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What changed in Distribution Solutions Group, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Distribution Solutions Group, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+302 added−274 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-14)

Top changes in Distribution Solutions Group, Inc.'s 2023 10-K

302 paragraphs added · 274 removed · 208 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

58 edited+24 added−12 removed21 unchanged
Biggest changeCompletion of the TestEquity Merger On April 1, 2022, (the "Merger Date"), the TestEquity Merger was consummated pursuant to the TestEquity Merger Agreement. 5 In accordance with and under the terms of the TestEquity Merger Agreement, at the closing of the TestEquity Merger, DSG: (i) issued to the TestEquity Equityholder 3,300,000 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.
Biggest changeIn 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. 5 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.
Mr. Knutson has served as Executive Vice President, Chief Financial Officer and Treasurer since April 2014 and has served as Executive Vice President and Chief Financial Officer of the Company since July 2012. Mr. Lambert has served as Vice President, Controller and Chief Accounting Officer of the Company since June 2021. Prior to joining the Company, Mr.
Knutson has served as Executive Vice President, Chief Financial Officer and Treasurer since April 2014 and has served as Executive Vice President and Chief Financial Officer of the Company since July 2012. Mr. Lambert has served as Vice President, Controller and Chief Accounting Officer of the Company since June 2021. Prior to joining the Company, Mr.
Background and Operations — Based out of Moorpark, California, TestEquity is a large, comprehensive provider of electronic test solutions in the United States supporting the aerospace and defense, wireless and communication, 9 semiconductors, industrial electronics and automotive, and electronics manufacturing industries. TestEquity designs, rents and sells a full line of high-quality environmental test chambers.
Background and Operations — Based out of Moorpark, California, TestEquity is a large, comprehensive provider of electronic test solutions in the United States supporting the aerospace and defense, wireless and communication, semiconductors, industrial electronics and automotive, and electronics manufacturing industries. TestEquity designs, rents and sells a full line of high-quality environmental test chambers.
Background and Operations — Lawson delivers quality products to customers and offers them extensive product knowledge, product application expertise and Vendor Managed Inventory ("VMI") services. Lawson competes for business 7 primarily by offering a value-added service approach wherein highly trained sales representatives manage the product inventory for customers.
Background and Operations — Lawson delivers quality products to customers and offers them extensive product knowledge, product application expertise and Vendor Managed Inventory ("VMI") services. Lawson competes for business primarily by offering a value-added service approach wherein highly trained sales representatives manage the product inventory for customers.
Lawson recommends solutions to help customers maximize product performance and avoid costly product failures. Lawson's engineering department provides technical support for products and offers on-site problem solutions. It also develops and presents product safety and technical training seminars tailored to meet customers' needs.
Lawson recommends solutions to help customers maximize product performance and avoid costly product failures. Lawson's 9 engineering department provides technical support for products and offers on-site problem solutions. It also develops and presents product safety and technical training seminars tailored to meet customers' needs.
The complementary distribution operations of Lawson, TestEquity and Gexpro Services were combined on April 1, 2022 to create a specialty distribution company. A summary of the Mergers (as defined below), including the legal entities party to the transactions and the stock consideration, is presented below.
The complementary distribution operations of Lawson, TestEquity and Gexpro Services were combined on April 1, 2022 to create a global specialty distribution company. A summary of the Mergers (as defined below), including the legal entities party to the transactions and the stock consideration, is presented below.
Strategic Focus — TestEquity intends to grow revenue both organically and through acquisitions and continuing to expand and improve its service offerings to its customers. In particular, TestEquity strives to improve its digital experience, with a consistent approach for all of its brands.
Strategic Focus — TestEquity intends to grow revenue both organically and through acquisitions and continuing to expand and improve its service offerings to its customers. In particular, TestEquity strives to improve its digital experience, 10 with a consistent approach for all of its brands.
Lawson Lawson is a distributor of 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 throughout the United States and Canada.
Lawson 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 throughout the United States and Canada.
We plan to utilize our company structure to grow organic revenue by collaborative selling across our customer bases and expanding the digital capabilities across our platform. Acquisition Strategy In addition to organic growth, we plan to actively pursue acquisition opportunities complementary to our businesses that we believe will be financially accretive to our organization.
We plan to utilize our Company structure to grow organic revenue through collaborative selling across our customer bases and expanding the digital capabilities across our platform. Acquisition Strategy In addition to organic growth, we plan to actively pursue acquisition opportunities complementary to our businesses and that we believe will be financially accretive to our organization.
Accordingly, periods prior to the April 1, 2022 Merger Date reflect the results of operations and financial position of TestEquity and Gexpro Services on a consolidated basis, and the results of operations of DSG's legacy Lawson business are only included subsequent to the April 1, 2022 Merger Date.
Accordingly, periods prior to the April 1, 2022 Merger Date reflect the results of operations of TestEquity and Gexpro Services on a consolidated basis, and the results of operations of DSG's legacy Lawson business are only included subsequent to the April 1, 2022 Merger Date.
Through its collective businesses, DSG is dedicated to helping customers lower their total cost of operation by increasing productivity and efficiency with the right products, expert technical support, and fast, reliable delivery to be a one-stop solution provider. DSG serves approximately 110,000 distinct customers in several diverse end markets supported by approximately 3,100 dedicated employees and strong vendor partnerships.
Through its collective businesses, DSG is dedicated to helping customers lower their total cost of operation by increasing productivity and efficiency with the right products, expert technical support, and fast, reliable delivery to be a one-stop solution provider. DSG serves approximately 180,000 distinct customers in several diverse end markets supported by approximately 3,700 dedicated employees and strong vendor partnerships.
We believe that our relationships with our employees and their collective bargaining organizations are good. Sales force growth is a driver of the Lawson business, and increased sales coverage throughout the United States and Canada directly impacts Lawson's success as an organization.
We believe that our relationships with our employees and their collective bargaining organizations are satisfactory. Sales force growth is a strategic driver of the Lawson business, and increased sales coverage throughout the United States and Canada directly impacts Lawson's success as an organization.
TestEquity operates primarily through its five distribution brands, namely TestEquity, TEquipment, Techni-Tool, Jensen Tools and Instrumex, and is focused primarily in North America with a network of sales representatives throughout the United States, Canada, Mexico, Germany and the United Kingdom.
TestEquity operates primarily through its six distribution brands, namely TestEquity, Hisco, TEquipment, Techni-Tool, Jensen Tools and Instrumex, and is focused primarily in North America with a network of sales representatives throughout the United States, Canada, Mexico, Germany and the United Kingdom.
Unless the context requires otherwise, references in this Annual Report on Form 10-K to “DSG”, the “Company”, "we", "our" or "us" refer to the holding company, Distribution Solutions Group, Inc., and all entities consolidated with Distribution Solutions Group, Inc. in the accompanying consolidated financial statements.
Unless the context requires otherwise, references in this Annual Report on Form 10-K to “DSG”, the “Company”, "we", "our" or "us" refer to Distribution Solutions Group, Inc., and all entities consolidated in the accompanying consolidated financial statements.
Combination with TestEquity and Gexpro Services Business Combination Background On December 29, 2021, DSG entered into an: • Agreement and Plan of Merger (the “TestEquity Merger Agreement”) by and among (i) LKCM TE Investors, LLC, a Delaware limited liability company (the “TestEquity Equityholder”), (ii) TestEquity Acquisition, LLC, a Delaware limited liability company and a wholly-owned subsidiary of the TestEquity Equityholder (“TestEquity”), (iii) DSG and (iv) Tide Sub, LLC, a Delaware limited liability company and a wholly-owned subsidiary of DSG (“Merger Sub 1”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 1 would merge with and into TestEquity, with TestEquity surviving the merger as a wholly-owned subsidiary of DSG (the “TestEquity Merger”); and • Agreement and Plan of Merger (the “Gexpro Services Merger Agreement” and, together with the TestEquity Merger Agreement, the “Merger Agreements”) by and among (i) 301 HW Opus Investors, LLC, a Delaware limited liability company (the “Gexpro Services Stockholder”), (ii) 301 HW Opus Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary of the Gexpro Services Stockholder (“Gexpro Services”), (iii) DSG and (iv) Gulf Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of DSG (“Merger Sub 2”), pursuant to the terms and subject to the conditions of which the parties agreed, among other things, that Merger Sub 2 would merge with and into Gexpro Services, with Gexpro Services surviving the merger as a wholly-owned subsidiary of DSG (the “Gexpro Services Merger” and, together with the TestEquity Merger, the “Mergers”).
Combination with TestEquity and Gexpro Services On December 29, 2021, DSG entered into: • an Agreement and Plan of Merger (the “TestEquity Merger Agreement”) by and among (i) LKCM TE Investors, LLC, a Delaware limited liability company (the “TestEquity Equityholder”), (ii) TestEquity, 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) 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”).
The combined company has the ability to utilize its combined financial resources to accelerate a strategy of expansion through both business acquisitions and organic growth. Organic Growth Strategy We intend to grow our revenue organically and further improve our operations by exploring growth opportunities that provide different channels to reach customers, increase revenue and generate positive results.
The combined company has the ability to utilize its combined financial resources to accelerate a strategy of expansion through both business acquisitions and organic growth. Organic Growth Strategy We intend to grow our businesses organically by exploring growth opportunities that provide different channels to reach customers, increase revenue and generate positive results.
Lawson's largest customer accounted for approximately 3% of consolidated revenue. In 2022 , approximately 91% of Lawson's revenue was generated in the United States and approximately 9% in Canada.
Lawson's largest customer accounted for approximately 3% of consolidated revenue. In 2023 , approximately 91% of Lawson's revenue was generated in the United States and approximately 9% in Canada.
The public can obtain copies of these materials by accessing the SEC's website at http://www.sec.gov . In addition, as soon as reasonably practicable after such materials are filed with, or furnished to, the SEC, we make copies available to the public free of charge through our website at www.distributionsolutionsgroup.com or by calling (773) 304-5050.
The public can obtain copies of these materials by accessing the SEC's website at http://www.sec.gov . In addition, as soon as reasonably practicable after such materials are filed with, or furnished to, the SEC, we make copies of such materials available to the public free of charge through our website at www.distributionsolutionsgroup.com .
We encounter competition from several national distributors and manufacturers and a large number of regional and local distributors. Some competitors have greater financial and personnel resources, handle more extensive lines of merchandise, operate larger facilities and price some merchandise more competitively than we do. Customers — During 2022, the Lawson segment sold products to over 67,000 distinct customers.
We encounter competition from several national distributors and manufacturers and a large number of regional and local distributors. Some 8 competitors have greater financial and personnel resources, handle more extensive lines of merchandise, operate larger facilities and price some merchandise more competitively than we do. Customers — During 2023, the Lawson segment sold products to over 59,000 distinct customers.
During 2022, Lawson purchased products from approximately 2,400 suppliers and no single supplier accounted for more than 6% of these purchases. The loss of one core supplier could affect operations by hindering the ability to provide full service to customers. Lawson's quality control department tests its product offerings to help ensure they meet our customers' specifications.
During 2023, Lawson purchased products from approximately 2,100 suppliers and no single supplier accounted for more than 5% of these purchases. The loss of one core supplier could affect operations by hindering the ability to provide full service to customers. Lawson's quality control department tests its product offerings to help ensure they meet our customers' specifications.
Financial Statements. 6 DSG Vision and Strategic Focus The complementary distribution operations of Lawson, TestEquity and Gexpro Services were combined for the purpose of creating a specialty distribution company enabling each of Lawson, TestEquity and Gexpro Services to maintain their respective high-touch, value-added service delivery models and customer relationships in their specialty distribution businesses under the leadership of their separate business unit management.
DSG Vision and Strategic Focus The complementary distribution operations of Lawson, TestEquity and Gexpro Services were combined in 2022 for the purpose of creating a global specialty distribution company enabling each of Lawson, TestEquity and Gexpro Services to maintain their respective high-touch, value-added service delivery models and customer relationships in their specialty 7 distribution businesses under the leadership of their separate business unit management teams.
In accordance with and under the terms of the Gexpro Services Merger Agreement, at the closing of the Gexpro Services Merger, DSG: (i) issued to the Gexpro Services Stockholder 7,000,000 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.
In accordance with and under the terms of the Gexpro Services Merger Agreement, in connection with the closing of the Gexpro Services Merger on the Merger Date, DSG: (i) issued to the Gexpro Services Stockholder 14,000,000 shares of DSG common stock, (ii) on behalf of Gexpro Services, paid certain indebtedness of Gexpro Services and (iii) on behalf of Gexpro Services, paid certain specified transaction expenses of Gexpro Services.
The DSG leadership team provides oversight to the separate leadership teams of each of the operating companies. This structure enables the combined company to leverage best practices, back-office resources and technologies across the three operating companies to help drive cost synergies and efficiencies.
The DSG leadership team provides oversight to these separate leadership teams. This structure helps the combined company to leverage best practices, back-office resources and technologies across the three operating companies to help drive cost synergies and efficiencies.
Competitors of Gexpro Services include large global distributors as well as national, regional and local distributors. Customers — Gexpro Services serves almost 1,800 customers in over 38 countries through its 30 facilities. In 2022 , approximately 71% of Gexpro Services' revenues were generated in the United States.
Competitors of Gexpro Services include large global distributors as well as national, regional and local distributors. Customers — Gexpro Services serves over 1,900 customers in over 38 countries through its 30 facilities. In 2023 , approximately 69% of Gexpro Services' revenues were generated in the United States.
Gexpro Services maintains favorable and long-tenured relationships with approximately 2,700 suppliers, with the largest supplier representing approximately 2% of Gexpro Services’ total product purchases in 2022 while the top 10 suppliers represented approximately 15% of total product purchases in 2022. Human Capital Resources — Gexpro Services supports a culture of continuous improvement, integrity and diversity.
Gexpro Services maintains 12 favorable and long-tenured relationships with approximately 2,800 suppliers, with the largest supplier representing approximately 3% of Gexpro Services’ total product purchases in 2023 while the top 10 suppliers represented approximately 19% of total product purchases in 2023. Human Capital Resources — Gexpro Services supports a culture of continuous improvement, integrity and diversity.
