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What changed in Distribution Solutions Group, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Distribution Solutions Group, Inc.'s 2023 and 2024 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 2024 report.

+306 added−253 removedSource: 10-K (2025-03-06) vs 10-K (2024-03-07)

Top changes in Distribution Solutions Group, Inc.'s 2024 10-K

306 paragraphs added · 253 removed · 179 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

43 edited+25 added−37 removed23 unchanged
Biggest changeLawson'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.
Biggest changeLawson’s revenue percentages by customer end markets in 2024 were as follows: End Markets Percentage of Lawson Revenue Automotive 27% Manufacturing 14% Trade wholesale and retail 12% Construction 8% Mining 8% Equipment rental 6% Transportation 5% Government and military 5% Agriculture 3% Other 12% 100% Lawson’s customers include a wide range of purchasers of industrial supply products from small repair shops to large national and governmental accounts. 7 Products — Lawson’s revenue percentages by product categories in 2024 were as follows: Product Category Percentage of Lawson Revenue Aftermarket automotive supplies 18% Fastening systems 17% Fluid power 14% Electrical 11% Specialty chemicals 10% Cutting tools and abrasives 8% Safety 6% Welding and metal repair 2% Other 14% 100% Lawson offers over 157,000 different products of which over 96,000 products are maintained in distribution centers.
Gexpro Services provides comprehensive supply chain management solutions, including a full technology suite offering of VMI, kitting, global logistics management, manufacturing localization and import expertise, value engineering and quality assurance. Gexpro Services' end-to-end project management is designed to support manufacturing OEMs with their engineered material specifications, fulfillment, and quality requirements to improve their total cost of ownership.
Gexpro Services provides comprehensive supply chain management solutions, including a full technology suite offering of VMI, kitting, global logistics management, manufacturing localization and import expertise, value engineering and quality assurance. Gexpro Services’ end-to-end project management is designed to support OEMs with their engineered material specifications, fulfillment, and quality requirements to improve their total cost of ownership.
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.
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 distribution businesses under the leadership of their separate business unit management teams.
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.
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.
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.
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.
Available Information We file with, or furnish to, the Securities and Exchange Commission ("SEC") annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and, as applicable, amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act.
Available Information We file with, or furnish to, the Securities and Exchange Commission (“SEC”) annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and, as applicable, amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act.
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.
Lambert 51 2021 Vice President, Controller and Chief Accounting Officer 13 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.
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.
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 2024, the Lawson segment sold products to over 53,000 distinct customers.
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.
Information on our website is not incorporated by reference into this report. We also make available on our website our Code of Business Conduct, Corporate Governance Principles and the charters of the committees of our Board of Directors.
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.
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 200,000 distinct customers in several diverse end markets supported by approximately 4,400 dedicated employees and strong vendor partnerships.
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.
During 2024, Lawson purchased products from approximately 2,400 suppliers and no single supplier accounted for more than 4% 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.
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.
Gexpro Services maintains favorable and long-tenured relationships with approximately 2,800 suppliers, with the largest supplier representing approximately 2% of Gexpro Services’ total product purchases in 2024 while the top 10 suppliers represented approximately 17% of total product purchases in 2024. Human Capital Resources — Gexpro Services supports a culture of continuous improvement, integrity and diversity.
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 .
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 we electronically file such materials with, or furnish such materials to, the SEC, we make copies of such materials available to the public free of charge through our website at www.distributionsolutionsgroup.com .
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, 2024 , TestEquity’s workforce had 1,160 individuals, comprised of approximately 250 in sales and marketing, 550 in operation and distribution and 360 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.
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.
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, 2024 , Gexpro Services’ workforce had approximately 740 individuals, comprised of approximately 240 in sales and marketing, 430 in operation and distribution and 70 in management and administration.
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.
ITEM 1. BUSINESS. Overview Distribution Solutions Group, Inc. (“DSG”), a Delaware corporation, is a global specialty distribution company providing value-added distribution solutions to the maintenance, repair and operations (“MRO”), original equipment manufacturer (“OEM”) and industrial technology markets.
