0.0 million and $ 1.0 million, respectively, with amounts recorded in Accrued expenses and other current liabilities in the Consolidated Balance Sheets.

The Company recorded expense of $ 1.0 million, income of $ 0.7 million and expense of $ 0.8 million for changes in the fair value of the earn-out liability for the years ended December 31, 2024, 2023 and 2022 , respectively, 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 44,375 46,875

Incremental term loan 297,375 —

Incremental term loans 479,625 297,375

Other revolving line of credit 226 2,301

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Total long-term debt $ 693,903 $ 535,881

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.

On August 14, 2024, the Company entered into the Third Amendment to Amended and Restated Credit Agreement (the “Third Amendment”), which amended the previous credit agreement dated as of April 1, 2022 (as amended by the First Amendment dated June 8, 2023, the Second Amendment dated June 13, 2024 and the Third Amendment, the “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 Third Amendment provided for an additional $ 200 million incremental term loan and an increase in the senior secured revolving credit facility from $ 200 million to $ 255 million.

As amended, the Amended Credit Agreement provides for (i) a $ 255 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) $ 505 million of incremental term loans, (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 $ 300 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 certain financial covenants.

The additional borrowings under the Third Amendment were used, among other things, to pay the purchase price, fees and other expenses incurred in connection with the acquisition of Source Atlantic.

Refer to Note 3 – Business and Asset Acquisitions for further details about the acquisition of Source Atlantic.

The Company has unused outstanding letters of credit of $ 2.0 million as of December 31, 2024 .

Net of these letters of credit, there w as $ 253.0 million of borrowi ng availability under the revolving credit facility as of December 31, 2024.

The Second Amendment dated June 13, 2024 replaced a specified benchmark interest rate for certain loans under the Amended Credit Agreement, whereby effective June 28, 2024, the CDOR Rate was replaced with the CORRA Rate (each as defined in the Amended Credit Agreement).

The additional margin range did not change.

As amended, loans under the 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 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 Amended Credit Agreement or (ii) the Adjusted Term SOFR Rate (as defined in the Amended Credit Agreement) or the CORRA Rate, 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 Credit Agreement.

The 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 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 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 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.

Fees were nominal in 2024, 2023 and 2022.

On August 14, 2024, the Company incurred deferred financing costs of $ 1.8 million associated with the Third Amendment.

Deferred financing costs of $ 3.4 million were incurred during 2023 in connection with the First Amendment dated June 8, 2023, 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.

Amortization of deferred financing costs was $ 2.9 million, $ 2.4 million, and $ 1.9 million for 2024, 2023 and 2022, respectively.

As of December 31, 2024, total deferred financing costs net of accumulated amortization were $ 7.5 million of which $ 5.5 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 loans) and $ 2.0 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 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.

Future maturities of long-term debt are $ 40.3 million per year payable in equal quarterly installments during 2025 and 2026, with the remaining balance of $ 659.1 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.

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The 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 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).

The Amended Credit Agreement contains various events of default (subject to exceptions, thresholds and grace periods as set forth in the 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, 2024 .

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.

Previous Amendments and Credit Agreements

The First Amendment to Amended and Restated Credit Agreement dated June 8, 2023 (the “First Amendment”) amended and replaced the previous credit agreement dated April 1, 2022 and 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, (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.

On June 8, 2023 in connection with the Hisco Transaction, the Company borrowed $ 305 million under the incremental term loan as provided by the First Amendment.

The 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 and Asset Acquisitions for further details about the Hisco Transaction.

During 2022, in conjunction with the Mergers, the Company paid off debt obligations under its previous credit agreements.

A $ 3.4 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 - 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 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 .

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

Note 10 – Stock-Based Compensation

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 .

The Company recorded stock-based compensation expense of $ 5.2 million, $ 7.9 million and $ 2.4 million for the years ended December 31, 2024, 2023 and 2022, respectively, 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 $ 1.1 million, $ 0.9 million and $ 2.1 million, respectively .

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

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

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

The weighted-average fair value of SPRs outstanding as of December 31, 2024, 2023 and 2022 was $ 20.80 , $ 18.37 and $ 7.65 per SPR, respectively.

