Distribution Solutions Group, Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The following information is presented in this item: Page # Report of Independent Registered Public Accounting Firm ( Grant Thornton, LLP ; Dallas, Texas ; PCAOB ID# 248 ) 57 Report of Independent Registered Public Accounting Firm ( BDO USA, P.C. ; Chicago, Illinois ; PCAOB ID# 243 ) 59 Consolidated Balance Sheets as of December 31, 2024 and 202 3 60 Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years ended December 31, 2024, 2023 and 202 2 61 Consolidated Statements of Changes in Stockholders’ Equity for the Years ended December 31, 2024, 2023 and 202 2 62 Consolidated Statements of Cash Flows for the Years ended December 31, 2024, 2023 and 2022 63 Notes to Consolidated Financial Statements 65 56 Table of Contents Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders Distribution Solutions Group, Inc. Opinion on the financial statements 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 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Business 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 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: 57 Table of Contents (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 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. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2023. Dallas, Texas March 6, 2025 58 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Distribution Solutions Group, Inc. Chicago, Illinois Opinion on the Consolidated Financial Statements 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 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 audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ BDO USA, P.C. We served as the Company’s auditor from 2022 to 2023. Chicago, Illinois 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 59 Distribution Solutions Group, Inc. Consolidated Balance Sheets (Dollars in thousands, except share data) December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 66,479 $ 83,931 Restricted cash 15,247 15,695 Accounts receivable, less allowances of $ 2,416 and $ 2,120 , respectively 250,717 213,448 Inventories 348,226 315,984 Prepaid expenses and other current assets 31,505 28,272 Total current assets 712,174 657,330 Property, plant and equipment, net 125,524 113,811 Rental equipment, net 39,376 24,575 Goodwill 462,789 399,925 Deferred tax asset, net 136 95 Intangible assets, net 269,763 253,834 Cash value of life insurance 19,916 18,493 Right of use operating lease assets 91,962 76,340 Other assets 5,615 5,928 Total assets $ 1,727,255 $ 1,550,331 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 125,575 $ 98,674 Current portion of long-term debt 40,476 32,551 Current portion of lease liabilities 18,951 13,549 Accrued expenses and other current liabilities 81,259 97,241 Total current liabilities 266,261 242,015 Long-term debt, less current portion, net 693,903 535,881 Lease liabilities 77,758 67,065 Deferred tax liability, net 22,265 18,326 Other liabilities 26,525 25,443 Total liabilities 1,086,712 888,730 Commitments and contingencies (Note 15) Stockholders’ equity (1) : Preferred stock, $ 1 par value: Authorized - 500,000 shares, issued and outstanding - None — — Common stock, $ 1 par value: Authorized - 70,000,000 shares Issued - 47,738,290 and 47,535,618 shares, respectively Outstanding - 46,856,757 and 46,758,359 shares, respectively 46,856 46,758 Capital in excess of par value 677,473 671,154 Retained deficit ( 42,039 ) ( 34,707 ) Treasury stock - 881,533 and 777,259 shares, respectively ( 19,631 ) ( 16,434 ) Accumulated other comprehensive income (loss) ( 22,116 ) ( 5,170 ) Total stockholders’ equity 640,543 661,601 Total liabilities and stockholders’ equity $ 1,727,255 $ 1,550,331 (1) The accompanying Consolidated Financial Statements and notes thereto have been retroactively adjusted to reflect the two -for-one stock split completed in August 2023. See Note 1 – Nature of Operations and Basis of Presentation for details. See notes to Consolidated Financial Statements 60 Table of Contents Distribution Solutions Group, Inc. Consolidated Statements of Operations and Comprehensive Income (Loss) (Dollars in thousands, except per share data) Year Ended December 31, 2024 2023 2022 Revenue $ 1,804,104 $ 1,570,402 $ 1,151,422 Cost of goods sold 1,190,329 1,018,527 760,524 Gross profit 613,775 551,875 390,898 Selling, general and administrative expenses 557,820 508,884 349,112 Operating income (loss) 55,955 42,991 41,786 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 Income tax expense (benefit) 6,796 6,960 5,531 Net income (loss) $ ( 7,332 ) $ ( 8,967 ) $ 7,406 Basic income (loss) per share of common stock (1) $ ( 0.16 ) $ ( 0.20 ) $ 0.22 Diluted income (loss) per share of common stock (1) $ ( 0.16 ) $ ( 0.20 ) $ 0.21 Comprehensive income (loss) Net income (loss) $ ( 7,332 ) $ ( 8,967 ) $ 7,406 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment ( 16,946 ) 4,906 ( 11,525 ) Other — ( 120 ) — Comprehensive income (loss) $ ( 24,278 ) $ ( 4,181 ) $ ( 4,119 ) (1) The accompanying Consolidated Financial Statements and notes thereto have been retroactively adjusted to reflect the two -for-one stock split completed in August 2023. See Note 1 – Nature of Operations and Basis of Presentation for details. See notes to Consolidated Financial Statements 61 Table of Contents Distribution Solutions Group, Inc. Consolidated Statements of Changes in Stockholders’ Equity (Dollars in thousands, except share data) Common Stock (1) Capital in Excess of Par Value (1) Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Outstanding Shares $ 1 Par Value Retained Deficit Treasury Stock Balance at January 1, 2022 20,589,648 $ 20,636 $ 186,739 $ ( 33,142 ) $ ( 10,033 ) $ 1,569 $ 165,769 Net income (loss) — — — 7,406 — — 7,406 Foreign currency translation adjustment — — — — — ( 11,525 ) ( 11,525 ) Stock-based compensation — — 1,505 — — — 1,505 Shares issued 135,927 135 ( 135 ) — — — — Deemed consideration for reverse acquisition 18,240,334 18,240 333,251 — — — 351,491 Reclassification of issuable shares from earnout derivative liability — — 43,624 — — — 43,624 Fair value adjustment of stock-based compensation awards — — 1,910 — — — 1,910 Repurchases of common stock ( 108,178 ) ( 108 ) 108 — ( 1,940 ) — ( 1,940 ) Tax withholdings related to net share settlements of stock-based compensation awards ( 24,163 ) ( 24 ) 57 — ( 553 ) — ( 520 ) Settlement of related party liability — — 5,276 — — — 5,276 Other — ( 45 ) 44 — — — ( 1 ) Balance at December 31, 2022 38,833,568 $ 38,834 $ 572,379 $ ( 25,736 ) $ ( 12,526 ) $ ( 9,956 ) $ 562,995 Net income (loss) — — — ( 8,967 ) — — ( 8,967 ) Foreign currency translation adjustment — — — — — 4,906 4,906 Stock-based compensation — — 3,732 — — — 3,732 Stock-based compensation liability paid in shares — — 227 — — — 227 Shares issued 85,842 86 ( 86 ) — — — — Shares issued - earnout 3,400,000 3,400 ( 3,400 ) — — — — Issuance of common stock in rights offering 4,444,444 4,444 94,025 — — — 98,469 Shares issued through employee share purchase plan 144,608 144 3,109 — — — 3,253 Compensation expense related to employee share purchase plan — — 427 — — — 427 Repurchases of common stock ( 138,725 ) ( 139 ) 139 — ( 3,619 ) — ( 3,619 ) Tax withholdings related to net share settlements of stock-based compensation awards ( 11,378 ) ( 11 ) 11 — ( 287 ) — ( 287 ) Other — — 591 ( 4 ) ( 2 ) ( 120 ) 465 Balance at December 31, 2023 46,758,359 $ 46,758 $ 671,154 $ ( 34,707 ) $ ( 16,434 ) $ ( 5,170 ) $ 661,601 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. See Note 1 – Nature of Operations and Basis of Presentation for details. See notes to Consolidated Financial Statements 62 Table of Contents Distribution Solutions Group, Inc. Consolidated Statements of Cash Flows (Dollars in thousands) Year Ended December 31, 2024 2023 2022 Operating activities Net income (loss) $ ( 7,332 ) $ ( 8,967 ) $ 7,406 Adjustments to reconcile to net cash used in operating activities: Depreciation and amortization 74,376 63,588 45,186 Amortization of debt issuance costs 2,922 2,420 1,888 Extinguishment of debt — — 3,395 Stock-based compensation 5,233 7,940 2,448 Compensation expense related to employee share purchases — 427 — Deferred income taxes ( 6,649 ) ( 8,028 ) ( 2,406 ) Change in fair value of earnout liabilities 988 ( 758 ) 483 (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 Net realizable value adjustment and write-offs for obsolete and excess inventory 6,612 8,990 4,608 Bad debt expense 863 784 795 Changes in operating assets and liabilities, net of acquisitions: Accounts receivable ( 1,423 ) 18,020 ( 21,771 ) Inventories ( 9,227 ) ( 1,236 ) ( 42,404 ) Prepaid expenses and other current assets ( 869 ) 931 ( 1,874 ) Accounts payable 11,338 3,048 ( 8,839 ) Accrued expenses and other current liabilities ( 21,254 ) 13,667 4,492 Other changes in operating assets and liabilities 867 259 ( 3,670 ) Net cash provided by (used in) operating activities 56,453 102,286 ( 11,029 ) Investing activities 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 ) Proceeds from sale of rental equipment 5,124 5,990 8,756 Net cash provided by (used in) investing activities ( 229,683 ) ( 278,523 ) ( 126,688 ) Financing activities Proceeds from revolving lines of credit 211,599 180,982 383,489 Payments on revolving lines of credit ( 213,634 ) ( 302,083 ) ( 320,751 ) Proceeds from term loans 200,000 305,000 445,630 Payments on term loans ( 32,750 ) ( 26,375 ) ( 335,305 ) Deferred financing costs ( 2,064 ) ( 3,419 ) ( 11,956 ) Proceeds from rights offering, net of offering costs of $ 1,531 — 98,469 — Repurchase of common stock ( 2,580 ) ( 3,619 ) ( 1,940 ) Shares repurchased held in treasury ( 617 ) ( 287 ) ( 520 ) Proceeds from employees for share purchases — 3,253 — Payment of financing lease principal ( 653 ) ( 515 ) ( 429 ) Payment of earnout — ( 1,000 ) — Payment on seller's note — — ( 9,757 ) Net cash provided by (used in) financing activities 159,301 250,406 148,461 Effect of exchange rate changes on cash and cash equivalents ( 3,971 ) 717 ( 675 ) Increase (decrease) in cash, cash equivalents and restricted cash ( 17,900 ) 74,886 10,069 Cash, cash equivalents and restricted cash at beginning of period 99,626 24,740 14,671 Cash, cash equivalents and restricted cash at end of period $ 81,726 $ 99,626 $ 24,740 Cash and cash equivalents $ 66,479 $ 83,931 $ 24,554 Restricted cash 15,247 15,695 186 Total cash, cash equivalents and restricted cash $ 81,726 $ 99,626 $ 24,740 See notes to Consolidated Financial Statements 63 Table of Contents Distribution Solutions Group, Inc. Consolidated Statements of Cash Flows (Continued) (Dollars in thousands) Year Ended December 31, 2024 2023 2022 Supplemental disclosure of cash flow information Net cash paid for income taxes $ 15,259 $ 12,422 $ 13,813 Net cash paid for interest $ 52,905 $ 38,048 $ 22,153 Net cash paid for interest on supply chain financing $ 2,889 $ 2,581 $ 1,291 Non-cash activities: Fair value of common stock exchanged for reverse acquisition $ — $ — $ 351,491 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 Right of use assets obtained in exchange for operating lease liabilities $ 14,515 $ 19,424 $ 14,634 Seller's note issued as purchase consideration $ — $ — $ 1,169 See notes to Consolidated Financial Statements 64 Distribution Solutions Group, Inc. Notes to Consolidated Financial Statements Note 1 – Nature of Operations and Basis of Presentation Organization Distribution Solutions Group, Inc. (“DSG”), a Delaware corporation, is a global specialty distribution company providing value added distribution solutions to the maintenance, repair and operations (“MRO”), original equipment manufacturer (“OEM”) and industrial technology markets. 