What changed in this filing

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Item 1A. Risk Factors

2026-03-05 compared with 2025-03-06 · 58 added, 64 removed, 180 unchanged (40% of the section changed)

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We depend on our information and communication systems to process orders, purchase and manage inventory, maintain cost-effective operations, sell and ship products, manage accounts receivable collections and serve our customers.

Disruptions in the operation of information and communication systems can occur due to a variety of factors including power outages, hardware failure, programming faults and human error.

Disruptions in the operation of information and communication systems can occur due to a variety of factors including power outages, hardware failure, programming faults, cyber incidents and human error.

Disruptions in the operation of our information and communication systems, whether over a short or an extended period of time or affecting one or multiple distribution centers, could have a material adverse effect on our business, financial condition and results of operations.

Cyber-attacks or other information security incidents could have a material adverse effect on our business strategy, results of operations or financial condition and subject us to additional legal costs.

We are increasingly dependent on digital technology to process and record financial and operating data and communicate with our employees and business partners.

We are increasingly dependent on digital technology to process and record financial and operating data and communicate with our employees, customers, suppliers and other business partners.

During the normal course of business we receive, retain and transmit certain confidential information that our customers provide to purchase products or services or to otherwise communicate with us, as well as certain potentially sensitive information about our employees and other persons and entities.

Our technologies, systems, networks and data and information processes (and those of our business partners) have been, and may in the future be, the target of cyber-attacks and/or information security incidents that may have resulted in, or may in the future result in, the unauthorized release, misuse, loss or destruction of proprietary, personal and other information, or other disruption of our business operations, including compromise of our email systems.

For example, in February 2022, Lawson became aware that its computer network was the subject of a cyber incident potentially involving unlawful access (the “Cyber Incident”).

Because of the nature of the information that may have been potentially compromised, which may have included personal identifiable information and protected health information, we were required to notify the parties whose information was potentially compromised of the incident as well as various governmental agencies and have taken other actions, such as offering credit monitoring services.

After this incident, we also reviewed our overall systems and processes, and implemented certain changes, including employee training, designed to improve our overall cybersecurity program, but we cannot assure you that these changes will be effective to prevent future incidents.

In addition, from time to time our email systems (and those of our business partners communicating with us) have been subjected to malicious attacks, including phishing attacks.

Our technologies, systems, networks and data and information processes (and those of our customers, suppliers and other business partners) have been, and may in the future be, the target of cyber-attacks and/or information security incidents that may have resulted in, or may in the future result in, the unauthorized release, misuse, loss or destruction of proprietary, personal and other information, or other disruption of our business operations, including compromise of our email systems.

For example, from time to time our email systems (and those of our customers, suppliers and other business partners communicating with us) have been subjected to malicious attacks, including phishing attacks.

Such attacks or incidents could have a material adverse effect on our business strategy, results of operations or financial condition and subject us to additional legal costs.

For example, a putative class action lawsuit was filed against DSG in April 2023 asserting a variety of claims seeking monetary damages, injunctive relief and other related relief in connection with the Cyber Incident, which could result in additional legal and other costs.

The techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognizable until launched against a target or until a breach has already occurred.

Accordingly, we may be unable to anticipate these techniques or implement adequate preventative measures.

In addition, we are exposed to growing and evolving risks arising from the use of Artificial Intelligence technologies by bad actors to commit fraud, misappropriate funds and facilitate cyberattacks.

In addition, we are exposed to growing and evolving risks arising from the use of AI technologies by bad actors to commit fraud, misappropriate funds and facilitate cyberattacks.

As cyber threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and fix any information security vulnerabilities.

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Despite our efforts to protect such information, cyber, privacy or security incidents, or misplaced or lost data could have a materially adverse impact on our business strategy, results of operations or financial condition and may divert management and employee attention from other business and growth initiatives.

The increased use of AI may impact our industry and the markets in which we compete, and the development and use of AI presents potential competitive and other risks.

We have begun incorporating AI capabilities into our business.