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

2024 2023 2022

Expected volatility 36.9 % to 38.0 %

41.1 % to 45.9 %

43.4 % to 52.2 %

Risk-free rate of return 4.2 % to 4.2 %

4.5 % to 5.3 %

4.4 % to 4.7 %

Expected term (in years) 0.5 to 1

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

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.

A liability of $ 2.0 million as of December 31, 2024 and $ 4.9 million as of December 31, 2023 is included as a component of Accrued expenses and other liabilities in the Consolidated Balance Sheets reflecting the estimated fair value of future pay-outs.

Activity related to the Company’s SPRs during the year ended December 31, 2024 was as follows:

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

Aggregate Intrinsic Value (in millions)

Aggregate Intrinsic Value

(in thousands)

Outstanding on December 31, 2023 259,018 $ 18.37

3 unchanged sentences

Exercisable on December 31, 2024 92,540 $ 20.80 1.4 $ 1,921

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.

The intrinsic value of SPRs exercised was $ 3.5 million for 2024, $ 1.7 million for 2023 and $ 5.2 million for 2022.

All SPRs for plan participants were fully vested prior to 2022, as such, there is no unrecognized compensation associated with any 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.

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

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

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As of December 31, 2024, there was $ 3.7 million of total unrecognized compensation cost related to RSAs that will be recognized over a weighted average period of 2.5 years.

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.

The weighted average grant date fair value per share of awards granted during the year was $ 32.16 in 2024, $ 21.86 in 2023 and $ 18.75 in 2022.

The fair value of RSAs exchanged for shares of DSG common stock was $ 1.4 million during 2024, $ 1.5 million during 2023, and $ 0.5 million during 2022 .

Market Stock Units

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As of December 31, 2024 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.

The fair value of MSUs exchanged for shares of DSG common stock was $ 0.7 million during 2024, $ 0.6 million during 2023 and $ 0.9 million during 2022 .

Activity related to the Company’s MSUs during 2024 was as follows:

11 unchanged sentences

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

Aggregate Intrinsic Value (in millions)

Aggregate Intrinsic Value

(in thousands)

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

4 unchanged sentences

Exercisable on December 31, 2024 707,407 $ 38.62 7.9 $ 2,267

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

The weighted average exercise price per stock option granted was $ 45.79 for 2024, $ 37.03 for 2023 and $ 42.88 for 2022 .

Unrecognized compensation cost related to stock options as of December 31, 2024 was $ 12.3 million, which is expected to be recognized over a weighted-average p eriod of 2.3 years.

T here were 1,421,068 unvested and 707,407 fully vested stock options outstanding on December 31, 2024 with a weighted average exercise price of $ 38.62 .

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 intrinsic value of stock options exercised was $ 1.5 million for 2024, $ 0.0 million for 2023 and $ 0.6 million for 2022 .

Cash received from options exercised was $ 1.1 million and $ 0.2 million in 2024 and 2022, respectively.

The tax benefit realized from stock options exercised was insignificant in 2024 and 2022.

No options were exercised in 2023.

The grant date fair value of the stock options issued was estimated using a Black-Scholes valuation model.

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

2024 2023 2022

Expected volatility 45.2 % to 45.6 %

45.2 % to 45.6 %

43.7 % to 44.6 %

Risk-free rate of return 3.6 % to 4.2 %

3.6 % to 4.5 %

2.7 % to 3.1 %

Expected term (in years) 6.5 years

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

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

The intrinsic value of PAs exercised was $ 0.9 million during 2024, $ 0.2 million during 2023 and $ 0.1 million during 2022 .

There was no unrecognized compensation cost related to PAs as of December 31, 2024.

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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 .

The Company completed a subscription rights offering on May 9, 2023 (the “Rights Offering”), that raised gross proceeds of approximately $ 100.0 million and resulted in the issuance of 4,444,444 shares of DSG common stock at a purchase price of $ 22.50 per share.

Net proceeds were approximately $ 98.5 million after transaction costs of $ 1.5 million related to the issuance of DSG common stock for the Rights Offering, 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 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 .

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

During 2024, 2023 and 2022, the Company repurchased 85,644 , 138,725 and 108,178 shares of DSG common stock at an average cost of $ 30.13 , $ 26.09 and $ 17.93 per share for a total cost of $ 2.6 million, $ 3.6 million and $ 1.9 million, respectively.

T he remaining availability for stock repurchases under the program was $ 26.4 million at December 31, 2024.