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. 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. 65 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 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”); and • 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. Completion of the TestEquity Merger On April 1, 2022 (the “Merger Date”), the TestEquity Merger was consummated pursuant to the TestEquity Merger Agreement. In accordance with the TestEquity Merger Agreement, Merger Sub 1 merged with and into TestEquity, with TestEquity surviving as a wholly-owned subsidiary of DSG. In accordance with and under the terms of the TestEquity Merger Agreement, in connection with the closing of the TestEquity Merger on the Merger Date, DSG: (i) issued to the TestEquity Equityholder 6,600,000 shares of DSG common stock, (ii) on behalf of TestEquity, paid certain indebtedness of TestEquity and (iii) on behalf of TestEquity, paid certain transaction expenses of TestEquity. The TestEquity Merger Agreement provided that up to an additional 1,400,000 shares of DSG common stock would be potentially issuable to the TestEquity Equityholder in accordance with, and subject to the terms and conditions of, the earnout provisions of the TestEquity Merger Agreement. On March 20, 2023, DSG issued 1,400,000 shares of DSG common stock to the TestEquity Equityholder (the “TestEquity Holdback Shares”) pursuant to the terms of the earnout provisions of the TestEquity Merger Agreement. The TestEquity Holdback Shares issued represented the maximum number of additional shares that could be issued under the TestEquity Merger Agreement, and no further shares are available for issuance, and no additional shares will be issued, in connection with the TestEquity Merger Agreement. Refer to Note 8 – Earnout Liabilities for information about the earnout derivative liability related to the TestEquity Holdback Shares. Completion of the Gexpro Services Merger On the Merger Date, the Gexpro Services Merger was consummated pursuant to the Gexpro Services Merger Agreement. In accordance with the Gexpro Services Merger Agreement, Merger Sub 2 merged with and into Gexpro Services, with Gexpro Services surviving as a wholly-owned subsidiary of DSG. In accordance with and under the terms of the Gexpro Services Merger Agreement, in connection with the closing of the Gexpro Services Merger on the Merger Date, DSG: (i) issued to the Gexpro Services Stockholder 14,000,000 shares of DSG common stock, (ii) on behalf of Gexpro Services, paid certain indebtedness of Gexpro Services and (iii) on behalf of Gexpro Services, paid certain specified transaction expenses of Gexpro Services. 66 The Gexpro Services Merger Agreement provided that up to an additional 2,000,000 shares of DSG common stock would be potentially issuable to the Gexpro Services Stockholder in accordance with, and subject to the terms and conditions of, the earnout provisions of the Gexpro Services Merger Agreement. On March 20, 2023, DSG issued 2,000,000 shares of DSG common stock to the Gexpro Services Stockholder (the “Gexpro Services Holdback Shares”) pursuant to the terms of the earnout provisions of the Gexpro Services Merger Agreement. The Gexpro Services Holdback Shares issued represented the maximum number of additional shares that could be issued under the Gexpro Services Merger Agreement, and no further shares are available for issuance, and no additional shares will be issued, in connection with the Gexpro Services Merger Agreement. As of April 1, 2022, approximately 1,076,000 of the Gexpro Services Holdback Shares had been expected to be issued under the first earnout opportunity in the Gexpro Services Merger Agreement based on certain earnout metrics related to the consummation of certain additional acquisitions which were completed prior to the Merger Date. Under the Gexpro Services Merger Agreement, if any Gexpro Services Holdback Shares remained after the calculation of the first earnout opportunity, there was a second earnout opportunity under the Gexpro Services Merger Agreement based on certain earnout performance metrics. On March 20, 2023, all 2,000,000 Gexpro Services Holdback Shares were issued under the earnout opportunities. The incremental 924,000 Gexpro Services Holdback Shares that were issued in excess of the 1,076,000 Gexpro Services Holdback Shares that were originally expected to be issued had been remeasured at fair value immediately prior to and reclassified to equity at December 31, 2022. Refer to Note 8 – Earnout Liabilities for information about the earnout derivative liability related to the Gexpro Services Holdback Shares. Accounting for the Mergers TestEquity and Gexpro Services were treated as a combined entity as the accounting acquirer for financial reporting purposes, and DSG was identified as the accounting acquiree. Accordingly, periods prior to the 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 The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include the accounts and transactions of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. 2023 Stock Split On August 15, 2023, DSG announced that its Board of Directors approved and declared a two -for-one stock split (the “Stock Split”) which entitled each stockholder of record as of the close of business on August 25, 2023 to receive one additional share of DSG common stock for each share of DSG common stock then-held. The additional shares were distributed after the close of trading on August 31, 2023, and shares of DSG common stock began trading at the split-adjusted basis on September 1, 2023. Accordingly, all share and per share amounts have been retroactively adjusted to reflect the impact of the Stock Split for all periods presented herein. Refer to Note 11 – Stockholders’ Equity for additional information about the Stock Split. 2022 Mergers The Mergers were accounted for as a reverse merger under the acquisition method of accounting in accordance with the accounting guidance for reverse acquisitions as provided in Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). Under this guidance, TestEquity and Gexpro Services were treated as a combined entity as the accounting acquirer for financial reporting purposes, and DSG was identified as the accounting acquiree. This determination was primarily made as TestEquity and Gexpro Services were under the common control of an entity that owns a majority of the voting rights of the combined entity, and therefore, only DSG experienced a change in control. Accordingly, the 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, 67 Canada Branch Division and All Other on a consolidated basis. Note 2 – Summary of Significant Accounting Policies Revenue Recognition — Revenue from Contracts with Customers: Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring a product or providing a service. A majority of the Company’s revenue is short cycle in nature with shipments within one year of the order. A small portion of the Company’s revenue derives from contracts extending over one year and in some cases may have optional renewal terms if both parties agree to renew. The Company’s payment terms generally range between 10 to 120 days and vary by contract, the types of products sold and the volume of products sold, among other factors. Revenue includes product sales, services and billings for shipping charges, net of discounts, expected returns, rebates and sales tax. Estimates for rebates and expected returns is based on historical experience. The Company includes shipping costs billed to customers in Revenue and the related shipping costs in Cost of goods sold in the Consolidated Statements of Operations and Comprehensive Income (Loss). Performance Obligations : A m ajority of the Company’s contracts have a performance obligation which represents, in most cases, the product being sold to the customer. Some contracts include a second performance obligation to provide additional Vendor Managed Inventory (“VMI”) services primarily related to monitoring and stocking. Although the Company has identified that it offers some customers both a product and a service obligation, the customer only receives one invoice per transaction with no price allocation between these obligations. The Company does not price its offerings based on any allocation between these obligations. A portion of the Company’s contracts offer assurance-type warranties in connection with the sale of a product to the customer. Assurance-type warranties provide a customer with assurance that the related product will function as parties intended because it complies with the agreed-upon specifications. Such warranties are not significant and do not represent a separate performance obligation. Select contracts with customers include variable consideration primarily related to volume rebates if predetermined thresholds are met. The Company estimates variable consideration using the expected-value method considering all reasonably available information, including experience, current, historical, and forecasted. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Over 95 % of the Company’s performance obligations are recognized at a point in time, rather than over time, as the Company completes its performance obligations. Specifically, revenue is recognized when control transfers to the customer, typically upon shipment or receipt by the customer. Less than 5 % of the Company’s revenue is recognized over time and relates to services, in which the Company transfers control of a good or service over time and the customer simultaneously receives and consumes the benefits. That portion of expected consideration is deferred until the time that those services have been provided and the related performance obligations have been satisfied. At December 31, 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. Contract Costs : The Company has adopted the practical expedient within ASC 340, Other Assets and Deferred Costs (“ASC 340”), to recognize incremental costs to obtain a contract, primarily employee related costs, as expense when incurred since the amortization period of the asset that the Company otherwise would have recognized is one year or less. Rental Revenue : The Company determines if a contract contains a lease at inception. A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Lawson and TestEquity segments operate as a lessor and rent certain equipment to customers through leases classified as operating leases under ASC 842, Leases (“ASC 842”). Lease revenue is recognized on a straight-line basis over the life of each lease. As there are trivial non-lease components, the Company has adopted the practical expedient not to separate the non-lease components 68 Table of Contents that would be within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”) from the associated lease component as the relevant criteria under ASC 842 are met. Cash, Cash Equivalents, and Restricted Cash — The Company considers all liquid investments with a maturity of three months or less when purchased to be cash equivalents. The carrying amount of the Company’s cash equivalents at December 31, 2024 and December 31, 2023 approximates fair value. Cash balances at individual banks may exceed the federally insured limit by the Federal Deposit Insurance Corporation (the “FDIC”). The Company has not experienced any material losses in such accounts. Allowance for 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. For all other customers, the Company recognizes reserves for bad debts based on current and forecasted probability of collection, economic conditions, historical experience of bad debt write-offs as a percent of accounts receivable outstanding, and other significant events that may impact the collectibility of accounts receivable. Uncollected trade receivables are written off when identified to be unrecoverable. Inventories — Inventories principally consist of purchased finished products and manufactured electronic equipment offered for resale stated at the lower of cost or net realizable value using the first-in-first-out method for the Lawson segment and primarily the weighted average method for the TestEquity, Gexpro Services and Canada Branch Division segments. Most of our products are not exposed to the risk of obsolescence due to technology changes. However, some of our products do have a limited shelf life, and from time to time we add and remove items from our catalogs, brochures or website for marketing and other purposes. To reduce the cost basis of inventory to a lower of cost or net realizable value, a write-down is recorded for slow-moving and obsolete inventory based on historical experience and monitoring of current inventory activity. Estimates are used to determine the necessity of recording these write-downs based on periodic detailed analysis using both qualitative and quantitative factors. As part of this analysis, the Company considers several factors including the inventories length of time on hand, historical sales, product shelf life, product life cycle, product category and product obsolescence. 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. Depreciation expense is computed primarily by the straight-line method for buildings, machinery and equipment, furniture and fixtures and vehicles. The Company estimates useful lives of 10 to 40 years for buildings and improvements, the shorter of the useful life of the assets or term of the underlying leases for leasehold improvements, and 2 to 10 years for machinery and equipment, furniture and fixtures and vehicles. Capitalized software is amortized over estimated useful lives of 3 to 5 years using the straight-line method. The costs of repairs, maintenance and minor renewals are charged to expense as incurred. Amortization of financing leases is included in depreciation expense. When property, plant and equipment are retired, sold, or otherwise disposed of, the asset’s carrying amount and related accumulated depreciation are removed from the accounts and any gain or loss is included in the income from operations. Rental Equipment — Rental equipment is stated at cost less accumulated depreciation and amortization. Expense is computed primarily by the straight-line method over an estimated useful life of 3 to 7 years. Upon sale or retirement of such assets, the related cost and accumulated depreciation are removed from the Consolidated Balance Sheets, and gains or losses are reflected in operating income (loss) within the Consolidated Statements of Operations and Comprehensive Income (Loss). The costs of repairs, maintenance and minor renewals are charged to expense as incurred. Cash Value of Life Insurance — The Company invests funds in life insurance policies for certain current and former employees. The cash surrender value of the policies is invested in various investment instruments and is recorded as an asset in the Consolidated Balance Sheets. The Company records these policies at their contractual value. 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 69 Table of Contents 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. The deferred compensation is recorded in an account balance, which is a bookkeeping entry made by the Company to measure the amount due to the participant. The account balance is equal to the participant’s deferred compensation, adjusted for increases and/or decreases in the amount that the participant has designated to one or more bookkeeping portfolios that track the performance of certain mutual funds. The Company adjusts the deferred compensation liability to equal the contractual value of the participants’ account balances. These adjustments are the changes in contractual value of the individual plans and are recorded as a component of Other income (expense) in the Consolidated Statements of Operations and Comprehensive Income (Loss). Stock-Based Compensation — Compensation based on the share value of DSG common stock is valued at its fair value at the grant date and the expense is recognized over the vesting period. Fair value is re-measured each reporting period for liability-classified awards that may be redeemable in cash. The Company accounts for forfeitures of stock-based compensation in the period in which they occur. Goodwill — The Company had $ 462.8 million of goodwill at December 31, 2024 and $ 399.9 million of goodwill at December 31, 2023. Goodwill represents the cost of business acquisitions in excess of the fair value of identifiable net tangible and intangible assets acquired. The Company reviews goodwill for potential impairment annually on October 1st, or when an event or other circumstances change that would more likely than not reduce the fair value of the asset below its carrying value. The first step in the multi-step process to determine if goodwill has been impaired and to what degree is to review the relevant qualitative factors that could cause the fair value of the reporting unit to decrease below the carrying value of the reporting unit. The Company considers factors such as macroeconomic, industry and market conditions, cost factors, overall financial performance and other relevant factors that would affect the individual reporting units. If the Company determines that it is more likely than not that the fair value of the reporting unit is greater than the carrying value of the reporting unit, then no further impairment testing is needed. If the Company determines that it is more likely than not that the carrying value of the reporting unit is greater than the fair value of the reporting unit, the Company will move to the next step in the process. The Company will estimate the fair value of the reporting unit and compare it to the reporting unit’s carrying value. If the carrying value of the reporting unit exceeds its fair value, the Company will record an impairment of goodwill equal to the amount the carrying value of the reporting unit exceeds its fair value, up to the total amount of goodwill previously recognized. Intangible Assets — The Company’s intangible assets primarily consist of trade names and customer relationships. Intangible assets are amortized over a weighted average of 8 to 15 year and 9 to 20 year estimated useful lives for trade names and customer relationships, respectively. The Company amortizes trade name intangible assets on a straight-line basis and customer relationship intangible assets on a basis consistent with their estimated economic benefit. Impairment of Long-Lived Assets — The Company reviews its long-lived assets, including property, plant and equipment, right of use assets and definite life intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable. Recoverability is measured by a comparison of the assets carrying amount to their expected future undiscounted net cash flows. If such assets are considered to be impaired, the impairment to be recognized is measured based on the amount by which the carrying amount of the asset exceeds its fair value. No impairments occurred in 2024, 2023 or 2022 . Income Taxes — Deferred tax assets or liabilities reflect temporary differences between amounts of assets and liabilities for financial and tax reporting. Such amounts are adjusted, as appropriate, to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is established to offset any deferred tax assets if, 70 Table of Contents 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. The determination of the amount of a valuation allowance to be provided on recorded deferred tax assets involves estimates regarding (1) the timing and amount of the reversal of taxable temporary differences, (2) expected future taxable income, (3) the impact of tax planning strategies and (4) the ability to carry back deferred tax assets to offset prior taxable income. In assessing the need for a valuation allowance, the Company considers all available positive and negative evidence, including past operating results, projections of future taxable income and the feasibility of ongoing tax planning strategies. The projections of future taxable income include a number of estimates and assumptions regarding our volume, pricing and costs. Additionally, valuation allowances related to deferred tax assets can be impacted by changes to tax laws. Significant judgment is required in determining income tax provisions as well as deferred tax asset and liability balances, including the estimation of valuation allowances and the evaluation of uncertain tax positions. Earnings from the Company’s foreign subsidiaries are considered to be indefinitely reinvested. A distribution of these non-U.S. earnings in the form of dividends or otherwise would subject the Company to foreign withholding taxes and may subject the Company to U.S. federal and state taxes. The Company recognizes the benefit