Segments The Company’s three reportable segments are (i) Lawson, (ii) Gexpro Services and (iii) TestEquity, which align with our principle operating businesses. The following is a discussion of these reportable segments. For more information about our segments, please refer to Note 14 – Segment Information in Item 8. Financial Statements, which is incorporated herein by reference.
Segments The Company’s three reportable segments are (i) Lawson, (ii) Gexpro Services and (iii) TestEquity, which align with our principal operating businesses. The following is a discussion of these reportable segments. For more information about our segments, refer to Note 14 – Segment Information in Item 8. Financial Statements and Supplementary Data.
Gexpro Services' revenue percentages by customer end markets in 2022 were as follows: Industry Category Percentage of Gexpro Services Revenue Renewable energy 27% Transportation 19% Industrial power 17% Technology 14% Consumer and industrial 14% Aerospace and defense 9% 100% Products — Gexpro Services' revenue percentages by product categories in 2022 were as follows: Product Category Percentage of Gexpro Services Revenue Hardware 41% Fabrications 22% Electrical 21% Mechanical 16% 100% Approximately 71% of Gexpro Services’ suppliers are based in the United States, which helps limit the risk of increased freight and logistics costs; however, many of these suppliers source their products from overseas.
Gexpro Services' revenue percentages by customer end markets in 2023 were as follows: End Markets Percentage of Gexpro Services Revenue Renewable energy 29% Industrial power 22% Transportation 19% Consumer and industrial 15% Aerospace and defense 10% Technology 5% 100% Products — Gexpro Services' revenue percentages by product categories in 2023 were as follows: Product Category Percentage of Gexpro Services Revenue Hardware 46% Electrical 26% Mechanical 16% Fabrications 12% 100% Approximately 55% of Gexpro Services’ suppliers are based in the United States, which helps limit the risk of increased freight and logistics costs; however, many of these suppliers source their products from overseas.
TestEquity’s revenue percentages by product categories in 2022 were as follows: Product Category Percentage of TestEquity Revenue Test & measurement 65% Electronic production supplies 32% Proprietary products 3% 100% TestEquity has five key suppliers that made up approximately 50% of TestEquity’s purchases in 2022. In total, TestEquity purchases from approximately 1,050 suppliers across the marketplace.
TestEquity’s revenue percentages by product categories in 2023 were as follows: Product Category Percentage of TestEquity Revenue Electronic production supplies 54% Test & measurement 43% Proprietary products 3% 100% TestEquity has 34 key suppliers that made up approximately 48% of TestEquity’s purchases in 2023. In total, TestEquity purchases from approximately 1,000 suppliers across the marketplace.
For more information about the Mergers, refer to Note 3 – Business Acquisitions in Item 8.
For more information about the Mergers, refer to Note 3 – Business Acquisitions in Item 8. Financial Statements and Supplementary Data.
TestEquity's revenue percentages by customer end markets in 2022 were as follows: Industry Category Percentage of TestEquity Revenue Aerospace and defense 30% Industrial electronics and electronics manufacturing 26% Semi-conductor production 8% Wireless and communications technology 6% Education 5% Other 25% 100% 10 Products — Approximately 15,000 fast-moving products are typically held in inventory across six distribution centers available for next day delivery.
TestEquity's revenue percentages by customer end markets in 2023 were as follows: End Markets Percentage of TestEquity Revenue Industrial electronics and electronics manufacturing 46% Aerospace and defense 17% Education 4% Wireless and communications technology 4% Semi-conductor production 3% Other 26% 100% Products — Approximately 30,000 fast-moving products are typically held in inventory across forty-eight distribution centers available for next day delivery.
Gexpro Services prides itself on being a full value provider to its customers supported with a team committed to providing world-class customer service. As of December 31, 2022 , Gexpro Services' workforce was estimated to have 684 individuals, comprised of approximately 219 in sales and marketing, 401 in operation and distribution and 64 in management and administration.
Gexpro Services prides itself on being a full value provider to its customers supported with a team committed to providing world-class customer service. As of December 31, 2023 , Gexpro Services' workforce had 712 individuals, comprised of approximately 225 in sales and marketing, 417 in operation and distribution and 70 in management and administration.
As of April 1, 2022, approximately 538,000 Gexpro Services Holdback Shares were expected to be issued under the first earnout opportunity due to the consummation of the certain additional acquisitions which were completed prior to the Merger Date.
As of 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.
DSG ships from strategically located distribution and service centers to customers in North America, Europe, Asia, South America and the Middle East.
DSG ships from strategically located distribution and service centers to customers in North America, Europe, Asia, South America and the Middle East. DSG was originally incorporated in Illinois in 1952 and was reincorporated in Delaware in 1982.
As of December 31, 2022 , TestEquity's workforce was estimated to have 554 individuals, comprised of approximately 178 in sales and marketing, 285 in operation and distribution and 91 in administration and support. Gexpro Services Gexpro Services is a world-class global supply chain solutions provider, specializing in the development of mission critical production line management, aftermarket and field installation programs.
As of December 31, 2023 , TestEquity's workforce had 1,160 individuals, comprised of approximately 253 in sales and marketing, 544 in operation and distribution and 363 in administration and support. Gexpro Services Gexpro Services is a world-class global supply chain solutions provider, specializing in the development of mission critical production line management, aftermarket and field installation programs.
As of December 31, 2022 , our combined workforce included approximately 3,100 individuals, comprised of approximately 1,646 in sales and marketing, approximately 1,189 in operation and distribution and approximately 298 in management and administration. Approximately 1,720 individuals are within Lawson, 554 are within TestEquity, 684 are within Gexpro Services, with the remaining in corporate or other non-reportable segments.
As of December 31, 2023 , our combined workforce included approximately 3,700 individuals, comprised of approximately 1,662 in sales and marketing, approximately 1,465 in operation and distribution and approximately 585 in management and administration. Approximately 1,685 individuals are within Lawson, 1,160 are within TestEquity, 712 are within Gexpro Services, with the remaining in corporate or other non-reportable segments.
Gexpro Services has manufacturing and supply chain operations in over 31 Service Center sites across nine countries including key geographies in North America, South America, Asia, Europe, and the Middle East. Gexpro Services serves customers in six vertical markets, including renewables, industrial power, consumer and industrial, technology, transportation, and aerospace and defense.
Gexpro Services has manufacturing and supply chain operations in over 31 service center sites across ten countries including key geographies in North America, South America, Asia, Europe, and the Middle East.
Gexpro Services’ largest customer represented approximately 19% of Gexpro Services’ 2022 total revenue while the top 20 customers represented approximately 63% of Gexpro Services’ 2022 total revenue. Gexpro Services has existing customers in many different industry end markets.
Approximately 67% of Gexpro Services’ revenue in 2023 was from customers under long-term agreements. Gexpro Services’ largest customer represented approximately 21% of Gexpro Services’ 2023 total revenue while the top 20 customers represented approximately 75% of Gexpro Services’ 2023 total revenue. Gexpro Services has existing customers in many different industry end markets.
These products are inventoried and sourced through 31 locations in North America, South America, Asia, Europe and the Middle East. Strategic Focus — Gexpro Services intends to grow organically through market share expansion primarily through new product introduction, increased sales of products and services to existing customers and expansion of its customer base.
Strategic Focus — Gexpro Services intends to grow organically through market share expansion primarily through new product introduction, increased sales of products and services to existing customers and expansion of its customer base.
King has a career in investment management spanning over three decades and has served as Chairman or managing partner of several industrial distribution companies. Mr. King is a Principal of Luther King Capital Management Corporation (“LKCM”), an SEC-registered investment adviser, and Founder and Managing Partner of LKCM Capital Group and LKCM Headwater Investments, the private capital investment group of LKCM.
King is a Principal of Luther King Capital Management Corporation (“LKCM”), an SEC-registered investment adviser, and Founder and Managing Partner of LKCM Capital Group and LKCM Headwater Investments, the private capital investment group of LKCM. Mr.
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.
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.
Bryan King 51 2022 Chairman, President and Chief Executive Officer Ronald J. Knutson 59 2014 Executive Vice President, Chief Financial Officer and Treasurer David S. Lambert 49 2021 Vice President, Controller and Chief Accounting Officer Biographical information for the past five years relating to each of our executive officers is set forth below. Mr.
Lambert 50 2021 Vice President, Controller and Chief Accounting Officer Biographical information for the past five years relating to each of our executive officers is set forth below. Mr. King was elected President and Chief Executive Officer in May 2022. Mr.
Human Capital Resources — As of December 31, 2022 , Lawson's workforce was estimated to have 1,720 individuals: approximately 1,218 in sales and marketing of whom 1,000 are sales representatives, 386 in operation and distribution and 116 in management and administration. Approximately 11% of the Lawson workforce is covered by two collective bargaining agreements.
Human Capital Resources — As of December 31, 2023 , Lawson's workforce had 1,685 individuals: approximately 1,153 in sales and marketing of whom 870 are field sales representatives, 406 in operation and distribution and 126 in management and administration. Approximately 12% of the Lawson workforce is covered by two collective bargaining agreements.
Customers — TestEquity serves over 30,000 customers at 100,000 locations across the United States and abroad, primarily in Canada and Europe, with approximately 92% of TestEquity’s revenue in 2022 derived from customers in the United States.
Customers — TestEquity serves over 100,000 customers at 125,000 locations across the United States and abroad, primarily in Canada, Europe and Mexico with approximately 85% of TestEquity’s revenue in 2023 derived from customers in the United States. There is not significant seasonality in TestEquity’s business across its fiscal quarters.
Lawson's product training educates its sales team on the optimal uses of products, enabling them to provide the proper products and customized solutions to address customers' needs, including technical expertise and on-site problem resolution. Lawson's leadership team is also focused on reducing sales force turn-over and on offering growth opportunities for our sales representatives.
Lawson's product training educates its sales team on the optimal uses of products, enabling them to provide the proper products and customized solutions to address customers' needs, including technical expertise and on-site problem resolution. During 2023 Lawson expanded its team of inside sales representatives to support customer demand.
Through its customer base, Gexpro Services provides VMI services with over 100,000 installed bins which allow its customers to maintain the necessary on-hand inventory levels to support their production cycles.
Through its customer base, Gexpro Services provides VMI services with over 100,000 installed bins which allow its customers to maintain the necessary on-hand inventory levels to support their production cycles. Gexpro Services’ value-added processes for its customers include VMI, packaging and kitting, engineering, product standardization when appropriate, sales and technical support, global sourcing and quality assurance.
Lawson's revenue percentages by customer end markets in 2022 were as follows: Industry Category Percentage of Lawson Revenue Manufacturing 22% Automotive 18% Government and Military 14% Construction 8% Equipment rental 6% Transportation 4% Agriculture 3% Mining 3% Other 22% 100% Lawson's customers include a wide range of purchasers of industrial supply products from small repair shops to large national and governmental accounts. 8 Products — Lawson's revenue percentages by product categories in 2022 were as follows: Product Category Percentage of Lawson Revenue Fastening systems 18% Fluid power 15% Cutting tools and abrasives 13% Specialty chemicals 11% Electrical 11% Aftermarket automotive supplies 10% Safety 4% Welding and metal repair 1% Other 17% 100% Lawson offers over 117,000 different products of which over 93,000 products are maintained in distribution centers.
Lawson's revenue percentages by customer end markets in 2023 were as follows: End Markets Percentage of Lawson Revenue Manufacturing 22% Automotive 21% Government and Military 12% Construction 8% Equipment rental 6% Transportation 6% Agriculture 4% Mining 3% Other 18% 100% Lawson's customers include a wide range of purchasers of industrial supply products from small repair shops to large national and governmental accounts.
DSG is a global specialty distribution company providing value added distribution solutions to the maintenance, repair and operations ("MRO"), original equipment manufacturer ("OEM") and industrial technology markets. DSG has three principal operating companies: Lawson Products, Inc. ("Lawson"), TestEquity Acquisition, LLC ("TestEquity") and 301 HW Opus Holdings, Inc., conducting business as Gexpro Services ("Gexpro Services").
ITEM 1. BUSINESS. Overview Distribution Solutions Group, Inc., a Delaware corporation ("DSG"), is a global specialty distribution company providing value-added distribution solutions to the maintenance, repair and operations ("MRO"), original equipment manufacturer ("OEM") and industrial technology markets.
The Gexpro Services Merger Agreement provides that an additional 1,000,000 shares of DSG common stock (the “Gexpro Services Holdback Shares”) may be issued to the Gexpro Services Stockholder or forfeited in accordance with two earnout provisions of the Gexpro Services Merger Agreement.
The 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.
Completion of the Gexpro Services Merger On the Merger Date, the Gexpro Services Merger was consummated pursuant to the Gexpro Services 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.
As of December 31, 2022, an additional 462,000 Gexpro Services Holdback Shares are expected to be issued under the second earnout opportunity based on certain performance metrics as specified in the Gexpro Services Merger Agreement, and such additional shares were remeasured at fair value immediately prior to and reclassified to equity at December 31, 2022.
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.
King was elected President and Chief Executive Officer in May 2022. Mr. King has also served as a member of the Board of Directors of the Company since 2017, and has served as Chairman of the Board of Directors of the Company since March 2019. Mr.
King has also served as a member of the Board of Directors of the Company since 2017, and has served as Chairman of the Board of Directors of the Company since March 2019. Mr. King has a career in investment management spanning over three decades and has served as Chairman or managing partner of several industrial distribution companies. Mr.
Background and Operations — Gexpro Services was formed in November 2019 and, in February 2020, acquired the “Gexpro Services” business from French distributor Rexel S.A. via a carve-out acquisition. As a top distributor and service provider to the OEM market, Gexpro Services has approximately 2,700 suppliers offering approximately 60,000 products.
Gexpro Services serves customers in six vertical markets, including renewables, industrial power, consumer and industrial, technology, transportation, and aerospace and defense. 11 Background and Operations — Gexpro Services was formed in November 2019 and, in February 2020, acquired the “Gexpro Services” business from French distributor Rexel S.A. via a carve-out acquisition.
Information on our website is not incorporated by reference into this report.
Information on our website is not incorporated by reference into this report. We also make available on our website our Code of Ethics, Corporate Governance Principles and the charters of the committees of our Board of Directors.
The TestEquity Merger Agreement provides that an additional 700,000 shares of DSG common stock (the “TestEquity Holdback Shares”) may be issued to the TestEquity Equityholder or forfeited in accordance with two earnout provisions of the TestEquity Merger Agreement.