We have also increased our investments in developing, managing and implementing AI for our business.

The increased use of AI may have a significant impact on customer demand and market dynamics in our industry and there may be a need to increase the rate of adoption of AI to maintain competitiveness.

AI presents risks, challenges, and unintended consequences that could affect its rate and success of adoption, and therefore our business, and there is no assurance that our use of AI or incorporation of AI capabilities into our business will benefit our business.

If we fail to use AI to improve our operations as anticipated or as well as our competitors, this could have a materially adverse impact on our business strategy, results of operations or financial condition.

In addition, any use of AI by us in a manner that is not in compliance with applicable law or any of our contractual or other obligations could also lead to regulatory or legal action, potential liability, loss of business, and other negative effects that could have a materially adverse impact on our business strategy, results of operations or financial condition.

The inability to successfully recruit, integrate and retain productive sales representatives could adversely affect our business, financial condition and operating results.

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The loss of certain key executives and managers or the failure to attract and develop talented employees could have a material adverse effect on our business, financial condition and results of operations.

There may be difficulties in integrating certain operations of TestEquity’s and Gexpro Services’ respective businesses with our other operations, and the failure to successfully combine those operations within our expected timetable could adversely affect our future results and the market price of our common stock.

The Mergers involve the combination of businesses that previously operated as independent businesses.

Management has devoted and will continue to devote significant attention and resources to combine certain business operations of TestEquity and Gexpro Services with our other business operations.

There may be difficulties in integrating certain operations of businesses we acquire with our other operations, and the failure to successfully combine those operations within our expected timetable could adversely affect our future results and the market price of our common stock.

One of our growth strategies is to actively pursue additional acquisition opportunities which complement our business model.

However, there are risks associated with pursuing acquisitions, which include the incurrence of significant transaction costs without the guarantee that such transactions will be completed and the risk that we may not realize the anticipated benefits of the acquisition once it is completed.

Many of the businesses we acquire involve the combination of businesses that previously operated as independent businesses.

Management has devoted and will continue to devote significant attention and resources to combine the business operations of acquired businesses with our other business operations.

This may divert the time and attention of our management team and diminish their time to manage our businesses, service existing customers, attract new customers, develop new products, services and strategies and identify other beneficial opportunities.

If our management is not able to effectively manage the process following the closing of the Mergers, or if any significant business activities are interrupted as a result of this process, our businesses could suffer.

Furthermore, it is possible that the Mergers could result in the loss of key employees.

If we are not able to fully realize the anticipated savings and synergies from the Mergers in a timely manner, or the cost to achieve these synergies is greater than expected, we may not fully realize the anticipated benefits (or any benefits) of the Mergers, or it may take longer than expected to realize any benefits.

If we fail to successfully identify the right opportunities and/or to successfully integrate the acquired businesses, operations, technologies, systems and/or personnel with those of DSG, or if any significant business activities are interrupted as a result of this process, this could adversely affect our business, financial condition and results of operations.

Furthermore, it is possible that following an acquisition, the business acquired could lose key employees.

If we are not able to fully realize the anticipated savings and synergies from the acquisitions in a timely manner, or the cost to achieve these synergies is greater than expected, we may not fully realize the anticipated benefits (or any benefits) of the acquisitions, or it may take longer than expected to realize any benefits.

The failure to fully or timely realize the anticipated benefits could have a negative effect on the market price of DSG common stock.

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Failure to successfully manage the implementation of these changes could lead to disruptions in our operations.

Any pursuit or completion by DSG of additional acquisition opportunities would involve risks that could adversely affect our business, financial condition and results of operations.

One of our growth strategies is to actively pursue additional acquisition opportunities which complement our business model.

We may fail to successfully identify the right opportunities and/or to successfully integrate the acquired businesses, operations, technologies, systems and/or personnel with those of DSG, which could adversely affect our business, financial condition and results of operations.

We operate in highly competitive markets.

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We may be required to recognize impairment charges for goodwill and other intangible assets.