Note 12 – Earnings Per Share

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.

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

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

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Note 13 – Income Taxes

Income from operations before income taxes consisted of the following:

Income (loss) from operations before income taxes consisted of the following:

Year Ended December 31,

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Year Ended December 31,

2024 2023 2022

Statutory Federal rate 21.0 % 21.0 % 21.0 %

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Change in valuation allowance - current period activity ( 1,196.4 ) ( 380.7 ) 1.3

Change in valuation allowance - reversal — — —

Foreign rate differential ( 63.2 ) 6.2 4.0

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The effective tax rate for the year ended December 31, 2024 was ( 1,267.9 )% compared to a ( 346.8 )% effective tax rate for the year ended December 31, 2023.

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.

The change in the year-over-year effective tax rate was primarily due to state taxes, foreign operations, transaction costs and changes in the valuation allowance on the Company’s 163(j) interest expense limitation deferred tax asset.

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.

Relative to the U.S.

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Section 163(j) limitation carryforward 20,422 15,891

ROU liabilities 18,936 11,947

Right of use liabilities 21,476 18,936

Deferred state income tax 452 —

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Intangible assets and goodwill 45,360 44,057

ROU asset 18,264 11,295

Right of use assets 20,449 18,264

Fixed assets 21,685 20,977

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Other 1,419 1,591

Total deferred liabilities 84,906 73,051

Total deferred tax liabilities 88,913 84,906

Net deferred tax liabilities before valuation allowance ( 7,261 ) ( 9,774 )

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At December 31, 2024 , 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.

federal net operating loss carryforwards (“NOLs”) that do not expire, and $ 50.6 million of state NOLs that expire between 2025 and 2036.

At December 31, 2024 the Company had a total valuation allowance of $ 14.9 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.

At December 31, 2023 , the valuation allowance was $ 8.5 million.

The change in the valuation allowance during 2024 was primarily related to establishing a valuation allowance against the deferred tax asset for Section 163(j) limited interest expense.

The Company does not expect that its future taxable income will be sufficient to realize these existing deferred tax assets.

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

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The unrecognized tax benefits are recorded as a component of Other Liabilities in 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.

The total amount accrued for interest and penalties in the liability for uncertain tax positions was $ 1.1 million, $ 0.8 million and $ 0.9 million as of December 31, 2024, 2023 and 2022, respectively.

It is reasonably possible that the amount of unrecognized tax benefits will change in the next twelve months;

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Note 14 – Segment Information

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.

As a result of the Source Atlantic acquisition in the third quarter of 2024, discussed in Note 3 – Business and Asset Acquisitions, the Company realigned its reportable segments to align with its business strategy and the manner in which the CODM assesses performance and strategic execution and makes decisions regarding the allocation of resources.

The Company’s CODM is the Chief Executive Officer of DSG.

For each reportable segment, the CODM uses segment operating income (loss) to allocate resources (including employees and financial resources) in a way to manage and grow margins.

Beginning in the third quarter of 2024, the Company has four reporting segments:

Lawson, TestEquity, Gexpro Services and Canada Branch Division.

Canada Branch Division includes the results of the Bolt and Source Atlantic subsidiaries.

No changes were made to the Lawson, TestEquity and Gexpro Services reportable segments.

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

The segment realignment had no impact on our financial condition or results of operations.

Prior period segment results have been recast to reflect our new reportable segments.

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.

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

Lawson primarily distributes MRO products to its customers through a network of sales representatives and an inside sales channel throughout the United States and Canada.

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.

There is no revenue associated with the All Other category.

Financial information for the Company’s segments and reconciliations of that information to the consolidated financial statements is presented below.