of tax positions when a benefit is more likely than not (i.e., greater than 50% likely) to be sustained on its technical merits. Recognized tax benefits are measured at the largest amount that is more likely than not to be sustained, based on cumulative probability, in final settlement of the position. The Company recognizes interest and penalties related to unrecognized tax benefits as a component of Income tax expense (benefit) in the Consolidated Statements of Operations and Comprehensive Income (Loss). Leases — The Company determines if a contract contains a lease at inception. A contract contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration. At the commencement date of a lease, the Company recognizes a liability to make lease payments and a Right Of Use 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 branch locations. Financing leases primarily consist of equipment such as forklifts and copiers. The lease liability is measured at the present value of fixed lease payments over the lease term. The lease liability includes payments allocated to lease components, while payments allocated to non-lease components are expensed as incurred for all asset classes. The Company uses its incremental borrowing rate to discount the total cash payments to present value for each lease. The Company reviews each lease to determine if there is a more appropriate discount rate to apply. The initial measurement of the 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 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. The short-term leases are not recorded in the consolidated balance sheets. The lease expense for short-term leases is recognized on a straight-line basis over the lease term. The Lawson and TestEquity segments operate as a lessor and rent certain equipment to customers through leases classified as operating leases. The leased equipment is recognized in Rental equipment, net in the Consolidated Balance Sheets and the leasing revenue is recognized on a straight-line basis. Earnings per Share — Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of shares of common stock and, if dilutive, common stock equivalents outstanding during the period. Diluted earnings per share reflect the potential dilution from the exercise or conversion of outstanding performance awards, stock options, market stock units and restricted stock awards into common stock. The dilutive effect of these common stock equivalents is reflected in diluted earnings per share by application of the treasury stock method. Contingently issuable shares are considered outstanding common shares and included in basic EPS as of the date that all necessary conditions have been satisfied (i.e., when issuance of the shares is no longer contingent). For diluted EPS, the contingently issuable shares should be included in the denominator of the diluted EPS calculation as of the beginning of the interim period in which the conditions are satisfied and the earnout arrangements have been resolved. 71 Table of Contents In accordance with ASC 260, Earnings per Share (“ASC 260”), the historical EPS was retrospectively adjusted to reflect the impact of the two -for-one stock split that occurred during 2023. For the reverse acquisition period prior to April 1, 2022, the Company calculates the basic EPS for each comparative period before the acquisition date presented in the consolidated financial statements by dividing the income of the accounting acquirer attributable to common shareholders in each of those periods by the accounting acquirer’s historical weighted-average number of common shares outstanding. The Company calculates the weighted-average number of common shares outstanding (the denominator of the EPS calculation), including the equity interests issued by the legal acquirer to effect the reverse acquisition, as the number of common shares outstanding from the beginning of that period to the acquisition date computed on the basis of the weighted-average number of common shares of the accounting acquirer outstanding during the period multiplied by an exchange ratio derived from the shares exchanged at the Merger Date. Foreign Currency — The accounts of foreign subsidiaries are measured using the local currency as the functional currency. All balance sheet am ounts are translated into U.S. dollars using the exchange rates in effect at the applicable period end. Components of income or loss are translated using the average exchange rate for each reporting period. Gains and losses resulting from changes in the exchange rates from translation of the subsidiary accounts in local currency to U.S. dollars are reported as a component of Accumulated other comprehensive income or loss in the Consolidated Balance Sheets. Gains and losses resulting from the effect of exchange rate changes on transactions denominated in currencies other than the functional currency are included as a component of net income or loss upon settlement of the transaction. 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 $ 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 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. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision-maker (“CODM”) is the Chief Executive Officer of DSG. 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 — 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, 72 Table of Contents 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. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described below: Level 1 - Unadjusted quoted prices for identical assets and liabilities in active markets. Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 - Unobservable inputs that are supported by little or no market activity, may be derived from internally developed methodologies based on management’s best estimate of fair value and that are significant to the fair value of the asset or liability. The carrying amount of accounts receivable, accounts payable, accrued expenses and other working capital balances are considered a reasonable estimate of their fair value due to the short-term maturity of these instruments. The carrying amount of debt is also considered to be a reasonable estimate of the fair value based on the nature of the debt and that the debt bears interest at the prevailing market rate for instruments with similar characteristics. The Company’s earnout derivative liability and debt are recorded at fair value on a recurring basis and were estimated using Level 3 inputs. Earnout Derivative Liability — The Company recorded an earnout derivative liability for the future contingent equity shares related to the TestEquity Holdback Shares and the Gexpro Services Holdback Shares provisions within the Merger Agreements. The contingently issuable shares are not indexed to DSG common stock and, therefore, are accounted for as liability classified instruments in accordance with ASC 815-40 , Contracts in Entity’s Own Equity , as the events that determine the number of contingently issuable shares required to be released or issued, as the case may be, include events that are not solely indexed to the fair value of DSG common stock. The contingently issuable shares were initially measured at the Merger Date and were subsequently measured at each reporting date until settled, or when they met the criteria for equity classification. Changes in the fair value of the earnout derivative liability are recorded as a component of Change in fair value of earnout liability in the Consolidated Statements of Operations and Comprehensive Income (Loss). The Company reassesses the classification of these derivative liabilities for earnout arrangements each balance sheet date. If the contingencies are resolved for the issuable shares, the earnout derivative liability is reclassified from the liability to equity as of the date of the event that caused the contingencies to be met. The earnout derivative liability is measured at fair value immediately prior to the reclassification to equity. If the earnout derivative liability is reclassified from a liability to equity, gains or losses recorded to account for the liability at fair value during the period that the contract was classified as a liability are not reversed. The contingently issuable shares are included in the denominator of the basic earnings per share calculation as of the date that all necessary conditions have been satisfied (i.e., when issuance of the shares is no longer contingent). For diluted earnings per share, the contingently issuable shares are included in the denominator of the diluted earnings per share calculation as of the beginning of the interim period in which the conditions are satisfied and the earnout arrangements have been resolved. 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 73 Table of Contents 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. Recent Accounting Pronouncements - 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 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): Improvements to Income Tax Disclosures to require greater disaggregation of income tax disclosures related to the income tax rate reconciliation and income taxes paid. The pronouncement is effective on a prospective basis for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of the adoption on its financial statement disclosures. 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 74 Table of Contents 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: ConRes TE (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) 1,275 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 75 Table of Contents 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) 955 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 . 76 Table of Contents 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: 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. 77 Table of Contents 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: 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 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 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. 78 Table of Contents 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: 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 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) 950 — 950 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. 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. 