As a result of the closing of the Mergers on April 1, 2022, and other acquisitions completed during 2024, 2023 and 2022 , we have a significant amount of goodwill and other intangible assets on our consolidated balance sheet as of December 31, 2024.

As a result of our acquisitions , we have recorded a significant amount of goodwill and other intangible assets on our consolidated balance sheet as of December 31, 2025.

In ac cordance with generally accepted accounting principles in the United States (“GAAP”), our management periodically assesses our goodwill and other intangible assets to determine if they are impaired.

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Such sanctions could include restrictions on selling or importing goods, services, or technology in or from affected regions and travel bans and asset freezes impacting connected individuals and political, military, business, and financial organizations.

In addition, geopolitical instability and military hostilities, such as the Hamas-Israel military conflict and the Russia-Ukraine military conflict, could negatively impact our business Although we have not, do not currently and do not plan to conduct business operations in Gaza, Israel, Russia, Belarus, or Ukraine, it is not possible to predict the broader consequences of these conflicts, which could include sanctions, embargoes or other geopolitical instability.

In addition, geopolitical instability and military hostilities, such as the Russia-Ukraine military conflict and United States military operations in Venezuela, could negatively impact our business.

Although we have not, do not currently and do not plan to conduct business operations in Russia, Belarus, Ukraine or Venezuela, it is not possible to predict the broader consequences of these conflicts, which could include sanctions, embargoes or other geopolitical instability.

Any decrease in the levels of defense and other governmental spending or the introduction of more stringent governmental regulations and oversight could lead to reduced revenue or an increase in compliance costs which would adversely affect our business, financial condition and results of operations.

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During this process, if our management identifie s one or more material weaknesses in our internal control over financial reporting, we will be unable to assert such internal control is effective.

For example, management’s report on our internal controls over financial reporting contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, identified a material weakness and concluded that we did not maintain effective internal controls over financial reporting as of December 31, 2022.

Ensuring that we have adequate internal financial and accounting controls and procedures in place is a costly and time-consuming exercise that needs to be re-evaluated frequently.

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The cost of implementing this type of financial organization, reporting and controls in respect of the acquired business and integrating their financial reporting processes with our financial reporting processes may be significant.

If there are limitations in the acquired businesses’ financial organization, reporting and controls, or if we are unable to effectively integrate their financial reporting processes with our financial reporting processes, we could, among other things, have material weaknesses in our internal controls, violate our indebtedness covenants, miss an SEC reporting deadline or otherwise fail to comply with an applicable law or regulation.

Limitations in the acquired businesses’ financial organization, reporting and controls, or an inability to effectively integrate their financial reporting processes with our financial reporting processes, has in the past resulted in, and may in the future lead to, material weaknesses in our internal controls.

These limitations could also lead to a violation of our indebtedness covenants or cause us to miss an SEC reporting deadline or otherwise fail to comply with an applicable law or regulation.

Implementing any appropriate changes to our internal controls may require specific compliance training, entail substantial costs in order to modify our existing accounting systems or those of the companies that we acquire, and take a material period of time to complete.

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Any failure to maintain effective internal controls over financial reporting or to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and applicable SEC rules could also potentially subject us to sanctions or investigations by the SEC, Nasdaq or other regulatory authorities.

The changes made in the third quarter of 2024 to our segment reporting structure could be confusing to investors and may not have the desired effects.

In the third quarter of 2024 we introduced a fourth reporting segment, Canada Branch Division, which includes the results of Bolt Supply House (“Bolt”) and Source Atlantic.

Prior to this change, we had three reportable segments:

Lawson, TestEquity and Gexpro Services.

We also had an “All Other” category which included unallocated DSG holding company costs and the results of Bolt, which was previously a non-reportable segment.

Managing this change has required, and may continue to require, significant expenditures and allocation of valuable management resources.

We have provided disclosures about our new segment reporting structure, but there is no guarantee that investors or the market will understand this change to our financial reporting.