Unless the context requires otherwise, references in this Annual Report on Form 10-K to “DSG”, the “Company”, "we", "our" or "us" refer to Distribution Solutions Group, Inc., and all entities consolidated in the accompanying consolidated financial statements.
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.
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.
Information About Our Executive Officers The executive officers of DSG as of February 3, 2025 were as follows: Name Age Year First Named to Present Office Position J. Bryan King 53 2022 Chairman, President and Chief Executive Officer Ronald J. Knutson 61 2014 Executive Vice President, Chief Financial Officer and Treasurer David S.
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.
Gexpro Services’ revenue percentages by customer end markets in 2024 were as follows: End Markets Percentage of Gexpro Services Revenue Renewable energy 32% Industrial power 19% Transportation 19% Consumer and industrial 13% Aerospace and defense 11% Technology 6% 100% Products — Gexpro Services’ revenue percentages by product categories in 2024 were as follows: Product Category Percentage of Gexpro Services Revenue Hardware 47% Electrical 22% Fabrications 19% Mechanical 12% 100% Approximately 63% 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.
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.
Customers — TestEquity serves over 107,000 customers at 128,000 locations across the United States and abroad, primarily in Canada, Europe and Mexico with approximately 81% of TestEquity’s revenue in 2024 derived from customers in the United States. There is no significant seasonality in TestEquity’s business across its fiscal quarters.
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.
Competitors of Gexpro Services include large global distributors as well as national, regional and local distributors. Customers — Gexpro Services serves over 2,000 customers in over 49 countries through its 30 facilities. In 2024 , approximately 76% of Gexpro Services’ revenues were generated in the United States.
TestEquity intends to seek to increase its market share through continued expansion of product lines and greater penetration of the e-commerce market, enabled through investment in key digital talent and leverage of the existing TestEquity and TEquipment platforms.
In particular, TestEquity strives to improve its digital experience, with a consistent approach for all of its brands. TestEquity intends to increase its market share through continued expansion of product lines and greater penetration of the e-commerce market, enabled through investment in key digital talent and leverage of the existing TestEquity and TEquipment platforms.
TestEquity offers over 300,000 products and 800 manufacturer brands with overlap across the following brands. Hisco is a specialty distribution company serving the electronic assembly, aerospace and defense, medical and other industrial markets. Hisco also offers specialized warehousing for cold storage and vendor managed inventory services.
Hisco is a specialty distribution company serving the electronic assembly, aerospace and defense, medical and other industrial markets. Hisco also offers specialized warehousing for cold storage and vendor managed inventory services.
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.
TestEquity’s revenue percentages by product categories in 2024 were as follows: Product Category Percentage of TestEquity Revenue Electronic production supplies 62% Test & measurement 35% Rental and refurbished 3% 100% TestEquity has 28 key suppliers that made up approximately 35% of TestEquity’s purchases in 2024. In total, TestEquity purchases from approximately 3,000 suppliers across the marketplace.
The First Amendment provides for a $305 million incremental term loan and for the Company to increase the commitments from time to time by up to $200 million in the aggregate, subject to, among other things, receipt of additional commitments from existing and/or new lenders and pro forma compliance with certain financial covenants.
The Third Amendment provided for an additional $200 million incremental term loan and a $55 million increase in the Company’s senior secured revolving credit facility and permits the Company to increase the commitments under the agreement from time to time by up to $300 million in the aggregate, subject to, among other things, receipt of additional commitments from existing and/or new lenders and pro forma compliance with certain financial covenants.
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.
TestEquity’s revenue percentages by customer end markets in 2024 were as follows: End Markets Percentage of TestEquity Revenue Electronics manufacturing 33% Aerospace and defense 17% Medical 7% Reseller 6% Automotive 6% General industrial 5% Wireless and communications technology 4% Semi-conductor production 2% Other 20% 100% 9 Products — Approximately 19,000 fast-moving products are typically held in inventory across 40 distribution centers available for next day delivery.