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 79 Table of Contents 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 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. During 2023, approximately $ 0.4 million was recorded as compensation expense for the discount between the prevailing market price of the DSG common stock on the date of purchase and the purchase price of $ 22.50 per share as a component of Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive Income (Loss). The following table summarizes the allocation of consideration exchanged to the estimated fair values of assets acquired and liabilities assumed, including the allocation to other intangible assets acquired: Hisco (in thousands) June 8, 2023 Acquisition Date Measurement Period Adjustments Adjusted Total Accounts receivable (1) $ 66,792 $ ( 2,269 ) $ 64,523 Inventory 61,300 ( 645 ) 60,655 Other current assets 3,858 350 4,208 Property, plant and equipment 48,326 — 48,326 Right of use assets 21,102 1,188 22,290 Other intangible assets: Customer relationships 41,800 ( 1,800 ) 40,000 Trade names 25,600 ( 300 ) 25,300 Deferred tax liability, net of deferred tax asset ( 2,544 ) 81 ( 2,463 ) Other assets 2,495 — 2,495 Accounts payable ( 16,689 ) — ( 16,689 ) Lease liabilities ( 22,372 ) 293 ( 22,079 ) Accrued expenses and other liabilities ( 8,961 ) ( 289 ) ( 9,250 ) Goodwill 49,718 122 49,840 Total purchase consideration exchanged, net of cash acquired $ 270,425 $ ( 3,269 ) $ 267,156 Cash consideration $ 252,007 $ — $ 252,007 Deferred consideration (2) 12,418 2,631 15,049 Contingent consideration 6,000 ( 5,900 ) 100 Total purchase consideration exchanged, net of cash acquired $ 270,425 $ ( 3,269 ) $ 267,156 (1) Accounts receivable had an estimated fair value of $ 64.5 million and a gross contractual value of $ 66.8 million. The difference represents the Company’s best estimate of the contractual cash flows that will not be collected. (2) The Company paid $ 7.2 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 accounting for the Hisco Transaction was completed during the second quarter of 2024. 80 Table of Contents 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. 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) 1,910 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 other intangible assets acquired is as follows: (in thousands) Fair Value Estimated Life (in years) Customer relationships $ 76,050 19 Trade names 43,010 8 Total other intangible assets $ 119,060 Purchases of Other Companies in 2022 During the year ended December 31, 2022, TestEquity acquired Interworld Highway, LLC, National Test Equipment, and Instrumex, and Gexpro Services acquired Resolux ApS ("Resolux") and Frontier Technologies Brewton, LLC and Frontier Engineering and Manufacturing Technologies, Inc. ("Frontier"). The consideration exchanged for these acquired businesses included various combinations of cash and sellers' notes. 81 Table of Contents (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 Cash consideration $ 54,690 $ 30,755 $ 25,674 $ 6,023 $ 1,818 $ 118,960 Seller's notes — — — 1,169 — 1,169 Deferred consideration — — — — 474 474 Total purchase consideration exchanged, net of cash acquired $ 54,690 $ 30,755 $ 25,674 $ 7,192 $ 2,292 $ 120,603 The consideration for the Frontier acquisition includes a potential earn-out payment of up to $ 3.0 million based upon the achievement of certain milestones and relative thresholds during the earn out measurement period which ends on December 31, 2024. Refer to Note 8 – Earnout Liabilities for additional information on the earn-out. Unaudited Pro Forma Information 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 acquisitions been completed on the date indicated. Year Ended December 31, (in thousands) 2024 2023 2022 Revenue $ 1,941,867 $ 1,998,209 $ 1,753,939 Net income $ ( 13,722 ) $ ( 3,855 ) $ ( 6,264 ) Actual Results of Business Acquisitions 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 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). 82 Table of Contents Note 4 – Revenue Recognition Disaggregation of Revenue The Company’s revenue is primarily comprised of product sales to customers. The Company has disaggregated revenue by geographic area and by segment as it most reasonably depicts the amount, timing and uncertainty of revenue and cash flows generated from our contracts with customers. Disaggregated consolidated revenue by geographic area (based on the location to which the product is shipped to): Year Ended December 31, (in thousands) 2024 2023 2022 United States $ 1,389,754 $ 1,253,401 $ 932,418 Canada 192,213 141,125 118,722 Europe 58,144 79,643 51,631 Pacific Rim 20,584 13,515 10,768 Latin America 131,345 74,577 34,202 Other 14,006 9,841 3,681 Intersegment revenue elimination ( 1,942 ) ( 1,700 ) — Total revenue $ 1,804,104 $ 1,570,402 $ 1,151,422 See Note 14 – Segment Information for disaggregation of revenue by segment. Rental Revenue TestEquity rents new and used electronic test and measurement equipment to customers in multiple industries. Lawso n leases parts washer machines to customers. This leased equipment is included in Rental equipment, net in the Consolidated Balance Sheets, and rental revenue is included in Revenue in the Consolidated Statements of Operations and Comprehensive Income (Loss) . The unearned rental revenue related to customer prepayments on equipment leases was nominal at December 31, 2024 and December 31, 2023 . Rental revenue from operating leases: Year Ended December 31, (in thousands) 2024 2023 2022 Revenue from operating leases $ 17,519 $ 17,186 $ 17,675 Note 5 – Supplemental Financial Statement Information Restricted Cash The Company has agreed to maintain restricted cash of $ 15.2 million under agreements with outside parties. 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. The remaining restricted cash balance of $ 7.3 million represents collateral for certain borrowings under the Amended Credit Agreement, and the Company is restricted from withdrawing this balance without the prior consent of the respective lenders. 83 Table of Contents Property, Plant and Equipment, net Components of property, plant and equipment, net were as follows: December 31, (in thousands) 2024 2023 Land $ 16,187 $ 16,916 Buildings and improvements 63,935 50,376 Machinery and equipment 55,890 48,844 Capitalized software 12,295 9,148 Furniture and fixtures 13,251 11,022 Vehicles 5,716 1,738 Construction in progress (1) 6,284 6,025 Total 173,558 144,069 Accumulated depreciation and amortization ( 48,034 ) ( 30,258 ) 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 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 Rental equipment, net consisted of the following: December 31, (in thousands) 2024 2023 Rental equipment $ 64,160 $ 52,387 Accumulated depreciation ( 24,784 ) ( 27,812 ) Rental equipment, net $ 39,376 $ 24,575 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. 84 Table of Contents Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following: December 31, (in thousands) 2024 2023 Accrued compensation $ 23,800 $ 25,371 Accrued and withheld taxes, other than income taxes 10,178 8,661 Deferred acquisition payments and accrued earnout liabilities 6,384 7,513 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 Other 20,013 15,689 Total accrued expenses and other current liabilities $ 81,259 $ 97,241 Other Liabilities Other liabilities consisted of the following: December 31, (in thousands) 2024 2023 Security bonus plan $ 7,536 $ 8,666 Deferred compensation 11,455 11,041 Other 7,534 5,736 Total other liabilities $ 26,525 $ 25,443 Note 6 – Goodwill and Intangible Assets Goodwill Changes in the carrying amount of goodwill by segment were as follows: (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 Acquisitions — 50,886 — — 50,886 Impact of foreign exchange rates 142 — 322 527 991 Balance at December 31, 2023 155,915 164,990 55,743 23,277 399,925 Acquisitions (1) 37,177 ( 110 ) 1,372 28,942 67,381 Impact of foreign exchange rates ( 494 ) — ( 773 ) ( 3,250 ) ( 4,517 ) Balance at December 31, 2024 $ 192,598 $ 164,880 $ 56,342 $ 48,969 $ 462,789 (1) Refer to Note 3 – Business and Asset Acquisitions for information related to measurement period adjustments. 85 Table of Contents Intangible Assets The gross carrying amount and accumulated amortization for definite-lived intangible assets were as follows: December 31, 2024 December 31, 2023 (in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Value Gross Carrying Amount Accumulated Amortization Net Carrying Value Trade names $ 141,654 $ ( 45,386 ) $ 96,268 $ 117,881 $ ( 30,093 ) $ 87,788 Customer relationships 272,051 ( 100,867 ) 171,184 233,513 ( 71,215 ) 162,298 Other (1) 8,310 ( 5,999 ) 2,311 8,011 ( 4,263 ) 3,748 Total $ 422,015 $ ( 152,252 ) $ 269,763 $ 359,405 $ ( 105,571 ) $ 253,834 (1) Other primarily consists of non-compete agreements. 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. The estimated aggregate amortization expense for each of the next five years and thereafter are as follows: (in thousands) Amortization 2025 $ 46,224 2026 43,188 2027 38,139 2028 33,878 2029 30,331 Thereafter 78,003 Total $ 269,763 Note 7 – Leases The Company leases property used for warehousing, distribution centers, office space, branch locations, equipment and vehicles. The components of lease cost were as follows (in thousands): Year Ended December 31, Lease Type Classification 2024 2023 2022 Operating lease expense (1) Operating expenses $ 23,958 $ 21,131 $ 15,151 Financing lease amortization Operating expenses 612 546 466 Financing lease interest Interest expense 108 93 41 Financing lease expense 720 639 507 Sublease income (2) ( 425 ) — — 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. 86 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): December 31, Lease Type 2024 2023 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 Total current operating lease obligation $ 18,413 $ 13,010 Total current financing lease obligation 538 539 Total current lease obligation $ 18,951 $ 13,549 Total long-term operating lease obligation $ 76,759 $ 66,234 Total long-term financing lease obligation 999 831 Total long-term lease obligation $ 77,758 $ 67,065 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 2026 20,775 533 21,308 326 2027 17,859 310 18,169 — 2028 15,130 182 15,312 — 2029 11,313 45 11,358 — Thereafter 32,998 20 33,018 — Total lease payments 122,929 1,718 124,647 966 Less: Interest ( 27,757 ) ( 181 ) ( 27,938 ) — Present value of lease liabilities $ 95,172 $ 1,537 $ 96,709 $ 966 The weighted average lease terms and interest rates of leases held as of December 31, 2024 and 2023 were as follows: Year Ended December 31, 2024 2023 Operating Leases Finance Leases Operating Leases Finance Leases Weighted average remaining lease term 6.3 years 3.7 years 6.6 years 2.8 years Weighted average interest rate 7.6 % 7.3 % 7.8 % 7.1 % The cash outflows of leasing activity for the years ended December 31, 2024, 2023 and 2022 were as follows (in thousands): Year Ended December 31, Cash Flow Source Classification 2024 2023 2022 Operating cash flows from operating leases Operating activities $ ( 21,980 ) $ ( 15,516 ) $ ( 12,149 ) Operating cash flows from financing leases Operating activities $ ( 111 ) $ ( 242 ) $ ( 184 ) Financing cash flows from financing leases Financing activities $ ( 653 ) $ ( 515 ) $ ( 429 ) Refer to Note 4 – Revenue Recognition for a discussion on the Company’s activities as lessor. 