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.
TestEquity TestEquity is a leading distributor of test and measurement equipment and solutions, electronic production supplies and tool kits from its leading manufacturing partners.
Lawson's leadership team is also focused on reducing sales force turn-over and on offering growth opportunities for its sales representatives. TestEquity TestEquity is a leading 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 manufacturing partners.
We also make available on our website our Code of Ethics, Corporate Governance Principles and the charters of the committees of our Board of Directors. 12 Information About Our Executive Officers The executive officers of DSG as of February 1, 2023 were as follows: Name Age Year First Named to Present Office Position J.
Information About Our Executive Officers The executive officers of DSG as of February 1, 2024 were as follows: Name Age Year First Named to Present Office Position J. Bryan King 52 2022 Chairman, President and Chief Executive Officer Ronald J. Knutson 60 2014 Executive Vice President, Chief Financial Officer and Treasurer David S.
TestEquity has expanded its business operations in the United Kingdom and Germany through its recent acquisitions of MCS Test equipment in July 2021 and Instrumex in December 2022. There is not significant seasonality in TestEquity’s business across its fiscal quarters. However, the number of business days in a quarter has an impact on TestEquity’s revenue and profitability.
However, the number of business days in a quarter has an impact on TestEquity’s revenue and profitability.
If any Gexpro Services Holdback Shares remain after the calculation of the first earnout opportunity, there is a second earnout opportunity based on, among other factors, the increase in Gexpro Services EBITDA (as defined in the Gexpro Services Merger Agreement) in calendar year 2022 over calendar year 2021 subject to the calculations within the Gexpro Services Merger Agreement.
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.
Removed
ITEM 1. BUSINESS. Overview Distribution Solutions Group, Inc. ("DSG"), formerly Lawson Products, Inc., was incorporated in Illinois in 1952, and reincorporated in Delaware in 1982. DSG changed its corporate name from “Lawson Products, Inc.” to “Distribution Solutions Group, Inc.” on May 5, 2022.
Added
DSG has three principal operating companies: Lawson Products, Inc., an Illinois corporation ("Lawson"), TestEquity Acquisition, LLC, a Delaware limited liability company ("TestEquity"), and 301 HW Opus Holdings, Inc., a Delaware corporation conducting business as Gexpro Services ("Gexpro Services").
Removed
The amount of TestEquity Holdback Shares issuable under the first earnout opportunity is based on, among other factors, the consummation of a certain additional acquisition by TestEquity during the period beginning after December 29, 2021 and ending 90 days after the Merger Date.
Added
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.
Removed
If any TestEquity Holdback Shares remain after the calculation of the first earnout opportunity, there is a second earnout opportunity based on, among other factors, the increase in TestEquity EBITDA (as defined in the TestEquity Merger Agreement) in calendar year 2022 over calendar year 2021 subject to the calculations within the TestEquity Merger Agreement.
Added
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.
Removed
As of December 31, 2022, 700,000 TestEquity Holdback Shares are expected to be issued under the first earnout opportunity due to the consummation of the certain additional acquisition as referenced in the TestEquity Merger Agreement and were remeasured at fair value immediately prior to and reclassified to equity at April 29, 2022 when the additional acquisition was consummated.
Added
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.
Removed
Final issuance of the Test Equity Holdback Shares under the earnout opportunity is subject to customary terms and conditions as specified in the Test Equity Merger Agreement. Refer to Note 8 – Earnout Derivative Liability in Item 8. Financial Statements, for information about the earnout derivative liability related to the TestEquity Holdback Shares.
Added
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.
Removed
The amount of Gexpro Services Holdback Shares issuable under the first earnout opportunity is based on, among other factors, the consummation of one or more of three certain additional acquisitions by Gexpro Services during the period beginning after December 29, 2021 and ending 90 days after the Merger Date.
Added
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.
Removed
Final issuance of the Gexpro Services Holdback Shares under the earnout opportunities is subject to customary terms and conditions as specified in the Gexpro Services Merger Agreement. Refer to Note 8 – Earnout Derivative Liability in Item 8. Financial Statements, for information about the earnout derivative liability related to the Gexpro Services Holdback Shares.
Added
Recent Events 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.
Removed
Recent Other Acquisitions — During 2022, other businesses were acquired as part of the growth strategy. TestEquity acquired Interworld Highway, LLC for $54.7 million, National Test Equipment for $7.2 million, and Instrumex for $3.9 million. Gexpro Services acquired Resolux ApS ("Resolux") for $30.8 million and Frontier Technologies Brewton, LLC and Frontier Engineering and Manufacturing Technologies, Inc. ("Frontier") for $25.7 million.
Added
The additional shares were 6 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.
Removed
The consideration exchanged for these acquired businesses included various combinations of cash, sellers notes, and forms of share based payments. For more information about these acquisitions, refer to the "Other Acquisitions" section of Note 3 – Business Acquisitions in Item 8. Financial Statements.
Added
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. HIS Company, Inc.
Removed
TestEquity offers over 250,000 products and 700 manufacturer brands with overlap across the following brands.
Added
Acquisition On March 30, 2023, DSG entered into a Stock Purchase Agreement (the “Purchase Agreement”), with various parties for the acquisition of 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. DSG completed the Hisco Transaction on June 8, 2023.
Removed
During the third quarter of 2022, the final stage of moving Techni-Tool and Jensen Tools to the TestEquity platform was completed. Customers for each of these brands now have full access to the 250,000 active products across TestEquity group.
Added
The total purchase consideration exchanged for the Hisco Transaction was $267.3 million, net of cash acquired of $12.2 million, at closing, with a potential additional earn-out payment subject to Hisco achieving certain performance targets.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

57 edited+16 added−14 removed69 unchanged
Biggest changeManagement has identified the steps necessary to remediate the material weakness, however, the material weakness has not been remediated as of December 31, 2022. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we are required to furnish a report by our management on our internal control over financial reporting.
Biggest changePursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and applicable SEC rules, we are required to include in each Annual Report on Form 10-K a report by our management on our internal control over financial reporting. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management.
Our indebtedness could have significant consequences on our future operations, including: • events of default if we fail to comply with the financial and other covenants contained in the Amended and Restated Credit Agreement and/or other agreements governing our debt instruments, which could result in all of the debt becoming immediately due and payable or require us to negotiate an amendment to financial or other covenants that could cause us to incur additional fees and expenses; • reducing the availability of our cash flow to fund working capital, capital expenditures, investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes; • limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate, and the overall economy; • limiting our ability to buy back common stock or pay dividends; • placing us at a competitive disadvantage compared to any of our competitors that have less debt or are less leveraged; and • increasing our vulnerability to the impact of adverse economic and industry conditions.
Our indebtedness could have significant consequences on our future operations, including: • events of default if we fail to comply with the financial and other covenants contained in the 2023 Amended Credit Agreement and/or other agreements governing our debt instruments, which could result in all of the debt becoming immediately due and payable or require us to negotiate an amendment to financial or other covenants that could cause us to incur additional fees and expenses; • reducing the availability of our cash flow to fund working capital, capital expenditures, investments, acquisitions and other general corporate purposes, and limiting our ability to obtain additional financing for these purposes; • limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate, and the overall economy; • limiting our ability to buy back common stock or pay dividends; • placing us at a competitive disadvantage compared to any of our competitors that have less debt or are less leveraged; and • increasing our vulnerability to the impact of adverse economic and industry conditions.
While we have instituted various price increases during 2022 in response to rising supplier costs, as well as increased transportation and labor costs, there can be no assurance that future cost increases can be partially or fully passed on to customers, or that the timing of such sales price increases will match our supplier cost increases.
While we instituted various price increases during 2022 and 2023 in response to rising supplier costs, as well as increased transportation and labor costs, there can be no assurance that future cost increases can be partially or fully passed on to customers, or that the timing of such sales price increases will match our supplier cost increases.
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 information about our employees and other persons and entities.
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.
Failure to adequately fund our operating and working capital needs through cash generated from operations and borrowings available under our Amended and Restated Credit Agreement could negatively impact our ability to invest in our business and maintain our capital structure. Our business requires investment in working capital and fixed assets.
Failure to adequately fund our operating and working capital needs through cash generated from operations and borrowings available under our 2023 Amended Credit Agreement could negatively impact our ability to invest in our business and maintain our capital structure. Our business requires investment in working capital and fixed assets.
We expect to fund these investments from cash generated from operations and borrowings available under our Amended and Restated Credit Agreement. Failure to generate sufficient cash flow from operations or from our Amended and Restated Credit Agreement could cause us to have insufficient funds to operate our business.
We expect to fund these investments from cash generated from operations and borrowings available under our 2023 Amended Credit Agreement. Failure to generate sufficient cash flow from operations or from our 2023 Amended Credit Agreement could cause us to have insufficient funds to operate our business.
Any borrowings in Canadian dollars or any other foreign currency would expose us to market risk relating to the change in the value of such foreign currency in relation to the U.S. dollar. 22 ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
Any borrowings in Canadian dollars or any other foreign currency would expose us to market risk relating to the change in the value of such foreign currency in relation to the U.S. dollar. 23 ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
The U.S., U.K. and other foreign agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against companies for violations of export controls, the 19 Table of Contents FCPA, the UKBA, and other laws, rules, sanctions, embargoes and regulations, including those established by the Office of Foreign Assets Control.
The U.S., U.K. and other foreign agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against companies for violations of export controls, the FCPA, the UKBA, and other laws, rules, sanctions, embargoes and regulations, including those established by the Office of Foreign Assets Control.
Contractions in the credit markets may also cause some of our customers to experience difficulties in obtaining financing, leading to lower sales, delays in the collection of receivables and result in an increase in bad debt expense. 21 Table of Contents Adverse economic conditions could also affect our key suppliers and contractors.
Contractions in the credit markets may also cause some of our customers to experience difficulties in obtaining financing, leading to lower sales, delays in the collection of receivables and result in an increase in bad debt expense. Adverse economic conditions could also affect our key suppliers and contractors.
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.
Disruptions in the operation of our information and 14 Table of Contents 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.
In addition, we may be able to incur a significant amount of additional indebtedness, subject to the terms and restrictions of our Amended and Restated Credit Agreement.
In addition, we may be able to incur a significant amount of additional indebtedness, subject to the terms and restrictions of our 2023 Amended Credit Agreement.
If we require more liquidity than is available to us under our Amended and Restated Credit Agreement, we may need to raise additional funds through debt or equity offerings which may not be available when needed or may not be available on terms favorable to us.
If we require more liquidity than is available to us under our 2023 Amended Credit Agreement, we may need to raise additional funds through debt or equity offerings which may not be available when needed or may not be available on terms favorable to us.
Our competitors include large and small companies with similar or greater market presence, name recognition, and financial, marketing, and other resources. We believe the competition will continue to challenge our business with their product selection, financial resources and services. We may be required to recognize impairment charges for goodwill and other intangible assets.
Our competitors include large and small companies with similar or greater market presence, name recognition, and financial, marketing, and other resources. We believe the competition will continue to challenge our business with their product selection, financial resources and services. 16 Table of Contents We may be required to recognize impairment charges for goodwill and other intangible assets.
Any charges 16 Table of Contents relating to such impairments could materially and adversely affect our results of operations in the periods recognized, which could result in an adverse effect on the market price of DSG common stock.
Any charges relating to such impairments could materially and adversely affect our results of operations in the periods recognized, which could result in an adverse effect on the market price of DSG common stock.
Any decrease in the levels of defense and other governmental spending or the introduction of more stringent governmental regulations and oversight, arising from the ongoing conflict in Ukraine or otherwise, could lead to reduced revenue or an increase in compliance costs which would adversely affect our business, financial condition and results of operations.
Any decrease in the levels of defense and other governmental spending or the introduction of more stringent governmental regulations and oversight, arising from these ongoing conflicts or otherwise, could lead to reduced revenue or an increase in compliance costs which would adversely affect our business, financial condition and results of operations.
In addition, operating in foreign countries requires us to manage the potential conflicts between locally accepted business practices in any given jurisdiction and our obligations to comply with laws and regulations with respect to such jurisdictions, including anti-corruption laws or regulations applicable to DSG, such as the U.S.
In addition, operating in foreign countries requires us to manage the potential conflicts between locally accepted business practices in any given jurisdiction and our obligations to comply with laws and 20 Table of Contents regulations with respect to such jurisdictions, including anti-corruption laws or regulations applicable to DSG, such as the U.S.
TestEquity relies on a single supplier for a significant amount of its product inventory, including electronic test and measurement equipment. During 2022 and 2021, the aggregate dollar amount of TestEquity’s purchases from that supplier represented approximately 25% and 41%, respectively, of the aggregate dollar amount of TestEquity’s purchases of product inventory from all of TestEquity’s suppliers during such periods.
TestEquity relies on a single supplier for a significant amount of its product inventory, including electronic test and measurement equipment. During 2023 and 2022, the aggregate dollar amount of TestEquity’s purchases from that supplier represented approximately 11% and 25%, respectively, of the aggregate dollar amount of TestEquity’s purchases of product inventory from all of TestEquity’s suppliers during such periods.
TestEquity’s and Gexpro Services’ international operations subject us to new and 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 and China. Lawson has business operations in Canada.
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 and China. Lawson has business operations in Canada.
Adequate funds may not be available when needed or may not be available on favorable terms. 17 Table of Contents Our business, financial condition and operating results could be materially adversely affected if we failed to meet the covenant requirements of our Amended and Restated Credit Agreement. Our Amended and Restated Credit Agreement contains financial and other restrictive covenants.
Adequate funds may not be available when needed or may not be available on favorable terms. Our business, financial condition and operating results could be materially adversely affected if we failed to meet the covenant requirements of our 2023 Amended Credit Agreement. Our 2023 Amended Credit Agreement contains financial and other restrictive covenants.
We are required to evaluate our internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results 20 Table of Contents from such evaluation could result in a loss of investor confidence in our financial reports and could have an adverse effect on our stock price.
We are required to evaluate our internal controls over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 and any adverse results from such evaluation, and any failure to maintain effective internal controls over financial reporting, could result in a loss of investor confidence in our financial reports and could have an adverse effect on our stock price.