There is also no guarantee that this change will have the desired effect.

Failure of investors or analysts to understand our revised segment reporting structure may negatively affect their ability to understand our business and operating results which could adversely affect our stock price.

Debt Financing Risks

We have a significant amount of indebtedness, and our significant indebtedness could adversely affect our business, financial condition and results of operations.

We have $739.9 million of indebtedness as of December 31, 2024, which includes a significant amount of indebtedness under our Amended Credit Agreement (as defined in Note 9 – Debt in Item 8.

We had $704.4 million of indebtedness as of December 31, 2025, which includes a significant amount of indebtedness under our Amended Credit Agreement (as defined in Note 9 – Debt in Item 8.

Financial Statements and Supplementary Data ).

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Should funding be insufficient at any time in the future, we may be unable to develop or enhance our products or services, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on our business, financial condition and results of operations.

Government efforts to combat inflation, along with other interest rate pressures, could lead to higher financing costs.

Inflation has risen on a global basis, the United States has been experiencing relatively high levels of inflation, and government entities have taken various actions to combat inflation, such as raising interest rate benchmarks.

Government entities may continue their efforts, or implement additional efforts, to combat inflation, which could include among other things raising interest rate benchmarks, maintaining interest rate benchmarks at elevated levels and/or failing to lower interest rate benchmarks.

Such government efforts, along with other interest rate pressures, could lead to higher financing costs and have material adverse effect on our business, financial condition and results of operations.

Government efforts to combat inflation, or other interest rate pressures, could lead to higher financing costs.

The global macroeconomic environment has experienced challenges in recent years, including high rates of inflation.

In response, government entities have taken various actions to combat inflation, such as raising interest rate benchmarks.

If there is an increase in inflation, government entities may implement efforts to combat such increase in inflation, which could include, among other things, raising interest rate benchmarks, maintaining interest rate benchmarks at elevated levels and/or failing to lower interest rate benchmarks.

Such government efforts, or other interest rate pressures, could lead to higher financing costs and have material adverse effect on our business, financial condition and results of operations.

Common Stock Risks

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Bryan King beneficially own a significant majority of the outstanding DSG common stock and, therefore, have significant influence over our Company, which could delay or deter a change in control or other business combination or otherwise cause us to take actions with which you may disagree.

Based on a Schedule 13D filed with the SEC by LKCM and various other persons and entities (as amended through December 27, 2023 ), entities affiliated with LKCM beneficially owned in the aggregate approximately 36.4 million shares of DSG common stock as of December 26, 2023, representin g approximately 77.6% of the outstanding shares of DSG common stock as of December 31, 2024.

Based on a Schedule 13D filed with the SEC by LKCM and various other persons and entities (as amended through February 12, 2025 ), entities affiliated with LKCM beneficially owned in the aggregate approximately 36.4 million shares of DSG common stock as of February 12, 2025, representin g approximately 78.7% of the outstanding shares of DSG common stock as of December 31, 2025.

Bryan King, Chairman and Chief Executive Officer of the Company, is a Principal of LKCM.

In addition, 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 As a result, LKCM has significant influence over the outcome of matters requiring a stockholder vote, including the election of directors and the approval of other significant matters, and LKCM’s interests may not align with the interests of other stockholders.

Bradley Wallace, a director of the Company, is a Founding Partner of LKCM Headwater Investments, the private capital investment group of LKCM.

As a result, LKCM has significant influence over the outcome of matters requiring a stockholder vote, including the election of directors and the approval of other significant matters, and LKCM’s interests may not align with the interests of other stockholders.

This concentration of ownership could also have the effect of delaying or preventing a change of control or other business combination that might be beneficial to our stockholders.

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• a compensation committee comprised solely of independent directors;

which only independent directors participate or (2) a nominating committee comprised solely of independent directors.

• director nominees be selected or recommended to the DSG Board of Directors for selection, either by (1) DSG’s independent directors constituting a majority of the DSG Board of Directors’ independent directors in a vote in which only independent directors participate or (2) a nominating committee comprised solely of independent directors.