Lambert served as the Director of Corporate Accounting and Reporting of Donnelley Financial Solutions, a financial compliance company, publicly traded on the NYSE from September 2016 through June 2017. Prior to these roles, Mr. Lambert held progressive roles within finance and accounting at several other publicly traded companies. 13 Table of Contents
Lambert served as the Corporate Controller, and previously the Assistant Controller, of Univar Solutions, a chemical distribution company, publicly traded on the NYSE from June 2017 through June 2021. Prior to these roles, Mr. Lambert held progressive roles within finance and accounting at several other publicly traded companies. 14 Table of Contents
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.
Human Capital Resources — As of December 31, 2024 , Lawson’s workforce had 1,740 individuals: approximately 1,030 in sales and marketing of whom approximately 900 are field sales representatives, 420 in operation and distribution and 290 in management and administration. Approximately 13% of the Lawson workforce is covered by three collective bargaining agreements.
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.
Lawson’s largest customer accounted for approximately 4% of Lawson’s revenue. In 2024 , approximately 92% of Lawson’s revenue was generated in the United States and approximately 8% in Canada.
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.
Gexpro Services’ largest customer represented approximately 23% of Gexpro Services’ 2024 total revenue while the top 20 customers represented approximately 82% of Gexpro Services’ 2024 total revenue. Gexpro Services has existing customers in many different industry end markets.
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.
These products are inventoried and sourced through 30 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.
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.
For more information about our segments, refer to Note 14 – Segment Information in Item 8. Financial Statements and Supplementary Data. 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.
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.
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.
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.
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 its sales representatives.
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 has manufacturing and supply chain operations in over 34 service center sites across twelve 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.
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.
Through its customer base, Gexpro Services provides VMI services with over 155,000 installed bins which allow its customers to maintain the necessary on-hand inventory levels to support their production cycles.
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.
TestEquity operates primarily through its five distribution brands, namely TestEquity, Hisco, TEquipment, Techni-Tool and Jensen Tools, and is focused primarily in North America with a network of sales representatives throughout the United States, Canada, Mexico, Germany and the United Kingdom. 8 Background and Operations — Based out of North Richland Hills, Texas, 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.
For more information about the Mergers, refer to Note 3 – Business Acquisitions in Item 8. Financial Statements and Supplementary Data.
Refer to Note 9 – Debt included in Item 8. Financial Statements and Supplementary Data for additional information about DSG’s credit agreement.
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.
As of December 31, 2024 , our combined workforce included approximately 4,400 individuals, comprised of approximately 1,610 in sales and marketing, approximately 1,880 in operation and distribution and approximately 860 in management and administration. Approximately 1,740 individuals are within Lawson, 1,160 are within TestEquity, 740 are within Gexpro Services, and 710 are within Canada Branch Division.
In addition to a large array of test and measurement products, TestEquity also offers calibration, refurbishment and rental solutions and a wide range of refurbished products. TestEquity continues to benefit from electronification of products across a range of industries including the internet of things ("IOT"), electric vehicles ("EV") and the 5th generation mobile network ("5G").
TestEquity continues to benefit from electronification of products across a range of industries including the internet of things (“IOT”), electric vehicles (“EV”) and the 5th generation mobile network (“5G”). TestEquity offers over 400,000 products and 800 manufacturer brands with overlap across the following brands.
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.
Background and Operations — Gexpro Services was formed in November 2019 and, in February 2020, LKCM Headwater 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 2,800 suppliers offering approximately 49,000 products.
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.
Jensen Tools employs a dedicated team of engineering, operational and sales professionals who focus on designing and building quality tool kits for its customers. Strategic Focus — TestEquity intends to grow revenue both organically and through acquisitions and continuing to expand and improve its service offerings to its customers.
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.
The Company now has four reporting segments: Lawson, TestEquity, Gexpro Services and Canada Branch Division. For additional details about our segment realignment, see Note 1 – Nature of Operations and Basis of Presentation in Item 8. Financial Statements and Supplementary Data. 6 The following is a discussion of our reportable segments.
Removed
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").
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DSG was formed in 2022 through the strategic mergers of Lawson Products, a leader in MRO distribution of C-parts, TestEquity, a leader in electronic test & measurement solutions and Gexpro Services, a leading global supply chain services provider to manufacturing customers.