These covenants could adversely affect us by limiting our financial and operating flexibility as well as our ability to plan for and react to market conditions and to meet our capital needs.
These covenants could 18 Table of Contents adversely affect us by limiting our financial and operating flexibility as well as our ability to plan for and react to market conditions and to meet our capital needs.
Because of the nature of the information that may have been compromised, 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.
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.
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. Such attacks or incidents could have a material adverse effect on our operating results and financial condition, subject us to additional legal costs and damage our reputation in the marketplace.
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. 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, in February 2022, DSG became aware that its computer network was the subject of a cyber incident potentially involving unlawful access.
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”).
In addition, as a result of this concentrated ownership interest of DSG common stock, DSG believes that it qualifies as a “controlled company.” Under NASDAQ Listing Rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and, accordingly, DSG believes that, if it so desired, it would be generally exempt from the requirements of Rule 5605(b), (d) and (e) of the Nasdaq Listing Rules that among other things would otherwise require DSG to have: • a majority of the DSG board of directors comprised of independent directors; • a compensation committee comprised solely of independent directors; and • 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. 18 Table of Contents Completion of the Mergers resulted in the issuance of a significant number of shares of DSG common stock, and may result in the issuance of a significant number of additional shares of DSG common stock, which could have a negative effect on the price of DSG common stock.
In addition, as a result of this concentrated ownership interest of DSG common stock, DSG believes that it qualifies as a “controlled company.” Under Nasdaq Listing Rules, a listed company of which more than 50% of the voting power is held by an individual, group or another company is a “controlled company” and, accordingly, DSG believes that, if it so desired, it would be generally exempt from the requirements of Rule 5605(b), (d) and (e) of the Nasdaq Listing Rules that among other things would otherwise require DSG to have: • a majority of the DSG Board of Directors comprised of independent directors; • a compensation committee comprised solely of independent directors; and • 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. 19 Table of Contents 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.
Cyber-attacks or other information security incidents could have a material adverse effect on our business, operating results and financial condition, subject us to additional legal costs and damage our reputation in the marketplace. We are increasingly dependent on digital technology to process and record financial and operating data and communicate with our employees and business partners.
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.
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 $417.1 million of indebtedness as of December 31, 2022, which includes a significant amount of indebtedness under our Amended and Restated Credit Agreement (as defined herein).
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 $574.7 million of indebtedness as of December 31, 2023, which includes a significant amount of indebtedness under our 2023 Amended Credit Agreement (as defined herein).
Changes that affect governmental and other tax-supported entities, including but not limited to changes arising from the ongoing conflict in Ukraine, could negatively impact our revenue and earnings. A portion of our revenue is derived from the United States military and other governmental and tax-supported entities.
Changes that affect governmental and other tax-supported entities, including but not limited to changes arising from geopolitical instability and military hostilities, could negatively impact our revenue and earnings. A portion of our revenue is derived from the United States military and other governmental and tax-supported entities.
Despite our efforts to protect such information, cyber incidents or misplaced or lost data could have a materially adverse impact on our business, and may divert management and employee attention from other business and growth initiatives.
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.
In ac cordance with GAAP, our management periodically assesses our goodwill and other intangible assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, an inability to effectively integrate acquired businesses, unexpected significant changes, planned changes in use of the assets, divestitures and market capitalization declines may impair goodwill and other intangible assets.
Significant negative industry or economic trends, disruptions to our business, an inability to effectively integrate acquired businesses, unexpected significant changes, planned changes in use of the assets, divestitures and market capitalization declines may impair goodwill and other intangible assets.
Although we have not, do not currently and do not plan to conduct business operations in Russia, Belarus, or Ukraine, it is not possible to predict the broader consequences of this ongoing conflict, which could include further sanctions, embargoes, increases or decreases in military spending or other geopolitical instability.
In addition, geopolitical instability and military hostilities, such as the current 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 ongoing conflicts, which could include sanctions, embargoes, increases or decreases in military spending or other geopolitical instability.
We have committed to a plan to increase the size of our sales force. A successful expansion in our sales force requires us to identify under-served territories that offer the greatest potential growth opportunity, locate and recruit talented sales representatives, provide them with the proper training, and successfully integrate them into our organization.
A successful expansion in our sales force requires us to identify under-served territories that offer the greatest potential growth opportunity, locate and recruit talented sales representatives, provide them with the proper training, and successfully integrate them into our organization. This expansion will require significant investment in capital and resources.
It is also critical to retain the experienced and productive sales representatives that have historically contributed to the successes of our businesses. Failure to retain a sufficient number of talented, experienced and productive sales representatives could adversely affect our business, financial condition and results of operations.
The failure to identify the optimal sales territories, recruit and retain quality sales representatives and provide them with sufficient support could adversely affect our business, financial condition and results of operations. It is also critical to retain the experienced and productive sales representatives that have historically contributed to the successes of our 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 legacy business operations.
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 legacy business operations.
We and our independent auditors may in the future discover areas of our internal controls that need further attention and improvement, particularly with respect to any other businesses that we decide to acquire in the future.
We and our independent auditors may in the future discover areas of our internal controls that need further attention and improvement, particularly with respect to any other businesses that we decide to acquire in the future. One of our growth strategies is to actively pursue additional acquisition opportunities which complement our business model.
At December 31, 2022 , the Company had $24.2 million of U.S. federal net operating loss carryforwards which are subject to expiration beginning in 2026 and $28.7 million of various state net operating loss carryforwards which expire at varying dates between 2023 and 2034.
At December 31, 2023 , the Company had $21.4 million of U.S. federal net operating loss carryforwards which are subject to expiration beginning in 2027 and $53.5 million of various state net operating loss carryforwards which expire at varying dates between 2024 and 2035.
As a result of the closing of the Mergers on April 1, 2022 , we have an amount of goodwill and other intangible assets on our balance sheet that is significantly greater than the amount of goodwill and other intangible assets on our December 31, 2021 consolidated balance sheet.
As a result of the closing of the Mergers on April 1, 2022 and other acquisitions completed during 2023 and 2022 , we have a significant amount of goodwill and other intangible assets on our consolidated balance sheet as of December 31, 2023.
There may be difficulties in integrating certain operations of TestEquity’s and Gexpro Services’ respective businesses with our legacy 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. 15 Table of Contents The Mergers involve the combination of businesses that previously operated as independent businesses.
Failure to retain a sufficient number of talented, experienced and productive sales representatives could adversely affect our business, financial condition and results of operations. 15 Table of Contents There may be difficulties in integrating certain operations of TestEquity’s and Gexpro Services’ respective businesses with our legacy 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.
Public Health Emergencies Risks Public health emergencies, whether domestic or international, such as the COVID-19 pandemic, may materially adversely affect our business, financial condition and results of operations. Pandemics, epidemics or disease outbreaks in the U.S. or globally may have a material adverse effect on our business, employees, suppliers, customers, and the general economy.
Pandemics, epidemics or disease outbreaks in the U.S. or globally, including new variants of COVID-19, may have a material adverse effect on our business strategy, financial condition or results of operations, as well as on our employees, suppliers, customers, and the general economy.
In addition, in accordance with the Merger Agreements, DSG granted to certain entities affiliated with LKCM certain registration rights with respect to the shares of DSG common stock that DSG has issued, and would be required to issue, in connection with the Mergers.
Entities affiliated with LKCM beneficially own a significant number of shares of DSG common stock. In accordance with the Merger Agreements, DSG granted to certain entities affiliated with LKCM certain registration rights with respect to the shares of DSG common stock that DSG issued to those entities in connection with the Mergers.
Our product offerings include a wide variety of industrial chemicals and other products which are subject to a multitude of federal, state and local regulations. These environmental protection laws change frequently and affect the composition, handling, transportation, storage and disposal of these products. Failure to comply with these regulations could lead to severe penalties and fines for each violation.
These environmental protection laws change frequently and affect the composition, handling, transportation, storage and disposal of these products. Failure to comply with these regulations could lead to severe penalties and fines for each violation.
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, and Turkish lira) relative to the U.S. dollar that could adversely affect our financial condition and operating results.
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, and Turkish lira) relative to the U.S. dollar that could adversely affect our financial condition and operating results. 22 Table of Contents In addition, t he revolving credit facility under our 2023 Amended Credit Agreement is available to be drawn in U.S. dollars, Canadian dollars and any other additional currencies that may be agreed between us and our lenders.
Based on a Schedule 13D filed with the SEC by LKCM and various other persons and entities (as amended through June 17, 2022), entities affiliated with LKCM beneficially owned in the aggregate approximately 14.6 million shares of DSG common stock as of June 15, 2022, representing approximately 75% of the outstanding shares of DSG common stock as of February 28, 2023.
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 77.8% of the outstanding shares of DSG common stock as of December 31, 2023.
Such sanctions to date 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 Russia and Belarus.
These entities are largely dependent upon government budgets and require adherence to certain laws and regulations, including sanctions. 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.
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.
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.
This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. Each year, we must prepare or update the process documentation and perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act of 2002.
Each year, we must prepare or update the process documentation and perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and applicable SEC rules in providing this report.
During this process, if our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert such internal control is effective. 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.
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.
Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. Investor perception that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely, consistent basis may adversely affect our stock price.
Any failure to maintain effective internal controls over financial reporting, or any investor perception that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely, consistent basis, may result in a loss of investor confidence in our financial reports and may adversely affect our stock price.
Our results of operations could be affected by changes in taxation. Our results of operations could be affected by changes in tax rates, audits by taxing authorities or changes in laws, regulations and their interpretation. 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.
Our results of operations could be adversely affected by changes in the Company’s effective tax rate as a result of changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets, audits by taxing authorities or changes in tax laws, regulations and their interpretation.
If there are limitations in TestEquity’s or Gexpro Services’ financial organization, reporting and controls, or if we are unable to effectively integrate their financial reporting processes with our financial reporting processes, we could have, among other things, 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.
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 have, among other things, 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. 17 Table of Contents 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.
The inability to successfully integrate additional acquisitions into our organization could adversely affect our operations and operating results. One of our growth strategies is to actively pursue additional acquisition opportunities which complement our business model.
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.
Further, an information privacy or security incident could result in legal or reputational risks and could have a materially adverse impact on our business, financial condition and results of operations. The inability to successfully recruit, integrate and retain productive sales representatives could adversely affect our business, financial condition and operating results.
The inability to successfully recruit, integrate and retain productive sales representatives could adversely affect our business, financial condition and operating results. We have committed to a plan to increase the size of our sales force.
J. Bryan King, Chairman and Chief Executive Officer of the Company, is a Principal 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, 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.
Failure to comply with Section 404 of the Sarbanes-Oxley Act of 2002 could also potentially subject us to sanctions or investigations by the SEC, NASDAQ or other regulatory authorities. General Risks Our results of operations may be adversely impacted by a downturn in the economy or in certain sectors of the economy.
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 cost of implementing this type of financial organization, reporting and controls in respect of TestEquity and Gexpro Services and integrating their financial reporting processes with our financial reporting processes may be significant.
These acquired businesses are typically private companies and may not have in place the financial organization, reporting and controls which are required for a U.S. public company. 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.
Any sales of those shares, or the anticipation of the possibility of such sales, could create downward pressure on the market price of DSG common stock. Legal and Regulatory Risks A violation of federal, state or local environmental protection regulations could lead to significant penalties and fines or other remediation costs.
Legal and Regulatory Risks A violation of federal, state or local environmental protection regulations could lead to significant penalties and fines or other remediation costs. Our product offerings include a wide variety of industrial chemicals and other products which are subject to a multitude of federal, state and local regulations.
Financial Statements, for a description of certain of our pending legal proceedings relating to the Mergers, which are incorporated herein by reference. TestEquity and Gexpro Services were private companies before the Mergers and may not have had in place the financial organization, reporting and internal controls necessary for a public company.
Financial Statements and Supplementary Data, for a description of certain of our pending legal proceedings relating to the Mergers, which are incorporated herein by reference. 21 Table of Contents General Risks Our results of operations may be adversely impacted by a downturn in the economy or in certain sectors of the economy.
Removed
For example, in 2022, our adjusted gross profit was negatively impacted by an inventory charge of $1.7 million to reduce inventory related to discontinued products where the anticipated net realizable value was lower than the cost reflected in our records.
Added
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.
Removed
Disruptions in the operation of information and communication systems can occur due to a variety of factors including power 14 Table of Contents outages, hardware failure, programming faults and human error.
Added
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.
Removed
This expansion will require significant investment in capital and resources. The failure to identify the optimal sales territories, recruit and retain quality sales representatives and provide them with sufficient support could adversely affect our business, financial condition and results of operations.
Added
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.
Removed
These entities are largely dependent upon government budgets and require adherence to certain laws and regulations, including sanctions. In February 2022, armed conflict escalated between Russia and Ukraine and resulted in sanctions against Russia and Belarus by the U.S. and other countries.
Added
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.
Removed
We issued an aggregate of 10.3 million shares of DSG common stock on April 1, 2022 in connection with the closing of the Mergers. In addition, we could be obligated to issue up to an aggregate of 1.7 million additional shares of DSG common stock in accordance with the earnout provisions of the Merger Agreements.
Added
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.
Removed
As of February 28, 2023, approximately 1.7 million additional shares of DSG common stock are expected to be issued to entities affiliated with LKCM in accordance with, and subject to customary terms and conditions of, the earnout provisions of the Merger Agreements.
Added
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.
Removed
The issuance of such a significant number of shares of DSG common stock could have a negative effect on the market price of DSG common stock.
Added
Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.
Removed
As a result of the completion of the Mergers, we are subject to a wider array of foreign legal and regulatory regimes (including tax regimes) than what we were subject to prior to the completion of the Mergers.
Added
J. Bryan King, Chairman and Chief Executive Officer of the Company, is a Principal of LKCM. In addition, M.
Removed
TestEquity and Gexpro Services were private companies before the Mergers and may not have had in place the financial organization, reporting and controls which are required for a U.S. public company.
Added
Any sales of any of the shares of DSG common stock held by any entities affiliated with LKCM (whether those shares were acquired by those entities in connection with the Mergers or in other transactions), or the anticipation of the possibility of any such sales, could create downward pressure on the market price of DSG common stock.