Entities affiliated with LKCM beneficially own a significant number of shares of DSG common stock, and any sales of any such shares or the possibility of any such sales could have a negative effect on the price of DSG common stock.

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Failure to comply with these regulations could lead to severe penalties and fines for each violation.

Additionally, a facility we own in Decatur, Alabama, was found to contain hazardous substances in the soil and groundwater as a result of historical operations prior to our ownership.

We retained an environmental consulting firm to further investigate the contamination, including measurement and monitoring of the site.

The Company concluded that further remediation was required, and accordingly, has made an accrual for the estimated cost of this environmental matter.

A remediation plan was approved by the Alabama Department of Environmental Management and the remediation of the affected area is ongoing.

Additional procedures may be required that could negatively impact our business, financial condition and results of operations.

Our results of operations could be affected by changes in taxation.

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In addition, the Organization for Economic Cooperation and Development (“OECD”), which represents a coalition of member countries, has recommended fundamental tax reform affecting the taxation of multinational corporations, including the Base Erosion and Profit Shifting (“BEPS”) project, which in part aims to address international corporate tax avoidance.

On December 20, 2021, the OECD released Pillar Two Model Rules defining the global minimum tax rules, which contemplate a 15% minimum tax rate.

The OECD continues to release additional guidance on these rules and the framework calls for law enactment by OECD and G20 members to take effect in 2024 or 2025.

However, the detail of the proposals is subject to change and the impact on the Company will need to be determined by reference to the final rules.

The Company is continuing to monitor the potential impact of the Pillar Two proposals and developments on our consolidated financial statements and related disclosures, including eligibility for any transitional safe harbor rules.

Among the jurisdictions where the Company operates, the U.K.

has enacted legislation during 2024 that becomes effective in 2025.Canada has also enacted legislation during 2024 in accordance with the Pillar Two framework.

Other countries have also enacted or are expected to enact Pillar Two legislation.

The Company continues to monitor the development and implementation of these rules both in local countries and on a multi-lateral basis, making it uncertain to predict the ultimate impact in the future.

For the year ended December 31, 2024 , the Company has not identified nor recorded any incremental tax as a result of Pillar Two.

Changes in applicable tax laws and regulations could affect our ability to realize our deferred tax assets, which could adversely affect our results of operations.

The OECD reached agreement among over 140 countries to implement a minimum 15% tax rate on certain multinational enterprises, commonly referred to as Pillar Two.

Although the U.S.

has not yet enacted legislation to adopt Pillar Two, certain countries in which we operate have already adopted, or are in the process of adopting, legislation to implement Pillar Two.

For the year ended December 31, 2025 , the Company determined that there was no material impact on our tax provision as a result of Pillar Two.

The Company continues to monitor U.S.

and global legislative action related to Pillar Two for potential impacts.

In addition, changes in applicable tax laws and regulations could affect our ability to realize our deferred tax assets, which could adversely affect our results of operations.

From time to time we may become subject to income tax audits, sales tax audits or similar proceedings, and as a result we may incur additional costs and expenses or owe additional taxes, interest and penalties that may negatively impact our operating results.

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Our international operations subject us to additional legal and regulatory regimes.

TestEquity has business operations and/or sales in a number of foreign countries, including Canada, Mexico, Germany and the United Kingdom.

Gexpro Services has business operations and/or sales in a number of foreign countries, including Hungary, China and Singapore.

Lawson and Canada Branch Division have business operations and/or sales in Canada.

We have business operations and/or sales in a number of foreign countries.

Compliance with diverse legal and regulatory requirements, including in connection with the movement or repatriation of cash, may be costly and time-consuming and require significant resources.

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Any violation of these legal requirements, even if prohibited by our policies, procedures and controls, could subject us to criminal or civil enforcement actions or penalties for non-compliance or otherwise have an adverse effect on our business and reputation.

As a result of the Mergers, DSG’s ability to use its net operating losses and certain other tax attributes generated prior to the Mergers may be subject to limitations.