87 Note 8 – Earnout Liabilities Combination with TestEquity and Gexpro Services On the Merger Date, the Company recorded an earnout derivative liability for the two earnout provisions within the Merger Agreements. The Company estimated the initial fair value of the earnout derivative liability based on an aggregate of 2,324,000 additional shares available to be issued under the two earnout provisions of the Merger Agreements. The aggregate of 2,324,000 shares was comprised of 1,400,000 shares of DSG common stock that were contingently issuable to (or forfeitable by) the TestEquity Equityholder and 924,000 shares of DSG common stock that were contingently issuable to (or forfeitable by) the Gexpro Services Stockholder, in each case as of the Merger Date. The additional 1,076,000 shares that were potentially issuable as of the Merger Date under the earnouts were not recorded as an earnout derivative liability as the acquisition contingency for these shares was determined to have been met at the Merger Date. The Company’s earnout derivative liability was classified as a Level 3 instrument and was measured at fair value on a recurring basis. The fair value of the earnout derivative liability was measured using the Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis for the year ended December 31, 2022. Inputs to that model included the expected time to liquidity, the risk-free interest rate over the term, expected volatility based on representative peer companies and the estimated fair value of the underlying class of common stock. The significant unobservable inputs used in the fair value measurement of the earnout derivative liability were the fair value of the underlying stock at the valuation date and the estimated term of the earnout arrangement periods. Generally, increases (decreases) in the fair value of the underlying stock and estimated term would result in a directionally similar impact to the fair value measurement. The estimated aggregate fair value of the earnout derivative liability recorded on the April 1, 2022 Merger Date was $ 43.9 million, with an offsetting entry to additional paid-in capital. As of April 29, 2022 and December 31, 2022, 1,400,000 and 924,000 of the 2,324,000 shares, respectively, were reclassified to equity, as the contingencies had been determined to have been met. There was no remaining earnout derivative liability at December 31, 2022. Immediately prior to the reclassifications, the respective shares were remeasured to fair value. For the year ended December 31, 2022, the Company recorded income of $ 0.3 million as a component of Change in fair value of earnout liabilities in the Consolidated Statements of Operations and Comprehensive Income (Loss) due to changes in the fair value of the earnout derivative liability. As the remaining additional shares had been reclassified to equity as of December 31, 2022, there was no change in fair value for the year ended December 31, 2023 or 2024. See Fair Value Measurements in Note 2 – Summary of Significant Accounting Policies for further information. On March 20, 2023, all of the 3.4 million shares of DSG common stock available to be issued under the earnout provisions within the Merger Agreements were issued in accordance with the two earnout provisions within the Merger Agreements. Hisco Acquisition The Hisco Transaction 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), 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 88 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 The Company’s outstanding long-term debt was comprised of the following: December 31, (in thousands) 2024 2023 Senior secured revolving credit facility $ — $ — Senior secured term loan 215,625 228,125 Senior secured delayed draw term loan 44,375 46,875 Incremental term loans 479,625 297,375 Other revolving line of credit 226 2,301 Total debt 739,851 574,676 Less: current portion of long-term debt ( 40,476 ) ( 32,551 ) Less: deferred financing costs ( 5,472 ) ( 6,244 ) Total long-term debt $ 693,903 $ 535,881 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 % 89 Table of Contents 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 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 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 $ 2.9 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 $ 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. The Company may borrow, repay and reborrow the revolving loans until April 1, 2027, prepay any of the term loans, and terminate any of the commitments, in whole or in part, at any time without premium or penalty, subject to certain conditions and the reimbursement of certain lender costs in the case of prepayments of certain types of loans. Subject to certain exceptions as set forth in the Amended Credit Agreement, the obligations of the Company and its U.S. subsidiaries under the Amended Credit Agreement are guaranteed by the Company, and certain of the Company’s U.S. subsidiaries and the obligations of each of the Company’s Canadian subsidiaries under the Amended Credit Agreement are guaranteed by the Company and certain of its U.S. and Canadian subsidiaries. Subject to certain exceptions as set forth in the Amended Credit Agreement, the obligations under the Amended Credit Agreement are secured by a first priority security interest in and lien on substantially all assets of the Company, each other borrower and each guarantor. The 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 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 . 90 Table of Contents 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 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 $ 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. Accordingly, changes in the market value of DSG common stock may result in stock-based compensation expense or benefit in certain periods. A stock-based compensation liability of $ 2.0 million a s of December 31, 2024 and $ 5.6 million as of December 31, 2023 was included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. Impact of Stock Split The equity compensation plans contain anti-dilution provisions whereby in the event of any change in the capitalization of the Company (including in the event of a stock split), the number and type of awards underlying outstanding stock-based compensation awards must be adjusted, as appropriate, in order to prevent dilution or enhancement of rights. The impact of these provisions resulted in a modification of all outstanding stock-based compensation awards upon the Stock Split. As the fair value of the awards immediately after the Stock Split did not change when compared to the fair value of such awards immediately prior to the Stock Split, no incremental compensation costs were recognized as a result of such modifications. In addition, there was no change to the vesting conditions or classification of each of the outstanding stock-based compensation awards. Equity Compensation Plans On October 17, 2022, the Board of Directors approved and adopted the Distribution Solutions Group, Inc. Equity Compensation Plan, as amended and restated, effective October 17, 2022, and as amended November 10, 2022 (the “Amended and Restated Equity Plan”). The Amended and Restated Equity Plan provides for the grant of nonqualified and incentive stock options, stock awards and stock units to officers and employees of the Company. The Amended and Restated Equity Plan also provides for the grant of option rights and restricted stock to non-employee directors. Non-employee directors are limited to grants of no more than 60,000 shares of common stock in any calendar year and other than non-employee directors are limited to grants of no more than 500,000 shares of common stock in any calendar year. The Amended and Restated Equity Plan is administered by the Compensation Committee of the Board of Directors, or its designee, which as administrator of the plan, has the authority to select plan participants, grant awards, and determine the terms and conditions of the awards. As of December 31, 2024, the Company had approximately 694,000 shares of common stock still available under the Amended and Restated Equity Plan. 91 Table of Contents The Company also has a Stock Performance Rights Plan (“SPR Plan”) that provides for the issuance of Stock Performance Rights (“SPRs”) that allow non-employee directors, officers and key employees to receive cash awards, subject to certain restrictions, equal to the appreciation of DSG common stock. The SPR Plan is administered by the Compensation Committee of the Board of Directors. Stock Performance Rights SPRs entitle the recipient to receive a cash payment equal to the excess of the market value of DSG common stock over the SPR exercise price when the SPRs are surrendered. Expense, equal to the fair market value of the SPR at the date of grant and remeasured each reporting period, is recorded ratably over the vesting period. Compensation expense is included in Selling, general and administrative expense in the Consolidated Statements of Operations and Comprehensive Income (Loss). The outstanding SPRs were granted with approximately a seven year life and vest over one to three years beginning on the first anniversary of the date of the grant. The SPRs are liability classified and included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. 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, 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: December 31, 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 0.3 to 1.5 0.5 to 2.0 Expected annual dividend $ 0 $ 0 $ 0 The expected volatility was based on the historic volatility of the Company’s stock price commensurate with the expected life of the SPR. The risk-free rate of return reflects the interest rate offered for zero coupon treasury bonds over the expected life of the SPR. The expected life represents the period of time that options granted are expected to be outstanding and was calculated using the simplified method allowed by the SEC, which approximates our historical experience. The estimated annual dividend was based on the recent dividend payout trend. 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 thousands) Outstanding on December 31, 2023 259,018 $ 18.37 Granted — — Exercised ( 166,478 ) 33.78 Cancelled — — Outstanding on December 31, 2024 92,540 20.80 1.4 $ 1,921 Exercisable on December 31, 2024 92,540 $ 20.80 1.4 $ 1,921 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. 