Removed
As a result of our expanding business operations, primarily related to our merger in April 2022, we have experienced an increase in complex and non-routine accounting transactions and control activities necessary to properly present consolidated results. Specifically, in our TestEquity operating segment, we did not have sufficient technical accounting resources and personnel (i) to help ensure proper application of U.S.
Added
Our results of operations could be affected by changes in taxation. We are subject to income taxation at federal and state levels in the United States and to income taxation in numerous non-U.S. jurisdictions.
Removed
GAAP in the accounting for certain areas primarily related to accounting for business acquisitions and the disposal of rental equipment, or (ii) to effectively design and execute our process level controls around (a) revenue recognition, (b) account reconciliations, (c) accounting policies, and (d) proper segregation of duties.
Added
From time-to-time changes in tax laws or regulations may be proposed or enacted that could adversely affect our overall tax liability.
Removed
Although these control deficiencies did not result in any material misstatement of our consolidated financial statements, it could lead to a material misstatement of account balances or disclosures. Accordingly, management has concluded that these control deficiencies constitute a material weakness at December 31, 2022.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES. Our principal executive office is located in Chicago, Illinois under a lease expiring in March 2026. As of December 31, 2022, we owned or leased multiple properties in the United States and abroad, including office spaces, distribution centers, warehouses and branch retail locations.
Biggest changeITEM 2. PROPERTIES. Our principal executive office is located in Fort Worth, Texas. As of December 31, 2023, we owned or leased multiple properties in the United States and abroad, including office spaces, distribution centers, warehouses and branch retail locations. Owned and leased properties by reportable segment as of December 31, 2023 are summarized below.
In addition, the Company is involved in legal actions that arise in the ordinary course of business. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 23 Table of Contents PART II
In addition, the Company is involved in legal actions that arise in the ordinary course of business. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 25 Table of Contents PART II
Number of Properties Lawson TestEquity Gexpro Services All Other (1) Offices 2 4 3 — Distribution centers/warehouses 6 8 28 — Branch locations — — — 14 Other (2) 1 — — — Total 9 12 31 14 (1) Properties used by the Bolt Supply House ("Bolt"), a non-reportable segment .
Number of Properties Lawson TestEquity Gexpro Services All Other (1) Offices 1 7 3 1 Distribution centers/warehouses 6 48 28 1 Branch locations — — — 14 Other (2) 1 — — — Total 8 55 31 16 (1) Includes our principal executive office and properties used by the Bolt Supply House ("Bolt"), a non-reportable segment .
Removed
Owned and leased properties by reportable segment as of December 31, 2022 are summarized below.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRepurchases of Equity Securities In the second quarter of 2019, the Board of Directors authorized a program pursuant to which the Company was authorized to repurchase up to $7.5 million of DSG common stock from time to time in open market transactio ns, privately negotiated transactions or by other methods.
Biggest changeSecurity Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, of this report which is hereby incorporated by reference. Repurchases of Equity Securities The Board of Directors previously authorized a stock repurchase program that permits the Company to repurchase DSG common stock from time to time in open market transactio ns, privately negotiated transactions or by other methods.
The following table summarizes repurchases of DSG common stock for the three months ended December 31, 2022 under the repurchase program described above and excludes shares withheld from employees to satisfy tax withholding requirements on option exercises and other equity-based transactions.
The following table summarizes repurchases of DSG common stock for the three months ended December 31, 2023 under the repurchase program described above and excludes shares withheld from employees to satisfy tax withholding requirements on option exercises and other equity-based transactions.
We did not declare or pay dividends in either 2022 or 2021 and the Company currently has no plans to declare or pay dividends in the foreseeable future. Dividends are subject to certain restrictions based on terms detailed in our Amended and Restated Credit Agreement. Information about our equity compensation plans may be found in Item 12.
We did not declare or pay dividends in either 2023 or 2022 and the Company currently has no plans to declare or pay dividends in the foreseeable future. Dividends are subject to certain restrictions based on terms detailed in our 2023 Amended Credit Agreement. Information about our equity compensation plans may be found in Item 12.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Stock Price Data The Company’s common stock is traded on the Nasdaq Global Select Market under the symbol of “DSGR”. On February 28, 2023, the closing sales price of our common stock was $44.41 and the number of stockholders of record was 275.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Stock Price Data The DSG common stock is traded on the Nasdaq Global Select Market under the symbol of DSGR. On February 29, 2024, the closing sales price of our common stock was $31.41 and the number of stockholders of record was 281.
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs October 1 through October 31, 2022 — $ — — $ 7,572,000 November 1 through November 30, 2022 — — — 7,572,000 December 1 through December 31, 2022 — — — 7,572,000 Total — — ITEM 6. [RESERVED] 24
Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs October 1 through October 31, 2023 — $ — — $ 7,572,000 November 1 through November 30, 2023 116,430 26.03 116,430 4,541,000 December 1 through December 31, 2023 22,295 26.37 22,295 28,953,000 Total 138,725 138,725 ITEM 6. [RESERVED] 26
On November 2, 2022, the Board of Directors increased the repurchase program from $7.5 million to $12.5 million. We had $7.6 million of remaining availability under the stock repurchase program as of December 31, 2022.
I n December 2023 the Board of Directors increased the repurchase program by $25.0 million, bringing the total authorized to $37.5 million. We had $29.0 million of remaining availability under the stock repurchase program as of December 31, 2023. T he stock repurchase program does not have an expiration date.
Removed
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters, of this report which is hereby incorporated by reference.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table provides our calculation of Adjusted EBITDA for the year ended December 31, 2022 and 2021: Reconciliation of Operating Income to Non-GAAP Adjusted EBITDA (Unaudited) Year Ended December 31 (in thousands) 2022 (8) 2021 Operating income (loss) $ 41,786 $ 11,421 Depreciation and amortization 45,186 18,683 Stock-based compensation (1) 2,448 — Severance costs (2) 2,796 50 Merger/integration costs (3) 12,659 2,435 Inventory net realizable value adjustment (4) 1,737 — Inventory step-up (5) 2,867 212 Acquisition related costs (6) 2,782 6,373 Other non-recurring (7) 1,597 243 Adjusted EBITDA $ 113,858 $ 39,417 (1) Expense primarily for stock-based compensation, of which a portion varies with the Company’s stock price.
Biggest changeReconciliation of Net Income (Loss) to Non-GAAP Adjusted EBITDA (Unaudited) Year Ended December 31, 2023 (in thousands) Lawson TestEquity Gexpro Services All Other Consolidated Net income (loss) $ (8,967) Income tax expense (benefit) 6,960 Other income (expense), net 2,982 Change in fair value of earnout liabilities (758) Interest expense 42,774 Operating income (loss) $ 32,498 $ (16,465) $ 27,000 $ (42) $ 42,991 Depreciation and amortization 19,532 26,002 15,986 2,068 63,588 Stock-based compensation (1) 7,940 — — — 7,940 Severance and acquisition related retention expenses (2) 476 23,949 238 3 24,666 Merger and acquisition related costs (3) 3,015 6,215 1,081 1,250 11,561 Inventory step-up (5) — 3,582 — — 3,582 Other non-recurring (6) 202 — 886 1,620 2,708 Adjusted EBITDA $ 63,663 $ 43,283 $ 45,191 $ 4,899 $ 157,036 30 Year Ended December 31, 2022 (in thousands) Lawson (7) TestEquity Gexpro Services All Other (7) Consolidated Net income (loss) $ 7,406 Income tax expense (benefit) 5,531 Other income (expense), net 670 Change in fair value of earnout liabilities 483 Loss on extinguishment of debt 3,395 Interest expense 24,301 Operating income (loss) $ 6,536 $ 11,375 $ 21,291 $ 2,584 $ 41,786 Depreciation and amortization 10,594 17,480 15,175 1,937 45,186 Stock-based compensation (1) 2,448 — — — 2,448 Severance and acquisition related retention expenses (2) 1,429 1,095 266 6 2,796 Merger and acquisition related costs (3) 4,698 4,786 5,957 — 15,441 Inventory net realizable value adjustment (4) 1,737 — — — 1,737 Inventory step-up (5) 1,943 — 163 761 2,867 Other non-recurring (6) 1,199 — 354 44 1,597 Adjusted EBITDA $ 30,584 $ 34,736 $ 43,206 $ 5,332 $ 113,858 (1) Expense (benefit) primarily for stock-based compensation, of which a portion varies with the Company’s stock price.
Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain infrequently 26 occurring, seasonal or non-operational items that impact the overall comparability.
Management believes that these non-GAAP financial measures can provide additional meaningful reflection of underlying trends of the business because they provide a comparison of historical information that excludes certain infrequently occurring, seasonal or non-operational items that impact the overall comparability.
The following discussion and analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included in this Annual Report on Form 10-K, the Lawson Products, Inc. audited consolidated financial statements and accompanying notes included in DSG's Annual Report on Form 10-K filed for the year ended December 31, 2021 and the Lawson Products, Inc. unaudited condensed consolidated financial statements and accompanying notes included in DSG’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.
The following discussion and analysis of DSG's financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included in this Annual Report on Form 10-K, the audited consolidated financial statements and accompanying notes included in DSG's Annual Report on Form 10-K filed for the year ended December 31, 2022 and the Lawson Products, Inc. unaudited condensed consolidated financial statements and accompanying notes included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.
References to “DSG”, the “Company”, "we", "our" or "us" refer to Distribution Solutions Group, Inc. and all entities consolidated in the accompanying consolidated financial statements. Overview DSG is a multi-platform specialty distribution company providing high touch, value-added distribution solutions to the maintenance, repair & operations (“MRO”), the original equipment manufacturer (“OEM”) and the industrial technologies markets.
References to “DSG”, the “Company”, "we", "our" or "us" refer to Distribution Solutions Group, Inc. and all entities consolidated in the accompanying consolidated financial statements. Overview Organization and Structure DSG is a multi-platform specialty distribution company providing high touch, value-added distribution solutions to the maintenance, repair and operations (“MRO”), the original equipment manufacturer (“OEM”) and the industrial technologies markets.
Financial Statements. We manage and report our operating results through three reportable segments: Lawson, TestEquity and Gexpro Services. A summary of our segments is presented below. For additional details about our segments, see Item 1. Business and Note 14 – Segment Information in Item 8. Financial Statements.
We manage and report our operating results through three reportable segments: Lawson, TestEquity and Gexpro Services. A summary of our segments is presented below. For additional details about our segments, see Item 1. Business and Note 14 – Segment Information in Item 8. Financial Statements and Supplementary Data.
While we were in compliance with our financial covenants as of December 31, 2022, failure to meet the covenant requirements of the Amended and Restated Credit Agreement in future quarters could lead to higher financing costs and increased restrictions, reduce or eliminate our ability to borrow funds, or accelerate the payment of our indebtedness and could have a material adverse effect on our business, financial condition and results of operations.
While we were in compliance with our financial covenants as of December 31, 2023, failure to meet the covenant requirements of the 2023 Amended Credit Agreement in future quarters could lead to higher financing costs and increased restrictions, reduce or eliminate our ability to borrow funds, or accelerate the payment of our indebtedness and could have a material adverse effect on our business, financial condition and results of operations.
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.
This determination was primarily made as TestEquity and Gexpro Services were under the common control of an entity that owned a majority of the voting rights of the combined entity, and therefore, only DSG experienced a change in control.
Management uses operating income and Adjusted EBITDA to evaluate the performance of its reportable segments. See Note 14 – Segment Information of our consolidated financial statements within Item 8. Financial Statements for additional information about our reportable segments.
Management uses operating income and Adjusted EBITDA to evaluate the performance of its reportable segments. See Note 14 – Segment Information of our consolidated financial statements within Item 8. Financial Statements and Supplementary Data for additional information about our reportable segments.
The Company believes its current balances of cash and cash equivalents, availability under its Amended and Restated Credit Agreement and cash flows from operations will be sufficient to meet its liquidity needs for the next twelve months.
The Company believes its current balances of cash and cash equivalents, availability under its 2023 Amended Credit Agreement and cash flows from operations will be sufficient to meet its liquidity needs for the next twelve months.
(4) Inventory net realizable value adjustment recorded to reduce inventory related to discontinued products where the anticipated net realizable value was lower than the cost reflected in our records. (5) Inventory fair value step-up adjustments resulting from the reverse merger acquisition accounting for Lawson and acquisition accounting for additional acquisitions completed by Gexpro Services.
(4) Inventory net realizable value adjustment recorded to reduce inventory related to discontinued products where the anticipated net realizable value was lower than the cost reflected in our records. (5) Inventory fair value step-up adjustment for Lawson resulting from the reverse merger acquisition accounting and acquisition accounting for additional acquisitions completed by Gexpro Services or TestEquity.
The Company reviews goodwill for potential impairment annually on October 1st, or 36 Table of Contents 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 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.
Refer to the section Factors Affecting Comparability to Prior Periods and the non-GAAP measures section Supplemental Information - Lawson Non-GAAP Adjusted Operating Income and Non-GAAP Adjusted EBITDA for more information related to the calculation of adjusted amounts. (2) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.
Refer to the section Factors Affecting Comparability to Prior Periods and the section Supplemental Information - Lawson Pro Forma Operating Income and Non-GAAP Adjusted EBITDA for more information related to the calculation of adjusted amounts. (2) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.
Management believes this historical information provides the most meaningful basis of comparison for Lawson's operations, is more useful in identifying current business trends, and is important for the user of our financial statements in understanding Lawson's business. Refer to Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business Acquisitions within Item 8.
Management believes this supplemental information provides the most meaningful basis of comparison for Lawson's operations, is more useful in identifying current business trends, and is important for the users of our financial statements in understanding Lawson's business. Refer to Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business Acquisitions within Item 8.
Adjusted gross profit was also impacted by an inventory charge of $1.7 million to reduce inventory related to discontinued products where the anticipated net realizable value was lower than the cost reflected in our records and the amortization of the fair value step-up of $1.9 million related to the Mergers.
Gross profit margin for 2022 was also impacted by an inventory charge of $1.7 million to reduce inventory related to discontinued products where the anticipated net realizable value was lower than the cost reflected in our records and the amortization of the fair value step-up of inventory of $1.9 million related to the Mergers.
Sales Drivers DSG believes that the Purchasing Managers Index ("PMI") published by the Institute for Supply Management is an indicative measure of the relative strength of the economic environment of the industry in which we operate. The PMI is a composite index of economic activity in the U.S. manufacturing sector.