Our ability to use our net operating losses and certain other tax attributes may be subject to limitations.

At December 31, 2025 , the Company had $21.4 million of U.S.

federal net operating loss carryforwards which were generated after 2017 and are not subject to expiration and $85.2 million of various state net operating loss carryforwards which expire at varying dates between 2026 and 2037.

As a result of the Mergers, DSG’s ability to use its net operating losses and certain other tax attributes generated prior to the Mergers may be subject to limitations , which may adversely impact on our future tax liability and cash flows .

Our ability to use our net operating losses and certain other tax attributes may be subject to limitations , which may adversely impact on our future tax liability and cash flows .

Public Health Emergencies Risks

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Those vendors have typically looked to pass their higher costs along to us through price increases.

If we are unable to fully pass any such increased prices and costs through to our customers or to modify our activities, the impact could have an adverse effect on our operating profit margins and financial condition.

If we are unable to fully pass along any such increased prices and costs through to our customers or to modify our activities, the impact could have an adverse effect on our operating profit margins and financial condition.

On the other hand, a decrease in oil prices may result in weaker demand from oil and gas customers in the future, resulting in lower net sales.

Changes in trade policies, increases in or continuation of any tariffs or imposition of any new tariffs, and other inflationary pressures could also affect our sourcing of product and ability to secure sufficient product and/or impact the cost or price of our products, with potentially negative impacts on our reported gross profits and results of operations.

Changes in trade policies, increases in or continuation of any tariffs or imposition of any new tariffs, and other inflationary pressures could also affect our sourcing of products and ability to secure sufficient products and/or impact the cost or price of our products, with potentially negative impacts on our reported gross profits and results of operations.

Enhanced tariffs, changes in trade policies and changes in import and export regulations of U.S.

and foreign governments may have a negative effect on global economic conditions, financial markets and our cost of goods, which may result in lower operating margins.

There is currently significant uncertainty about the future relationship between the United States and various other countries with respect to trade policies, treaties, tariffs and taxes.

For example, the U.S.

presidential administration has threatened or imposed new or increased tariffs on imports from various countries, including China, Mexico and Canada.

These actions have resulted in and are expected to continue to result in retaliatory measures on U.S.

If maintained, the tariffs and the potential escalation of trade disputes could pose a significant risk to our business and if we are unable to fully pass along any resulting increased prices and costs through to our customers or to modify our activities, the impact could have an adverse effect on our gross profit margins and financial condition.

The extent and duration of the tariffs and the resulting impact on general economic conditions on our business are uncertain and depend on various factors, including negotiations between the United States and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of supply, and demand for our products in affected markets.

Further, actions we take to adapt to new tariffs or trade restrictions may cause us to modify our operations or forgo business opportunities.

Likewise, tariffs and import and export regulations could also limit the availability of our products, prompt our customers to seek alternative products or supply sources and provide an opportunity for competitors not subject to such tariffs to establish a presence in markets where we conduct our business.

Supply chain constraints, inflationary pressure and labor shortages could impact our cost of goods and other costs and expenses, which may result in lower gross profit margins and/or otherwise materially adversely affect our business, financial condition and results of operations.

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dollars when consolidated into our financial statements.

Therefore, we are exposed to market risk relating to the fluctuation of value of such foreign currencies (including the Canadian dollar, Mexican peso, British pound sterling, the Euro, Danish krone, Brazilian real, Chinese renminbi, Turkish lira, and Singapore dollar) relative to the U.S.

Therefore, we are exposed to market risk relating to the fluctuation of value of such foreign currencies (including the Canadian dollar, Mexican peso, British pound sterling, the Euro, Danish krone, Brazilian real, Chinese yuan, Turkish lira, Indian rupee, Malaysian ringgit, Indonesian rupiah and Singapore dollar) relative to the U.S.

dollar that could adversely affect our financial condition and operating results.

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

What changed 10-K

Item 1A. Risk Factors