92 Table of Contents Restricted Stock Awards 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. The participants have no voting or dividend rights with the RSAs. The RSAs are valued at the closing price of DSG common stock on the date of grant and the expense is recorded ratably over the vesting period. Activity related to the Company’s RSAs during the year ended December 31, 2024 was as follows: Restricted Stock Awards Weighted Average Grant Date Fair Value Outstanding on December 31, 2023 98,216 $ 23.57 Granted 141,325 32.16 Cancelled ( 1,560 ) 25.28 Exchanged for common shares ( 75,832 ) 24.09 Outstanding on December 31, 2024 162,149 $ 31.68 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 $ 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 Market Stock Units (“MSUs”) are exchangeable for between 0 % to 150 % of the DSG common shares at the end of the vesting period based on the trailing 60 -day average closing price of DSG common stock. The value of the MSUs was determined using a geometric brownian motion model that, based on certain variables, generates a large number of random trials simulating the price of the DSG common stock over the measurement period. As of December 31, 2024 all MSUs are fully vested. 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: Number of Market Stock Units Maximum Shares Potentially Issuable Weighted Average Grant Date Fair Value Outstanding on December 31, 2023 116,107 163,555 $ 17.25 Granted — — — Cancelled — — — Exchanged for common shares ( 12,841 ) ( 18,464 ) 15.69 Outstanding on December 31, 2024 103,266 145,091 $ 17.45 93 Table of Contents Stock Options Stock options vest through the fifth anniversary from the grant date. Each stock option can be exchanged for one share of DSG common stock at the stated exercise price. Upon vesting, stock options are recognized as a component of equity. Activity related to the Company’s stock options during the year ended December 31, 2024 was as follows: Number of Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding on December 31, 2023 1,880,067 $ 37.53 Granted 442,242 45.79 Exercised ( 80,000 ) 13.50 Cancelled ( 113,834 ) 32.41 Outstanding on December 31, 2024 2,128,475 40.43 8.6 $ 3,252 Exercisable on December 31, 2024 707,407 $ 38.62 7.9 $ 2,267 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 $ 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: December 31, 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 6.2 years 6.5 years Expected annual dividend $ 0 $ 0 $ 0 The expected volatility was based on the historic volatility of the Company’s stock price commensurate with the expected life of the stock options. The risk-free rate of return reflects the interest rate offered for zero coupon treasury bonds over the expected life of the stock options. The expected life represents the period of time that options granted are expected to be outstanding and was calculated using the simplified method allowed by the SEC, which approximates our historical experience. The estimated annual dividend was based on the recent dividend payout trend. Performance Awards Performance Awards (“PAs”) are exchangeable for between 0 % to 150 % of DSG common shares, or the equivalent amount in cash, based upon the achievement of certain financial performance metrics at the end of the vesting period. The PAs are liability classified and included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. 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. 94 Table of Contents Activity related to the Company’s PAs during the year ended December 31, 2024 was as follows: Number of Performance Awards Maximum Shares Potentially Issuable Weighted Average Grant Date Fair Value Outstanding on December 31, 2023 26,080 39,120 $ 25.70 Granted — — — Exercised ( 26,080 ) ( 39,120 ) 25.70 Cancelled — — — Outstanding on December 31, 2024 — — $ — Note 11 – Stockholders’ Equity Stock Split On August 15, 2023, DSG announced that its Board of Directors approved and declared the Stock Split which entitled each stockholder of record as of the close of business on August 25, 2023, to receive one additional share of DSG common stock for each share of DSG common stock then-held. The additional shares were distributed after the close of trading on August 31, 2023, and shares of DSG common stock began trading at the split-adjusted basis on September 1, 2023. Accordingly, all share and per share amounts presented herein have been retroactively adjusted to reflect the impact of the Stock Split. Stockholders’ equity has been retroactively adjusted, where applicable, to give effect to the Stock Split for all periods presented by reclassifying the par value of the additional shares issued in connection with the Stock Split to Common stock from Capital in excess of par value in the Consolidated Balance Sheets . In order to implement the Stock Split, on August 31, 2023, DSG filed a Third Amended and Restated Certificate of Incorporation of DSG with the Secretary of State of the State of Delaware to increase the number of authorized shares of DSG common stock from 35,000,000 to 70,000,000 , which became effective on that date. The Stock Split did not change the $ 1.00 par value of DSG common stock. Rights Offering 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 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. 95 Table of Contents 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, number of shares and numbers of equity awards were retroactively adjusted. The following table provides the computation of basic and diluted earnings per share: December 31, (in thousands, except share and per share data) 2024 2023 2022 Basic income per share: Net income (loss) $ ( 7,332 ) $ ( 8,967 ) $ 7,406 Basic weighted average shares outstanding 46,811,354 44,868,862 34,291,870 Basic income (loss) per share of common stock $ ( 0.16 ) $ ( 0.20 ) $ 0.22 Diluted income per share: Net income (loss) $ ( 7,332 ) $ ( 8,967 ) $ 7,406 Basic weighted average shares outstanding 46,811,354 44,868,862 34,291,870 Effect of dilutive securities — — 794,722 Diluted weighted average shares outstanding 46,811,354 44,868,862 35,086,592 Diluted income (loss) per share of common stock $ ( 0.16 ) $ ( 0.20 ) $ 0.21 Anti-dilutive securities excluded from the calculation of diluted income per share 810,397 424,934 496,000 Note 13 – Income Taxes Income (loss) from operations before income taxes consisted of the following: Year Ended December 31, (in thousands) 2024 2023 2022 United States $ ( 23,598 ) $ ( 24,949 ) $ 910 Foreign 23,062 22,942 12,027 Total $ ( 536 ) $ ( 2,007 ) $ 12,937 Provision (benefit) for income taxes from operations consisted of the following: Year Ended December 31, (in thousands) 2024 2023 2022 Current income tax expense: U.S. federal $ 3,035 $ 4,961 $ 4,011 U.S. state 2,633 2,388 869 Foreign 7,777 7,639 3,057 Total $ 13,445 $ 14,988 $ 7,937 Deferred income tax expense (benefit): U.S. federal $ ( 3,554 ) $ ( 8,101 ) $ ( 947 ) U.S. state ( 1,603 ) 1,232 ( 73 ) Foreign ( 1,492 ) ( 1,159 ) ( 1,386 ) Total $ ( 6,649 ) $ ( 8,028 ) $ ( 2,406 ) Total income tax expense (benefit): U.S. federal $ ( 519 ) $ ( 3,141 ) $ 3,063 U.S. state 1,030 3,620 796 Foreign 6,285 6,481 1,672 Total $ 6,796 $ 6,960 $ 5,531 96 Table of Contents The reconciliation between the effective income tax rates and the statutory federal rates for operations are as follows: Year Ended December 31, 2024 2023 2022 Statutory Federal rate 21.0 % 21.0 % 21.0 % Increase (decrease) resulting from: 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 Stock compensation 81.6 ( 5.0 ) ( 0.5 ) Compensation deduction limitation — ( 7.0 ) — State and local taxes, net 178.4 67.1 4.5 Life insurance ( 14.1 ) ( 3.4 ) — Meals & entertainment ( 65.2 ) ( 17.3 ) 1.4 Change in uncertain tax positions 46.0 18.1 ( 2.9 ) Provision to return differences ( 78.5 ) ( 45.3 ) — GILTI, Section 78, FDII, and Section 250 ( 8.5 ) — 3.2 Transaction costs ( 157.4 ) — 8.3 Branch income ( 275.2 ) ( 81.6 ) — Earn out revaluation — — 0.8 Change in deferred balances 263.4 79.4 — Other items, net 0.2 1.7 1.7 Provision for income taxes ( 1,267.9 ) % ( 346.8 ) % 42.8 % 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 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. 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 2023 . Relative to the U.S. statutory rate, the effective tax rate for the year ended December 31, 2023 was impacted by the items listed above. 97 Table of Contents Deferred income tax assets and liabilities contain the following temporary differences: December 31, (in thousands) 2024 2023 Deferred tax assets: Federal & state NOL carryforward $ 9,943 $ 10,158 Inventory reserve 10,269 8,815 Transaction costs 1,523 673 Stock based compensation 3,113 3,602 Accrued benefits & bonuses 7,821 11,998 Bad debt reserve 546 977 Section 163(j) limitation carryforward 20,422 15,891 Right of use liabilities 21,476 18,936 Deferred state income tax 452 — Deferred revenue 135 77 Investment in foreign subsidiaries — — Other 5,952 4,005 Total deferred tax assets 81,652 75,132 Deferred tax liabilities: Intangible assets and goodwill 45,360 44,057 Right of use assets 20,449 18,264 Fixed assets 21,685 20,977 Deferred state income tax — 17 Other 1,419 1,591 Total deferred tax liabilities 88,913 84,906 Net deferred tax liabilities before valuation allowance ( 7,261 ) ( 9,774 ) Valuation allowance ( 14,868 ) ( 8,457 ) Net deferred tax liabilities $ ( 22,129 ) $ ( 18,231 ) At December 31, 2024 , the Company had $ 21.4 million of U.S. 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. 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. A distribution of these non-U.S. earnings in the form of dividends or otherwise would subject the company to foreign withholding taxes and may subject the Company to U.S. federal and state taxes. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested profits is not feasible primarily due the Company’s legal entity structure and the complexity of U.S. tax laws. Global Intangible Low Taxed Income (GILTI) is a deemed amount of income derived from controlled foreign corporations (CFCs) in which a U.S. person is a 10% direct or indirect shareholder. The Company owns numerous CFCs, which are subject to GILTI inclusion. However, because several of the CFCs operate in countries with a high tax rate, notably Canada, Denmark and Mexico, it was determined that a Section 954 High Tax Exception to GILTI inclusions is appropriate. 98 Table of Contents A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: December 31, (in thousands) 2024 2023 2022 Balance at beginning of year $ 2,734 $ 3,027 $ — Additions for tax positions of current year 595 — 191 Additions for tax positions of prior years — 503 3,741 Reductions for tax positions of prior year ( 152 ) — ( 238 ) Lapse of statute of limitations ( 815 ) ( 796 ) ( 667 ) Balance at end of year $ 2,362 $ 2,734 $ 3,027 The recognition of the unrecognized tax benefits would have a favorable effect on the effective tax rate. The unrecognized tax benefits as of December 31, 2024 included $ 1.1 million of tax benefits that, if recognized, would impact the effective tax rate in future periods. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The unrecognized tax benefits are recorded as a component of Other Liabilities in the Consolidated Balance Sheets. 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; however, the Company does not expect the change to have a material impact on the Consolidated Statements of Operations and Comprehensive Income (Loss) or the Consolidated Balance Sheets. Interest and penalties are recognized over uncertain tax positions that arose from income tax matters in Canada. The Company has substantially concluded all Canadian income tax matters through the year ended December 31, 2016. Years 2017 through present are open and subject to examination. The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. As of December 31, 2024, the Company was subject to U.S. federal income tax examinations for the years 2021 through 2023 and income tax examinations from various other jurisdictions for the years 2017 through 2023. Note 14 – Segment Information 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 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. 99 Table of Contents 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. 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. 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. Year Ended December 31, (in thousands) 2024 2023 2022 (1) Revenue Lawson $ 469,044 $ 468,711 $ 324,783 TestEquity 771,180 641,768 392,358 Gexpro Services 440,723 405,733 385,326 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) 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 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. 100 Table of Contents 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. Segment revenue and the elimination of intersegment revenue was as follows: (in thousands) Lawson TestEquity Gexpro Services Canada Branch Division Elimination Total Year Ended December 31, 2024 Revenue from external customers $ 468,976 $ 770,866 $ 439,163 $ 125,099 $ — $ 1,804,104 Intersegment revenue 68 314 1,560 — ( 1,942 ) — Revenue $ 469,044 $ 771,180 $ 440,723 $ 125,099 $ ( 1,942 ) $ 1,804,104 Year Ended December 31, 2023 Revenue from external customers $ 468,379 $ 641,643 $ 404,490 $ 55,890 $ — $ 1,570,402 Intersegment revenue 332 125 1,243 — ( 1,700 ) — Revenue $ 468,711 $ 641,768 $ 405,733 $ 55,890 $ ( 1,700 ) $ 1,570,402 Year Ended December 31, 2022 (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: December 31, (in thousands) 2024 2023 Total assets by segment Lawson $ 524,077 $ 467,195 TestEquity 654,315 638,950 Gexpro Services 331,811 329,799 Canada Branch Division 199,362 71,446 All Other 17,690 42,941 Total $ 1,727,255 $ 1,550,331 Long-lived assets by geographic area (1) United States $ 818,100 $ 765,160 Canada 138,218 72,054 Europe 30,345 32,997 Pacific Rim 4,751 417 Latin America 3,615 3,785 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. 101 Table of Contents Capital expenditures and depreciation and amortization by segment were as follows: Year Ended December 31, (in thousands) 2024 2023 2022 (1) Capital expenditures 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 — — — Total $ 23,193 $ 15,337 $ 8,307 Depreciation and amortization 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 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 Cyber Incident Litigation On February 10, 2022, DSG disclosed that its computer network was the subject of a cyber incident potentially involving unauthorized access to certain confidential information (the “Cyber Incident”). On April 4, 2023, a putative class action lawsuit (the “Cyber Incident Suit”) was filed against DSG entitled Lardone Davis, on behalf of himself and all others similarly situated, v. Lawson Products, Inc., Case No. 1:23-cv-02118, in the United States District Court for the Northern District of Illinois, Eastern Division. The plaintiff in this case, who purports to represent the class of individuals harmed by alleged actions and/or omissions by DSG in connection with the Cyber Incident, asserts a variety of common law and statutory claims seeking monetary damages, injunctive relief and other related relief related to the potential unauthorized access by third parties to personal identifiable information and protected health information. DSG disagrees with and intends to vigorously defend against the Cyber Incident Suit. The Cyber Incident Suit could result in additional costs and losses to DSG, although, at this time, DSG is unable to reasonably estimate the amount or range of reasonably possible losses, if any, that might result from adverse judgments, settlements, fines, penalties or other resolution of these proceedings based on the early stage of this proceeding, the absence of specific allegations as to alleged damages, the uncertainty as to the certification of a class or classes and the size of any certified class, if applicable, and the lack of resolution of significant factual and legal issues. Accordingly, no amounts have been recorded in the consolidated financial statements for the Cyber Incident Suit. No assurance can be given that additional lawsuits will not be filed against DSG and/or its directors and officers and/or other persons or entities in connection with the Cyber Incident. Environmental Matter In 2012, it was determined that a Company owned site in Decatur, Alabama, contained hazardous substances in the soil and groundwater as a result of historical operations prior to the Company’s ownership. The Company retained an environmental consulting firm to further investigate the contamination, prepare a remediation plan, and enroll the site in the Alabama Department of Environmental Management (“ADEM”) voluntary cleanup program. A remediation plan was approved by ADEM in 2018. The plan consists of chemical injections throughout the affected area, as well as subsequent monitoring of the area. The injection process was completed in the first quarter of 2019 and the environmental consulting firm is monitoring the affected area. At December 31, 2024 the Company had approximately $ 0.1 million accrued for potential monitoring costs included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets. The costs for future monitoring are not significant and have been fully accrued. The Company does not expect to capitalize any amounts related to the remediation plan. 102 Table of Contents Defined Contribution Plan 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 $ 7.5 million, $ 7.2 million and $ 5.5 million for the years ended December 31, 2024, 2023 and 2022, respectively. Note 16 – Related Party Transactions Management Services Agreements Prior to the Mergers, a subsidiary of TestEquity was party to a management agreement with Luther King Capital Management Corporation (“LKCM”) for certain advisory and consulting services (the “TestEquity Management Agreement”), and a subsidiary of Gexpro Services was party to a management agreement with LKCM for certain advisory and consulting services (the “Gexpro Services Management Agreement”). In connection with the closing of the Mergers on April 1, 2022, (i) all of the TestEquity subsidiary’s rights, liabilities and obligations under the TestEquity Management Agreement were novated to, transferred to and assumed by the TestEquity Equityholder, and LKCM released the TestEquity subsidiary from all obligations and claims under the TestEquity Management Agreement, and (ii) all of the Gexpro Services subsidiary’s rights, liabilities and obligations under the Gexpro Services Management Agreement were novated to, transferred to and assumed by the Gexpro Services Stockholder, and LKCM released the Gexpro Services subsidiary from all obligations and claims under the Gexpro Services Management Agreement (collectively, the “Novations”). During the first three months of 2022, expense of $ 0.5 million was recorded within Selling, general and administrative expenses within the Consolidated Statements of Operations and Comprehensive Income (Loss), reflecting expenses accrued under these management agreements from January 1, 2022 through the April 1, 2022 Merger Date. As of April 1, 2022, the prior obligation of $ 5.3 million was effectively settled and considered to be a deemed equity contribution by LKCM recorded to additional paid in capital. As a result of the Novations, no additional expense under these management agreements has been incurred subsequent to the Mergers. Consulting Services 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 In connection with the Company’s headquarters move to Fort Worth, Texas in 2023, the Company has been utilizing office space in a building that is leased by LKCM. The Company is not charged any rent or other amounts for the use of the office space. 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, 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 103 Table of Contents 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. Immediately prior to the Mergers, entities affiliated with LKCM and Mr. King, including private investment partnerships for which LKCM serves as investment manager, owned a majority of the ownership interests in the Gexpro Services Stockholder (which in turn owned all of the then outstanding stock of Gexpro Services). Immediately prior to the Mergers, entities affiliated with LKCM and Mr. King beneficially owned approximately 48 % of the then-outstanding shares of DSG common stock. As a result of the issuance of 20.6 million shares at the closing of the Mergers and the issuance of the additional 3.4 million shares in accordance with the earnout provisions of the TestEquity Merger Agreement and the Gexpro Services Merger Agreement on March 20, 2023, entities affiliated with LKCM and Mr. King beneficially owned in the aggregate approximately 32.6 million shares of DSG common stock representing approximately 77.4 % of the outstanding shares of DSG common stock as of March 31, 2023. Rights Offering Certain entities affiliated with LKCM and J. Bryan King exercised their basic subscription rights and over-subscription rights in the Rights Offering and purchased approximately 3.6 million additional shares of DSG common stock at a purchase price of $ 22.50 per share. Following the completion of the Rights Offering on May 30, 2023, entities affiliated with LKCM and Mr. King beneficially owned in the aggregate approximately 36.4 million shares of DSG common stock as of June 1, 2023, representing approximately 77.6 % of the outstanding shares of DSG common stock as of December 31, 2024 . Board of Directors M. 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. 104 Table of Contents 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 $ — $ 815 105 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 106 Table of Contents