Sales Drivers DSG believes that the Purchasing Managers Index ("PMI") published by the Institute for Supply Management is an indicative measure of the relative strength of the economic environment of the industry in which it operates. The PMI is a composite index of economic activity in the U.S. manufacturing sector.
This allocation involves a number of assumptions, estimates, and judgments in determining the fair value, as of the acquisition date, of the following: • intangible assets, including the valuation methodology (the relief of royalty method for trade names and multi-period excess earnings method for customer relationships), estimations of future cash flows, discount rates, royalty rates, recurring revenue attributed to customer relationships, and our assumed market segment share, as well as the estimated useful life of intangible assets; • deferred tax assets and liabilities, uncertain tax positions, and tax-related valuation allowances; • inventory; • property, plant and equipment; • pre-existing liabilities or legal claims; and • goodwill as measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.
This allocation involves a number of assumptions, estimates, and judgments in determining the fair value, as of the acquisition date, of the following: • intangible assets, including the valuation methodology (the relief of royalty method for trade names and multi-period excess earnings method for customer relationships), estimations of future cash flows, discount rates, royalty rates, recurring revenue attributed to customer relationships, and our assumed market segment share, as well as the estimated useful life of intangible assets; 41 Table of Contents • deferred tax assets and liabilities, uncertain tax positions, and tax-related valuation allowances; • inventory; • property, plant and equipment; • pre-existing liabilities or legal claims; • contingent consideration, including estimating the likelihood and timing of achieving the relevant thresholds; and • goodwill as measured as the excess of consideration transferred over the net of the acquisition date fair values of the assets acquired and the liabilities assumed.
(2) Includes the operating results of All Other subsequent, but not prior, to the April 1, 2022 Merger Date. Overview of Consolidated Results of Operations Our consolidated results of operations include the financial impact of the Mergers that were completed on April 1, 2022.
(2) Includes the operating results of All Other subsequent, but not prior, to the April 1, 2022 Merger Date. Overview of Consolidated Results of Operations Our consolidated results of operations include the financial impact of the Mergers that were completed on April 1, 2022 and the other acquisitions completed in 2023 and 2022.
In addition to these three reportable segments, we have an “All Other” category which includes unallocated DSG holding company costs that are not directly attributable to the ongoing operating activities of our reportable segments and the inconsequential results of a non-reportable segment.
In addition to these three reportable segments, we have an “All Other” category which includes unallocated DSG holding company costs that are not directly attributable to the ongoing operating activities of our reportable segments and the results of a non-reportable segment. Recent Events HIS Company, Inc.
CRITICAL ACCOUNTING ESTIMATES We have disclosed our significant accounting policies in Note 2 – Summary of Significant Accounting Policies within Item 8. Financial Statements. The following provides information on the accounts requiring more significant estimates.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES We have disclosed our significant accounting policies in Note 2 – Summary of Significant Accounting Policies within Item 8. Financial Statements and Supplementary Data. The following provides information on the accounts requiring more significant estimates.
Accordingly, the consolidated financial statements as of December 31, 2022 and December 31, 2021 and for the years ended December 31, 2022 and 2021 reflect the results of operations and financial position of TestEquity and Gexpro Services on a consolidated basis, and the results of operations of DSG's legacy Lawson business are included only subsequent, and not prior, to the April 1, 2022 Merger Date.
Accordingly, the consolidated financial statements for the year ended December 31, 2022 reflect the results of operations of TestEquity and Gexpro Services on a consolidated basis for the full year, and the results of operations of DSG's legacy Lawson business are only included subsequent to the April 1, 2022 Merger Date.
As of December 31, 2022, we were in compliance with all financial covenants under our Amended and Restated Credit Agreement.
As of December 31, 2023, we were in compliance with all financial covenants under our 2023 Amended Credit Agreement.
Loss on Extinguishment of Debt The $3.4 million loss on extinguishment of debt for the year ended December 31, 2022 was due to the write-off of previously capitalized financing costs as a result of the debt refinancing related to the Mergers.
Loss on Extinguishment of Debt The $3.4 million loss on extinguishment of debt in 2022 was primarily due to the write-off of previously capitalized financing costs as a result of the debt refinancing related to the Mergers.
(2) Lawson's results of operations for the three months ended March 31, 2022, which occurred prior to the April 1, 2022 Merger Date, were not included in the Company's GAAP operating results under reverse merger acquisition accounting. (3) Lawson's results of operations adjusted for comparability on a period-over-period basis.
(3) Lawson's results of operations for the three months ended March 31, 2022, which occurred prior to the April 1, 2022 Merger Date and were not included in the Company's GAAP operating results under reverse merger acquisition accounting.
We do not anticipate having difficulty in obtaining financing from those markets in the future, however, we cannot provide assurance that events beyond our control will not have a material adverse impact on our liquidity.
We do not anticipate having difficulty in obtaining financing from those markets in the future, however, we cannot provide assurance that unforeseen events or events beyond our control (such as a potential tightening of debt capital markets) will not have a material adverse impact on our liquidity.
We define Adjusted EBITDA as operating income plus depreciation and amortization, stock-based compensation, severance costs, costs related to the execution of the Mergers, adjustments recorded to reduce inventory related to certain discontinued products, amortization of fair value step-up resulting from the Mergers, acquisition related costs (unrelated to the Mergers), and other non-recurring items.
We define Adjusted EBITDA as operating income plus depreciation and amortization, stock-based compensation, severance and acquisition related retention costs, costs related to the execution and integration of the Mergers and other acquisitions, inventory net realizable value adjustments, amortization of fair value step-up resulting from the Mergers and other acquisitions and other non-recurring items.
Lawson's historical operating results prior to the Mergers were obtained from the consolidated financial statements included in DSG's Annual Report on Form 10-K filed for the year ended December 31, 2021 and the unaudited condensed consolidated financial statements included in DSG's Quarterly Report on Form 10-Q filed for the quarterly period ended March 31, 2022.
Lawson's historical operating results prior to the Mergers were obtained from the unaudited condensed consolidated financial statements included in the Lawson Products, Inc. Quarterly Report on Form 10-Q filed for the quarterly period ended March 31, 2022.
Lawson also uses an inside sales team and an e-commerce site to generate sales. TestEquity Sales Drivers 25 Across both the test and measurement and electronic production supplies businesses, the North American market is highly fragmented with competitors ranging from large global distributors to national and regional distributors.
Lawson also is expanding its inside sales team to help drive field sales representative productivity and also utilizes an e-commerce site to generate sales. TestEquity Sales Drivers Across the test and measurement, industrial and electronic production supplies businesses, the North American market is highly fragmented with competitors ranging from large global distributors to national and regional distributors.
Gexpro Services revenue is influenced by our OEMs’ production schedules, new product introduction launches, and service project needs. Gexpro Services drives revenue through increasing wallet share with existing customers, customer-led geographic expansion, and new customer development in its six key vertical markets.
Gexpro Services' revenue is influenced by our OEMs’ production schedules, new product introduction launches, and service project needs. Gexpro Services' strategy is to increase revenue through increasing wallet share with existing customers, customer-led geographic expansion, new customer development in its six key vertical markets and leveraging its portfolio of recent acquisitions to expand its installation and aftermarket services.
These non-GAAP Adjusted Results presented in the table below are referred to within this results of operations discussion as "Adjusted".
These pro forma results presented in the table below are referred to within this supplemental results of operations discussion as "pro forma".
Change in Fair Value of Earnout Liability The $0.5 million expense in the year ended December 31, 2022 related to the change in fair value of the earnout liabilities associated with the earnout provisions of the Merger Agreements and the Frontier earnout. Refer to Note 8 – Earnout Derivative Liability and Note 3 – Business Acquisitions, respectively, within Item 8.
The $0.5 million expense in 2022 primarily related to the change in fair value of the earnout derivative liability associated with the earnout provisions of the Merger Agreements and the Frontier earnout. Refer to Note 8 – Earnout Liabilities and Note 3 – Business Acquisitions within Item 8. Financial Statements and Supplementary Data for information about the earnout liabilities.
These non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP. Non-GAAP Adjusted EBITDA Management believes Adjusted EBITDA is an important measure of the Company's operating performance.
These non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP.
Factors Affecting Comparability to Prior Periods Our results of operations are not directly comparable to prior results for the periods presented due to the Mergers that were completed on April 1, 2022.
Financial Statements and Supplementary Data. Factors Affecting Comparability to Prior Periods Our results of operations for the year ended December 31, 2023 are not directly comparable to prior results for the year ended December 31, 2022 due to the Mergers that were completed on April 1, 2022.
The Mergers that were consummated in April 2022 resulted in the combination of Lawson Products, Inc. ("Lawson"), TestEquity Acquisition, LLC ("TestEquity") and 301 HW Opus Holdings, Inc., conducting business as Gexpro Services ("Gexpro Services"). For a description of the business combination, refer to Item 1. Business and Note 1 – Nature of Operations and Basis of Presentation in Item 8.
The Mergers that were consummated on April 1, 2022 resulted in the combination of Lawson, TestEquity and Gexpro Services. For a description of the Mergers, refer to Item 1. Business and Note 1 – Nature of Operations and Basis of Presentation in Item 8. Financial Statements and Supplementary Data.
Supplemental Information For management to discuss Lawson's operating results on a comparable basis, Lawson's GAAP results of operations were adjusted to include its results prior to the April 1, 2022 Merger Date in order to reflect the total operating activities attributable to Lawson for each period presented.
Supplemental Information For management to discuss Lawson's operating results on a comparable basis, Lawson's GAAP results of operations were adjusted to include Lawson's historical pre-merger components of operating income, prior to the April 1, 2022 Merger Date, along with pre-merger pro forma adjustments prepared under SEC Regulation S-X Article 11, in order to reflect the total operating activities attributable to Lawson for each period presented.
Non-GAAP Financial Measures The Company's management believes that certain non-GAAP financial measures may provide users of this financial information with additional meaningful comparisons between current results and results in prior operating periods.
The combined operations of all three entities are included in the consolidated financial statements for the full year ended December 31, 2023. Non-GAAP Financial Measures The Company's management believes that certain non-GAAP financial measures may provide users of this financial information with additional meaningful comparisons between current results and results in prior operating periods.
We believe that a measure of that index above 50 generally indicates expansion of the manufacturing sector while a measure below 50 generally represents contraction. The average monthly PMI wa s 53.5 in the year ended December 31, 2022 compared to 60.7 in the year ended December 31, 2021 .
A measure of the PMI index above 50 is generally viewed as indicating an expansion of the manufacturing sector while a measure below 50 is generally viewed as representing a contraction. The average monthly PMI wa s 47.1 in the year ended December 31, 2023 compared to 53.5 in the year ended December 31, 2022 .
Cash Provided by (Used in) Financing Activities Net cash provided by financing activities was $148.5 million for the year ended December 31, 2022, primarily due to proceeds under the April 1, 2022 Amended and Restated Credit Agreement partially offset by repayment of previous indebtedness.
Cash Provided by (Used in) Financing Activities Net cash provided by financing activities for the year ended December 31, 2023 was $250.4 million due to proceeds from the 2023 Amended Credit Agreement and the Rights Offering partially offset by repayment of previous indebtedness and principal payments on the term loans.
Price increases enacted throughout 2021 and 2022 have generally offset the negative impacts of these higher costs. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of compensation and support for Lawson sales representatives as well as expenses to operate Lawson's distribution network and overhead expenses.
Selling, General and Administrative Expenses Selling, general and administrative expenses consist of compensation and support for Lawson sales representatives as well as expenses to operate Lawson's distribution network and overhead expenses.
Composition of Results of Operations The following results of operations for the years ended December 31, 2022 and 2021 include the accounts of the TestEquity and Gexpro Services combined entity, as the accounting acquirer, and include the results of Lawson only subsequent, and not prior, to the April 1, 2022 Merger Date. 29 RESULTS OF OPERATIONS FOR 2022 AS COMPARED TO 2021 Consolidated Results of Operations Year Ended December 31, 2022 2021 (Dollars in thousands) Amount % of Revenue Amount % of Revenue Revenue Lawson (1) $ 324,783 28.2 % $ — — % TestEquity 392,358 34.1 % 264,161 50.8 % Gexpro Services 385,326 33.5 % 256,129 49.2 % All Other (2) 48,955 4.3 % — — % Total Revenue 1,151,422 100.0 % 520,290 100.0 % Cost of goods sold Lawson (1) 154,030 13.4 % — — % TestEquity 302,980 26.3 % 206,971 39.8 % Gexpro Services 272,462 23.7 % 183,041 35.2 % All Other (2) 31,052 2.7 % — — % Total Cost of goods sold 760,524 66.1 % 390,012 75.0 % Gross profit 390,898 33.9 % 130,278 25.0 % Selling, general and administrative expenses Lawson (1) 164,217 14.3 % — — % TestEquity 78,003 6.8 % 56,861 10.9 % Gexpro Services 91,573 8.0 % 61,996 11.9 % All Other (2) 15,319 1.3 % — — % Total Selling, general and administrative expenses 349,112 30.3 % 118,857 22.8 % Operating income (loss) 41,786 3.6 % 11,421 2.2 % Interest expense (24,301) (2.1) % (16,737) (3.2) % Loss on extinguishment of debt (3,395) (0.3) % — — % Change in fair value of earnout liabilities (483) — % — — % Other income (expense), net (670) (0.1) % 577 0.1 % Income (loss) before income taxes 12,937 1.1 % (4,739) (0.9) % Income tax expense (benefit) 5,531 0.5 % 313 0.1 % Net income (loss) $ 7,406 0.6 % $ (5,052) (1.0) % (1) Includes the operating results of Lawson subsequent, but not prior, to the Merger Date of April 1, 2022.