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(in thousands) 2024 2023 2022 (1)

$ 468,711 $ 324,783

Lawson $ 469,044 $ 468,711 $ 324,783

TestEquity 771,180 641,768 392,358

Gexpro Services 440,723 405,733 385,326

All Other (2)

55,890 48,955

Canada Branch Division 125,099 55,890 48,955

Intersegment revenue elimination ( 1,942 ) ( 1,700 ) —

Total revenue $ 1,804,104 $ 1,570,402 $ 1,151,422

Cost of goods sold

Lawson $ 211,784 $ 203,251 $ 154,030

TestEquity 595,368 499,916 302,980

Gexpro Services 302,228 284,664 272,462

Canada Branch Division 82,897 32,396 31,052

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

Total cost of goods sold $ 1,190,329 $ 1,018,527 $ 760,524

Selling, general and administrative expenses

Lawson $ 242,705 $ 232,962 $ 164,217

TestEquity 171,845 158,317 78,003

Gexpro Services 101,962 94,069 91,573

Canada Branch Division 36,178 17,763 13,289

All Other 5,130 5,773 2,030

Total operating expenses $ 557,820 $ 508,884 $ 349,112

Operating income (loss)

$ 32,498 $ 6,536

Lawson $ 14,555 $ 32,498 $ 6,536

TestEquity 3,967 ( 16,465 ) 11,375

Gexpro Services 36,533 27,000 21,291

Canada Branch Division 6,024 5,731 4,614

All Other ( 5,124 ) ( 5,773 ) ( 2,030 )

Total operating income (loss) $ 55,955 $ 42,991 $ 41,786

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

(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.

Reconciliation to income (loss) before income taxes

Interest expense $ ( 55,145 ) $ ( 42,774 ) $ ( 24,301 )

Loss on extinguishment of debt — — ( 3,395 )

Change in fair value of earnout liabilities ( 988 ) 758 ( 483 )

Other income (expense), net ( 358 ) ( 2,982 ) ( 670 )

Income (loss) before income taxes $ ( 536 ) $ ( 2,007 ) $ 12,937

(1) Includes the operating results of Lawson, Canada Branch Division and All Other only subsequent to the Merger Date of April 1, 2022.

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.

Intersegment revenue is eliminated in consolidation.

Segment revenue and the elimination of intersegment revenue was as follows:

(in thousands) Lawson TestEquity Gexpro Services All Other Elimination Total

(in thousands) Lawson TestEquity Gexpro Services Canada Branch Division Elimination Total

Year Ended December 31, 2024

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Revenue $ 468,711 $ 641,768 $ 405,733 $ 55,890 $ ( 1,700 ) $ 1,570,402

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:

Year Ended December 31, 2022 (1)

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

(1) Includes the operating results of Lawson, Canada Branch Division and All Other only subsequent to the Merger Date of April 1, 2022.

Total assets by segment and long-lived assets by geographic area were as follows:

(in thousands) 2024 2023

Long-lived assets by segment

Total assets by segment

Lawson $ 524,077 $ 467,195

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Gexpro Services 331,811 329,799

Canada Branch Division 199,362 71,446

All Other 17,690 42,941

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Total $ 995,029 $ 874,413

(1) Long-lived assets include property, plant and equipment, rental equipment, goodwill, intangibles, right of use operating lease assets, and other assets .

Refer to Note 4 – Revenue Recognition for disaggregated revenue by geographic area.

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Capital expenditures

$ 6,626 $ 3,737

Lawson $ 5,163 $ 6,626 $ 3,737

TestEquity 12,692 2,955 250

Gexpro Services 4,269 5,053 3,809

Canada Branch Division 1,069 703 511

All Other — — —

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Depreciation and amortization

$ 19,532 $ 10,594

Lawson $ 24,349 $ 19,532 $ 10,594

TestEquity 30,799 26,002 17,480

Gexpro Services 15,489 15,986 15,175

Canada Branch Division 3,739 2,068 1,937

All Other — — —

Total $ 74,376 $ 63,588 $ 45,186

(1) Includes Lawson's activities only subsequent to the Merger Date of April 1, 2022 and not prior to the Mergers.

(2) Includes the activities of All Other only subsequent to the Merger Date of April 1, 2022 and not prior to the Mergers.

(1) Includes the activities of Lawson, Canada Branch Division and All Other only subsequent to the Merger Date of April 1, 2022.

Note 15 – Commitments and Contingencies

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”).

One stated purpose of the Books and Records Demands was to investigate questions of director disinterestedness and independence and the alleged possibility of wrongdoing, mismanagement and/or material non-disclosure related to the Special Committee’s and the DSG Board of Directors’ approval of the Mergers.

On March 16, 2022, one of the purported DSG stockholders who previously made a Books and Records Demand filed a lawsuit entitled Robert Garfield v.

Lawson Products, Inc., Case No.

2022-0252, in the Court of Chancery of the State of Delaware against DSG (the “Garfield Action”).