Financial Statements and Supplementary Data. 32 RESULTS OF OPERATIONS FOR 2023 AS COMPARED TO 2022 Consolidated Results of Operations Year Ended December 31, 2023 2022 (Dollars in thousands) Amount % of Revenue Amount % of Revenue Revenue Lawson (1) $ 468,711 29.8 % $ 324,783 28.2 % TestEquity 641,768 40.9 % 392,358 34.1 % Gexpro Services 405,733 25.8 % 385,326 33.5 % All Other (2) 55,890 3.6 % 48,955 4.3 % Intersegment revenue elimination (1,700) (0.1) % — — % Total Revenue 1,570,402 100.0 % 1,151,422 100.0 % Cost of goods sold Lawson (1) 203,251 12.9 % 154,030 13.4 % TestEquity 499,916 31.8 % 302,980 26.3 % Gexpro Services 284,664 18.1 % 272,462 23.7 % All Other (2) 32,396 2.1 % 31,052 2.7 % Intersegment cost of goods sold elimination (1,700) (0.1) % — — % Total Cost of goods sold 1,018,527 64.9 % 760,524 66.1 % Gross profit 551,875 35.1 % 390,898 33.9 % Selling, general and administrative expenses Lawson (1) 232,962 14.8 % 164,217 14.3 % TestEquity 158,317 10.1 % 78,003 6.8 % Gexpro Services 94,069 6.0 % 91,573 8.0 % All Other (2) 23,536 1.5 % 15,319 1.3 % Total Selling, general and administrative expenses 508,884 32.4 % 349,112 30.3 % Operating income (loss) 42,991 2.7 % 41,786 3.6 % Interest expense (42,774) (2.7) % (24,301) (2.1) % Loss on extinguishment of debt — — % (3,395) (0.3) % Change in fair value of earnout liabilities 758 — % (483) — % Other income (expense), net (2,982) (0.2) % (670) (0.1) % Income (loss) before income taxes (2,007) (0.1) % 12,937 1.1 % Income tax expense (benefit) 6,960 0.4 % 5,531 0.5 % Net income (loss) $ (8,967) (0.6) % $ 7,406 0.6 % (1) Includes the operating results of Lawson subsequent, but not prior, to the April 1, 2022 Merger Date.
(6) Expense for acquisition related costs, unrelated to the Mergers. (7) Other non-recurring costs consists of sales force optimization and other non-recurring items. (8) Includes the operating results of Lawson subsequent, but not prior, to the April 1, 2022 Merger Date in accordance with GAAP accounting guidance for reverse acquisitions.
(6) Other non-recurring costs consist of non-capitalized deferred financing costs incurred in conjunction with the 2023 Amended Credit Agreement, certain non-recurring strategic projects and other non-recurring items. (7) Includes the operating results of Lawson and All Other subsequent, but not prior, to the April 1, 2022 Merger Date in accordance with GAAP accounting guidance for reverse acquisitions.
(2) Includes severance expense from actions taken in 2022 and 2021, not related to a formal restructuring plan. (3) Merger transaction costs related to the negotiation, review and execution of the Merger Agreements relating to the Mergers and subsequent integration costs.
(2) Includes severance expense from actions taken in 2023 and 2022 not related to a formal restructuring plan and acquisition related retention expenses for the Hisco Transaction. (3) Transaction and integration costs related to the Mergers and other acquisitions.
These non-GAAP amounts are not considered to be prepared in accordance with GAAP, have not been prepared as pro forma results under applicable regulations, may not reflect the actual results we would have achieved had the Mergers occurred at the beginning of 2021, and should not be viewed as a substitute for the results of operations presented in accordance with GAAP.
Financial Statements and Supplementary Data for information about the Mergers. This supplemental information may not reflect the actual results we would have achieved had the Mergers occurred at the beginning of 2022, and should not be viewed as a substitute for the results of operations presented in accordance with GAAP.
The increase in adjusted revenue compared to the prior year was primarily driven by the realization of price increases enacted throughout 2021 and 2022 to offset rising supplier costs, increased quantity volumes and strengthening sales to our strategic customers and automotive end market.
The remaining increase was primarily driven by strengthening sales to Lawson's strategic and governmental customers and automotive end market customers from a combination of organic growth and the realization of price increases enacted throughout 2022 and 2023 to offset rising supplier costs.
The increase in gross profit fo r 2022 compared to 2021 w as primarily due to the inclusion of Lawson operations only subsequent, and not prior, to the Merger Date. Expenses for 2022 were impacted by the inclusion of Lawson operations only subsequent, and not prior, to the Merger Date, the 2021 and 2022 acquisitions, and Merger related costs.
The increase in gross profit for 2023 compared to 2022 was primarily due to the inclusion of Lawson operations only subsequent, and not prior, to the Merger Date and the Hisco and other acquisitions completed in 2023 and 2 022.
Selling, General and Administrative Expenses Selling, general and administrative expenses consists of sales and marketing expenses primarily relating to compensation, costs associated with supporting Gexpro Services’ service facilities, overhead expenses within finance, legal, human resources and information technology, and other costs required to operate the business and service customers.
The gross profit margin percentage improvement for 2023 was primarily the result of price increases and lower net freight costs partially offset by higher expense for write-offs of obsolete and excess inventory. 37 Selling, General and Administrative Expenses Selling, general and administrative expenses consist of sales and marketing expenses primarily relating to compensation, costs associated with supporting Gexpro Services’ service facilities, overhead expenses within finance, legal, human resources and information technology, and other costs required to operate Gexpro Services' business and service customers.
As of December 31, 2022, liquidity for the Company was $101.6 million comprised of $24.6 million of cash and cash equivalents and $77.0 million of bo rrowing availability remaining, net of outstanding letters of credit, under the Amended and Restated Credit Agreement.
As of December 31, 2023, the Company had $83.9 million of cash and cash equivalents and $198.3 million of bo rrowing availability remaining, net of outstanding letters of credit, under the 2023 Amended Credit Agreement.
Refer to Results by Reportable Segment below for a complete discussion of our results of operations. 30 Results by Reportable Segment Lawson Segment Year Ended December 31, Change (Dollars in thousands) 2022 2021 Amount % Revenue $ 324,783 $ — $ 324,783 — % Cost of goods sold 154,030 — 154,030 — % Gross profit 170,753 — 170,753 — % Selling, general and administrative expenses 164,217 — 164,217 — % Operating income (loss) $ 6,536 $ — $ 6,536 — % Gross profit margin 52.6 % — % Adjusted EBITDA (1) $ 30,584 $ — $ 30,584 — % (1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.
Results by Reportable Segment Lawson Segment Year Ended December 31, Change (Dollars in thousands) 2023 2022 Amount % Revenue from external customers $ 468,379 $ 324,783 $ 143,596 44.2 % Intersegment revenue 332 — 332 — % Revenue $ 468,711 $ 324,783 $ 143,928 44.3 % Cost of goods sold 203,251 154,030 49,221 32.0 % Gross profit 265,460 170,753 94,707 55.5 % Selling, general and administrative expenses 232,962 164,217 68,745 41.9 % Operating income (loss) $ 32,498 $ 6,536 $ 25,962 397.2 % Gross profit margin 56.6 % 52.6 % Adjusted EBITDA (1) $ 63,663 $ 30,584 $ 33,079 108.2 % (1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.
Lawson adjusted gross prof it as a percent of adjusted revenue was 52.7% for 2022 compared to 53.9% in the prior year. The adjusted 31 gross margin percentage for 2022 was impacted by increased supplier costs from inflation, supply chain disruptions and a sales shift toward lower margin customers.
The pro forma gross profit margin percentage for the same period of 2022 was impacted by increased supplier costs from inflation and supply chain disruptions and a sales shift toward lower margin customers.
Income Tax Expense (Benefit) Income tax expense was $5.5 million, a 42.8% effective tax rate for the year ended December 31, 2022 compared to income tax expense of $0.3 million and a (6.6)% effective tax rate for the prior year.
The $2.3 million change in 2023 compared to the same period of 2022 was partly due to unfavorable changes in foreign currency exchange rates and other insignificant changes in other non-operating income and expenditures. 38 Income Tax Expense (Benefit) Income tax expense was $7.0 million, a (346.8)% effective tax rate for the year ended December 31, 2023 compared to income tax expense of $5.5 million and a 42.8% effective tax rate for the prior year.
Refer to Note 9 – Debt within Item 8. Financial Statements for a description of the agreement. 35 On December 31, 2022, we had $417.1 million in outstanding borrowings and $77.0 million of bo rrowing availability remaining, net of outstanding letters of credit, under the revolving credit facility.
Financial Statements and Supplementary Data for a description of the 2023 Amended Credit Agreement. On December 31, 2023, we had $574.7 million in outstanding borrowings under the 2023 Amended Credit Agreement and $198.3 million of bo rrowing availability remaining, net of outstanding letters of credit, under the senior secured revolving credit facility component.
These non-GAAP results represent Lawson’s total operating activities for the year ended December 31, 2022 and 2021 , regardless of the Mergers (that is, they reflect both pre- and post-Merger results of Lawson).
(5) Lawson's pro forma results of operations adjusted for comparability on a period-over-period basis. These results represent Lawson’s total operating activities for the year ended 2022 , regardless of the Merger Date (that is, they reflect both pre- and post-Merger results of Lawson, including the pro forma adjustments related to the pre-Merger period).
Sources and Uses of Cash The following table presents a summary of our cash flows: (in thousands) December 31, 2022 December 31, 2021 Change Net cash provided by (used in) operating activities $ (11,029) $ 10,320 $ (21,349) Net cash provided by (used in) investing activities $ (126,688) $ (41,376) $ (85,312) Net cash provided by (used in) financing activities $ 148,461 $ 34,668 $ 113,793 Cash Provided by (Used in) Operating Activities Net cash used in operations for the year ended December 31, 2022 was $11.0 million, excluding non-cash items, primarily due to increased accounts receivables and inventories driven by higher sales and increased supplier costs driven by inflation and global supply chain disruptions.
Net cash used in operations for the year ended December 31, 2022 was $11.0 million, excluding non-cash items, primarily due to increased accounts receivables driven by higher sales and increased inventories due to increased supplier costs driven by inflation and global supply chain disruptions.
The supply chain disruptions have also led to higher product costs which have contributed to lower gross profit margins as a percentage of sales in certain pieces of our business. We have instituted various price increases during 2021 and 2022 in response to rising supplier costs, as well as increased transportation and labor costs.
Supply Chain Disruptions We continue to be affected by rising supplier costs caused by inflation and increased transportation and labor costs . We have instituted various price increases during 2022 and 2023 in response to rising supplier costs, as well as increased transportation and labor costs in order to manage our gross profit margins.
Our primary short-term and long-term liquidity and capital resource needs are to finance operating expenses, working capital, capital expenditures, potential business acquisitions, strategic initiatives and general corporate purposes. Our current debt obligations under the Amended and Restated Credit Agreement mature in April 2027.
The Company used these combined proceeds primarily to fund the Hisco Transaction and to pay down its revolving credit facility. Our primary short-term and long-term liquidity and capital resource needs are to finance operating expenses, working capital, capital expenditures, potential business acquisitions, strategic initiatives and general corporate purposes.
(5) Refer to the Non-GAAP Adjusted EBITDA section above for a reconciliation of Adjusted EBITDA to operating income.
(6) Refer to the Non-GAAP Adjusted EBITDA section above for a reconciliation of operating income to Adjusted EBITDA. Composition of Results of Operations The following results of operations for the year ended December 31, 2023 include the combined operations of DSG.
Lawson is a distributor of specialty products and services to the industrial, commercial, institutional and government MRO market. TestEquity is a distributor of test and measurement equipment and solutions, electronic production supplies, and tool kits from its leading manufacturer partners supporting the technology, aerospace, defense, automotive, electronics, education, and medical industries.
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.
(in thousands) Year Ended December 31, 2022 Year Ended December 31, 2021 Lawson Operating Income GAAP Results (1) Pre-Merger Results (2) Adjusted Results (3) GAAP Results (1) Pre-Merger Results (4) Adjusted Results (3) Revenue $ 324,783 $ 104,902 $ 429,685 $ — $ 371,668 $ 371,668 Cost of goods sold 154,030 49,371 203,401 — 171,193 171,193 Gross profit 170,753 55,531 226,284 — 200,475 200,475 Selling, general and administrative expenses 164,217 44,435 208,652 — 192,283 192,283 Operating income (loss) $ 6,536 $ 11,096 $ 17,632 $ — $ 8,192 $ 8,192 Lawson Adjusted EBITDA (5) $ 30,584 $ 8,042 $ 38,626 $ — $ 30,390 $ 30,390 28 (1) Operating income prepared in accordance with GAAP, which includes Lawson’s results of operations subsequent, but not prior, to the April 1, 2022 Merger Date.
The pro forma adjustments were obtained from the unaudited pro forma condensed combined financial information included in DSG's Current Report on Form 8-K/A filed on August 24, 2023. 31 Lawson Pro Forma Results - Calculation of Supplemental Information (Unaudited) (in thousands) Year Ended December 31, 2023 Year Ended December 31, 2022 Lawson Operating Income GAAP Results (1) GAAP Results (2) Pre-Merger Results (3) Pro-Forma Adjustments (4) Pro Forma Results (5) Revenue from external customers $ 468,379 $ 324,783 $ 104,902 $ — $ 429,685 Intersegment revenue 332 — — — — Revenue 468,711 324,783 104,902 — 429,685 Cost of goods sold 203,251 154,030 49,371 — 203,401 Gross profit 265,460 170,753 55,531 — 226,284 Selling, general and administrative expenses 232,962 164,217 44,435 4,086 212,738 Operating income (loss) $ 32,498 $ 6,536 $ 11,096 $ (4,086) $ 13,546 Lawson Adjusted EBITDA (6) $ 63,663 $ 30,584 $ 8,042 $ 38,626 (1) Operating income prepared in accordance with GAAP.
Gexpro Services Segment Year Ended December 31, Change (Dollars in thousands) 2022 2021 Amount % Revenue $ 385,326 $ 256,129 $ 129,197 50.4 % Cost of goods sold 272,462 183,041 89,421 48.9 % Gross profit 112,864 73,088 39,776 54.4 % Selling, general and administrative expenses 91,573 61,996 29,577 47.7 % Operating income (loss) $ 21,291 $ 11,092 $ 10,199 91.9 % Gross profit margin 29.3 % 28.5 % Adjusted EBITDA (1) $ 43,206 $ 23,310 $ 19,896 85.4 % (1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.
Gexpro Services Segment Year Ended December 31, Change (Dollars in thousands) 2023 2022 Amount % Revenue from external customers $ 404,490 $ 385,326 $ 19,164 5.0 % Intersegment revenue 1,243 — 1,243 — % Revenue 405,733 385,326 20,407 5.3 % Cost of goods sold 284,664 272,462 12,202 4.5 % Gross profit 121,069 112,864 8,205 7.3 % Selling, general and administrative expenses 94,069 91,573 2,496 2.7 % Operating income (loss) $ 27,000 $ 21,291 $ 5,709 26.8 % Gross profit margin 29.8 % 29.3 % Adjusted EBITDA (1) $ 45,191 $ 43,206 $ 1,985 4.6 % (1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.
Adjusted EBITDA During the year ended December 31, 2022 , Gexpro Services generated Adjusted EBITDA of $43.2 million , an increase of $19.9 million from the same period a year ago with approximately $16.7 million driven by the acquisitions closed during 2021 and 2022 and increases in revenue and margins on the organic base business. 33 Consolidated Non-operating Income and Expense Year Ended December 31, Change (Dollars in thousands) 2022 2021 Amount % Interest expense $ (24,301) $ (16,737) $ (7,564) 45.2 % Loss on extinguishment of debt $ (3,395) $ — $ (3,395) — % Change in fair value of earnout liabilities $ (483) $ — $ (483) — % Other income (expense), net $ (670) $ 577 $ (1,247) (216.1) % Income tax expense (benefit) $ 5,531 $ 313 $ 5,218 N/M Interest Expense Interest expense increased $7.6 million in the year ended December 31, 2022 primarily due to higher borrowings offset by a lower interest rate with the debt refinancing related to the Mergers.
Consolidated Non-operating Income and Expense Year Ended December 31, Change (Dollars in thousands) 2023 2022 Amount % Interest expense $ (42,774) $ (24,301) $ (18,473) 76.0 % Loss on extinguishment of debt $ — $ (3,395) $ 3,395 N/M Change in fair value of earnout liabilities $ 758 $ (483) $ 1,241 N/M Other income (expense), net $ (2,982) $ (670) $ (2,312) N/M Income tax expense (benefit) $ 6,960 $ 5,531 $ 1,429 25.8 % N/M Not meaningful Interest Expense Interest expense increased $18.5 million in 2023 compared to the same period of 2022 primarily due to an increase in interest rates and higher borrowings related to the Hisco and other 2023 and 2022 acquisitions.
For the year ended December 31, 2021, the operating results of Lawson were not included in the Company's GAAP results. See Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business Acquisitions within Item 8. Financial Statements.
See Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business Acquisitions within Item 8. Financial Statements and Supplementary Data .
Financing and Capital Requirements Credit Facility On April 1, 2022, in connection with the closing of the Mergers, DSG entered into an Amended and Restated Credit Agreement, which includes a $200 million senior secured revolving credit facility, a $250 million senior secured initial term loan facility and a $50 million senior secured delayed draw term loan facility.
Financing and Capital Requirements Credit Facility On June 8, 2023, in connection with the Hisco Transaction, DSG entered into the First Amendment, which amended and replaced the Amended and Restated Credit Agreement dated April 1, 2022 with the 2023 Amended Credit Agreement, and provided for a $305 million incremental term loan facility.
Principal payments on the 34 Amended and Restated Credit Agreement for the next twelve months are $15.0 million. Refer to Note 9 – Debt within Item 8. Financial Statements for additional information related to our debt obligations. Access to debt capital markets has historically provided the Company with sources of liquidity, beyond normal operating cash flows.
Our current debt obligations under the 2023 Amended Credit Agreement mature in April 2027. Required principal payments on the 2023 Amended Credit Agreement for the next twelve months are $30.3 million . Refer to Note 9 – Debt within Item 8. Financial Statements and Supplementary Data for additional information related to our debt obligations.
Cash Provided by (Used in) Investing Activities Net cash used in investing activities for the year ended December 31, 2022 was $126.7 million, primarily as a result of the other acquisitions completed during the year by TestEquity and Gexpro Services as described in Note 3 – Business Acquisitions within Item 8. Financial Statements.
Cash Provided by (Used in) Investing Activities Net cash used in investing activities for the year ended December 31, 2023 was $278.5 million, primarily due to the Hisco Transaction, as well as purchases of property, plant and equipment and rental equipment which was partially offset by the sale of rental equipment. 39 Net cash used in investing activities for the year ended December 31, 2022 was $126.7 million, primarily due to acquisitions completed by TestEquity and Gexpro Services, as well as purchases of property, plant and equipment and rental equipment which was partially offset by the sale of rental equipment.
TestEquity Segment Year Ended December 31, Change (Dollars in thousands) 2022 2021 Amount % Revenue $ 392,358 $ 264,161 $ 128,197 48.5 % Cost of goods sold 302,980 206,971 96,009 46.4 % Gross profit 89,378 57,190 32,188 56.3 % Selling, general and administrative expenses 78,003 56,861 21,142 37.2 % Operating income (loss) $ 11,375 $ 329 $ 11,046 N/M Gross profit margin 22.8 % 21.6 % Adjusted EBITDA (1) $ 34,736 $ 16,107 $ 18,629 115.7 % (1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of Adjusted EBITDA to operating income.
TestEquity Segment Year Ended December 31, Change (Dollars in thousands) 2023 2022 Amount % Revenue from external customers $ 641,643 $ 392,358 $ 249,285 63.5 % Intersegment revenue 125 — 125 — % Revenue 641,768 392,358 249,410 63.6 % Cost of goods sold 499,916 302,980 196,936 65.0 % Gross profit 141,852 89,378 52,474 58.7 % Selling, general and administrative expenses 158,317 78,003 80,314 103.0 % Operating income (loss) $ (16,465) $ 11,375 $ (27,840) (244.7) % Gross profit margin 22.1 % 22.8 % Adjusted EBITDA (1) $ 43,283 $ 34,736 $ 8,547 24.6 % (1) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income (loss) to Adjusted EBITDA.
Adjusted EBITDA During the year ended December 31, 2022 , Lawson generated Adjusted EBITDA of $38.6 million , an increase of 27.1% or $8.2 million from the same period a year ago driven by increased revenue and margins.
Adjusted EBITDA During 2023 , Lawson generated Adjusted EBITDA of $63.7 million , an increase of 64.8% or $25.0 million from the same period a year ago primarily driven by increased revenue and gross profit margin partially offset by an increase in Selling, general and administrative expenses .
Revenue and Gross Profit Adjusted revenue increased 15.6% to $429.7 million for 2022 compared to adjusted revenue of $371.7 million for the same period a year ago.
Revenue and Gross Profit Revenue increased $39.0 million , or 9.1%, to $468.7 million in 2023 compared to pro forma revenue of $429.7 million in the same period of 2022 .
TestEquity anticipates that recovery of this important part of its customers’ supply chain will occur in 2023. Gexpro Services Sales Drivers The global supply chain solutions market is highly fragmented across Gexpro Services' key vertical segments. Gexpro Services’ competitors range from large global distributors and manufacturers to small regional domestic distributors and manufacturers.
Hisco also offers vendor-managed inventory and Radio Frequency Identification ("RFID") programs with specialized warehousing for chemical management, logistics services and cold storage. Gexpro Services Sales Drivers The global supply chain solutions market is highly fragmented across Gexpro Services' key vertical segments. Gexpro Services’ competitors range from large global distributors and manufacturers to small regional domestic distributors and 28 manufacturers.
Adjusted selling, general and administrative expenses increased to $208.7 million for the year ended December 31, 2022 compared to the adjusted amount of $192.3 million in the same period a year ago.
Selling, general and administrative expenses increased $20.2 million to $233.0 million in 2023 compared to pro forma Selling, general and administrative expenses of $212.7 million in the same period of 2022.
The remainder of the increase was driven primarily by an increase in merger related costs of $2.8 million and additional compensation and product fulfillment costs to support the organic growth of the existing base business.
The increase was primarily driven by $1.7 million of additional expenses from the Frontier acquisition completed at the end of the first quarter of 2022 and additional compensation and product fulfillment costs to support the organic sales growth.
In addition, Lawson's GAAP results of operations were adjusted to include the results prior to the Merger Date in order to reflect the total operating activities attributable to Lawson for each period presented.
Supplemental Information - Lawson Pro Forma Operating Income and Non-GAAP Adjusted EBITDA For management to discuss Lawson's operating results on a comparable basis, Lawson's GAAP results of operations were adjusted to include Lawson's historical pre-merger components of operating income, prior to the April 1, 2022 Merger Date, along with pre-merger pro forma adjustments prepared under SEC Regulation S-X Article 11, in order to reflect the total operating activities attributable to Lawson for each period presented.
Revenue and Gross Profit Revenue increased to $392.4 million for the year ended December 31, 2022 from $264.2 million during the same period in 2021 .
Revenue and Gross Profit Revenue increased $249.4 million , or 63.6%, to $641.8 million in 2023 compared to $392.4 million in the same period in 2022 .
The increase in revenue, gross profit and operating income for 2022 compared to 2021 was due to the inclusion of Lawson operations beginning on the Merger Date and not including any Lawson operations prior to the Merger Date.
Revenue and Gross Profit Revenue increased $143.6 million , or 44.2%, to $468.7 million in 2023 compared to revenue of $324.8 million in the same period of 2022 primarily due to $125.3 million of revenue in the first quarter of 2023 with no comparable amount in 2022 due to the inclusion of Lawson operations beginning on the Merger Date and not including any Lawson operations prior to the Merger Date .
Year Ended December 31, Adjusted Change (Dollars in thousands) Adjusted 2022 (1) Adjusted 2021 (1) Amount % Revenue $ 429,685 $ 371,668 $ 58,017 15.6% Cost of goods sold 203,401 171,193 32,208 18.8% Gross profit 226,284 200,475 25,809 12.9% Selling, general and administrative expenses 208,652 192,283 16,369 8.5% Operating income (loss) $ 17,632 $ 8,192 $ 9,440 115.2% Gross profit margin 52.7 % 53.9 % Adjusted EBITDA (2) $ 38,626 $ 30,390 $ 8,236 27.1% (1) For comparability purposes, Lawson's GAAP results of operations were adjusted to include the historical results of Lawson prior to the Merger Date.
Year Ended December 31, Change (Dollars in thousands) 2023 Pro Forma 2022 (1) Amount % Revenue from external customers $ 468,379 $ 429,685 $ 38,694 9.1% Intersegment revenue 332 — 332 —% Revenue $ 468,711 $ 429,685 $ 39,026 9.1% Cost of goods sold 203,251 203,401 (150) (0.1)% Gross profit 265,460 226,284 39,176 17.3% Selling, general and administrative expenses 232,962 212,738 20,224 9.7% Operating income (loss) $ 32,498 $ 13,546 $ 18,952 107.5% Gross profit margin 56.6 % 52.7 % Adjusted EBITDA (2) $ 63,663 $ 38,626 $ 25,037 64.8% (1) For comparability purposes, Lawson's GAAP results of operations were adjusted to include the historical unaudited results of Lawson prior to the Merger Date and certain pro-forma adjustments including the incremental expense related to the fair value adjustment of share-based compensation awards and incremental depreciation and amortization expense related to the fair value adjustments of property, plant and equipment and identifiable intangible assets.
(2) Includes the operating results of All Other subsequent, but not prior, to the April 1, 2022 Merger Date in accordance with GAAP accounting guidance for reverse acquisitions .
No pre-merger or pro-forma adjustments were necessary because these results represent Lawson’s total operating activities for the full year ended December 31, 2023. (2) Operating income prepared in accordance with GAAP, which includes Lawson’s results of operations subsequent, but not prior, to the April 1, 2022 Merger Date.
Gross profit increased $32.2 million to $89.4 million in 2022 compared to $57.2 million in the same period of 2021 primarily due to acquisitions and increased sales in the base business.
Revenue and Gross Profit Revenue increased $20.4 million, or 5.3%, to $405.7 million in 2023 compared to $385.3 million in the same period of 2022.
Relative to the U.S. statutory rate, the effective tax rate for the year ended December 31, 2022 was impacted by state taxes, foreign operations and liabilities and transaction expenses related to the Mergers. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $24.6 million on December 31, 2022 compared to $14.7 million on December 31, 2021.
The 2022 income tax was also impacted by the creation of a consolidated group for federal income tax purposes as a result of the completion of the Mergers. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents were $83.9 million on December 31, 2023 compared to $24.6 million on December 31, 2022.
Net cash provided by financing activities for the year ended December 31, 2021 was $34.7 million, primarily due to increased borrowings on the Company's revolving lines of credit partially offset by payments on the Company's term loans and a capital contribution to finance the MCS acquisition.
Net cash provided by financing activities for the year ended December 31, 2022 was $148.5 million, primarily due to proceeds from term loans and revolving credit facilities to finance the Mergers and other acquisitions, partly offset by repayment of previous indebtedness. Deferred financing costs of $12.0 million were incurred during 2022 related to these financing activities.
Selling, general, and administrative expenses for the year ended December 31, 2022 was $91.6 million compared to $62.0 million for the same period a year ago. The increase of $29.6 million over a year ago was primarily driven by the inclusion of the 202 1 and 2022 acquisitions of approximately $24.5 million.
Selling, general, and administrative expenses increased $2.5 million to $94.1 million in 2023 compared to $91.6 million in the same period of 2022.
Gexpro Services is a global supply chain solutions provider, specializing in developing and implementing VMI and kitting programs to high-specification manufacturing customers.
Gexpro Services is a global supply chain solutions provider, specializing in the development of mission critical production line management, aftermarket and field installation programs.
Accordingly, the consolidated financial statements as of December 31, 2022 and December 31, 2021 and for the year ended December 31, 2022 and 2021 reflect the results of operations and financial position of TestEquity and Gexpro Services on a consolidated basis, and the results of operations of DSG's legacy Lawson business are only included subsequent to the April 1, 2022 Merger Date. 37 Table of Contents BDO USA, LLP (BDO) was the principal auditor of Lawson Products, Inc., prior to consummation of the Mergers, and audited the 2021 financial statements of Lawson Products, Inc., which were included in Lawson Products, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2021.
The following results of operations for the year ended December 31, 2022 include the accounts of the TestEquity and Gexpro Services combined entity, as the accounting acquirer, for the full year, and the results of DSG's legacy Lawson business have only been included for activity subsequent, and not prior, to the April 1, 2022 Merger Date.

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