On March 22, 2022, another of the purported DSG stockholders who previously made a Books and Records Demand filed a lawsuit entitled Jeffrey Edelman v.

Lawson Products, Inc., Case No.

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.

Section 220 Litigation, Case No.

2022-0270, are collectively referred to as the “Books and Records Actions.” The Books and Records Actions sought to compel inspection of certain books and records of DSG to investigate questions of director disinterestedness and independence and the alleged possibility of wrongdoing, mismanagement and/or material non-disclosure related to the Special Committee’s and the DSG Board of Directors’ approval of the Mergers.

Following briefing, the Delaware Court of Chancery held a trial on July 14, 2022 to adjudicate the Books and Records Actions.

At the conclusion of the trial, the Court ruled orally that the stockholders’ demands would be granted only in one respect (production of documents sufficient to show the identities of any guarantors of debt of the acquired companies) and the Court denied the remainder of the stockholders’ requests.

The Court’s ruling was memorialized in an order issued on July 20, 2022.

Thereafter, DSG produced excerpts of certain documents as required by the Court's ruling and subsequent order.

On October 3, 2022, the plaintiffs in the Books and Records Actions filed a shareholder derivative action (the “Derivative Action”) entitled Jeffrey Edelman and Robert Garfield v.

John Bryan King et al., Case No.

2022-0886, in the Court of Chancery of the State of Delaware (the "Delaware Chancery Court").

The Derivative Action names as defendants J.

Bryan King, Lee S.

Hillman, Bianca A.

Rhodes, Mark F.

Moon, Andrew B.

Steven Edelson and Ronald J.

Knutson (collectively, “Director and Officer Defendants”), and LKCM Headwater Investments II, L.P., LKCM Headwater II Sidecar Partnership, L.P., Headwater Lawson Investors, LLC, PDLP Lawson, LLC, LKCM Investment Partnership, L.P., LKCM Micro-Cap Partnership, L.P., LKCM Core Discipline, L.P.

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

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

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.

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.

The Derivative Action could result in additional costs to DSG, including costs associated with the indemnification of directors and officers.

At this time, DSG is unable to predict the ultimate outcome of the Derivative Action or, if the outcome is adverse, to reasonably estimate an amount or range of reasonably possible loss, if any, associated with the Derivative Action.

Accordingly, no amounts have been recorded in the consolidated financial statements for these matters.

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

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DSG disagrees with and intends to vigorously defend against the Cyber Incident Suit.

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.

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.

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The Company provides a 401(k) defined contribution plan to allow employees a pre-tax investment vehicle to save for retirement.

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.

The Company made contributions to the 401(k) plan of $ 7.5 million, $ 7.2 million and $ 5.5 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Note 16 – Related Party Transactions

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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.

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 years ended December 31, 2024, 2023 and 2022, expense of $ 1.2 million, $ 0.6 million and $ 0.2 million, respectively, was recorded in Selling, general and administrative expenses within the Consolidated Statements of Operations and Comprehensive Income (Loss), reflecting expenses incurred for these consulting services.

Principal Executive Office Lease

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The Company is not charged any rent or other amounts for the use of the office space.

Significant Shareholder

LKCM, 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, beneficially owned in the aggregate approximately 36.4 million shares of DSG common stock as of December 31, 2024, representing approximately 77.6 % of the outstanding shares of DSG common stock as of December 31, 2024.

TestEquity and Gexpro Services Mergers

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).

Bryan King, 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.

King was a director of the TestEquity Equityholder.

In addition, as of the Merger Date, Mark F.

addition, as of the Merger Date, Mark F.

Moon (a member of the DSG Board of Directors) was a director of, and held a direct or indirect equity interest in, the TestEquity Equityholder.

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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.

Lawson Products, Inc.

Schedule II - Valuation and Qualifying Accounts

The roll forward of valuation accounts were as follows:

(Dollars in thousands)

Description Balance at Beginning of Period Charged to Costs and Expenses Deductions Balance at End of Period

Valuation allowance for deferred tax assets:

Year ended December 31, 2024 $ 8,457 $ 6,411 $ — $ 14,868

Year ended December 31, 2023 $ 815 $ 7,642 $ — $ 8,457

Year ended December 31, 2022 $ 638 $ 177 $ — $ 815

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