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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.
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A summary of the mergers is presented in Note 1 – Nature of Operations and Basis of Presentation, in Item 8. Financial Statements and Supplementary Data.
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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”).
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Recent Events 2024 Business Acquisitions On November 18, 2024, DSG acquired the assets of ConRes Test Equipment, (“ConRes TE” and the “ConRes TE Transaction” ). These assets were acquired to expand TestEquity’s test equipment offerings and value-add service capabilities in all of our end markets.
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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.
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The total purchase consideration exchanged was approximately $17.0 million and was funded using DSG’s cash on hand and its revolving credit facility. On October 30, 2024, DSG completed the acquisition of Tech-Component Resources Pte Ltd (“TCR” and the “TCR Transaction”). TCR is a distributor of fasteners, mechanical components, and other industrial products in Southeast Asia.
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In accordance with and under the terms of the TestEquity Merger Agreement, in connection with the closing of the TestEquity Merger on the Merger Date, DSG: (i) issued to the TestEquity Equityholder 6,600,000 shares of DSG common stock, (ii) on behalf of TestEquity, paid certain indebtedness of TestEquity and (iii) on behalf of TestEquity, paid certain transaction expenses of TestEquity. 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.
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TCR was acquired to provide us with a strategic foothold in this growing region. The total purchase consideration exchanged was approximately $5.9 million , net of cash acquired of $1.9 million, and was funded using DSG’s cash on hand and its revolving credit facility .
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On March 20, 2023, DSG issued 1,400,000 shares of DSG common stock to the TestEquity Equityholder (the "TestEquity Holdback Shares") pursuant to the terms of the earnout provisions of the TestEquity Merger Agreement.
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On August 14, 2024, DSG acquired all of the issued and outstanding capital stock of Source Atlantic Limited (“Source Atlantic” and the “Source Atlantic Transaction”). Source Atlantic, headquartered in Saint John, New Brunswick, Canada, is a wholesale distributor of industrial MRO supplies, safety products, fasteners, and related value-add services for the Canadian MRO market.
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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.
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Source Atlantic was acquired to expand DSG’s operating footprint in the Canadian market. The total purchase consideration exchanged was $103.1 million, net of cash acquired of $4.4 million . DSG funded the Source Atlantic Transaction with borrowings under its amended and restated credit facility (discussed below). On May 1, 2024 , DSG completed the acquisition of S&S Automotive Inc.
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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.
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(“S&S Automotive” and the “S&S Automotive Transaction”). S&S Automotive is a distributor of automotive, industrial, and safety supplies primarily to the automotive dealership market based near Chicago in Woodridge, Illinois. S&S Automotive was acquired to expand Lawson’s services and products to the automotive end market.
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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.
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The total purchase consideration exchanged was approximately $80.1 million, net of cash acquired of $0.7 million, and was funded using DSG’s cash on hand and its revolving credit facility. On January 19, 2024, DSG acquired the assets of Safety Supply Illinois LLC, conducting business as Emergent Safety Supply (“ESS” and the “ESS Transaction”) .
Removed
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.
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ESS is a national distributor of safety products based near Chicago in Batavia, 5 Illinois. ESS was acquired to expand Lawson’s safety product category. The total purchase consideration exchanged was $9.9 million and was funded using DSG’s cash on hand. Refer to Note 3 – Business and Asset Acquisitions in Item 8.
Removed
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.
Added
Financial Statements and Supplementary Data for additional information about these acquisitions. Debt Amendment On August 14, 2024, the Company entered into the Third Amendment to Amended and Restated Credit Agreement (the “Third Amendment”).
Removed
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.
Added
Segments In connection with the Source Atlantic Transaction in the third quarter of 2024, the Company realigned its reportable segments to align with our business strategy and the manner in which our chief operating decision maker (“CODM”) assesses performance and strategic execution and makes decisions regarding the allocation of resources.
Removed
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.
Added
TestEquity designs, rents and sells a full line of high-quality environmental test chambers. In addition to a large array of test and measurement products, TestEquity also offers calibration, refurbishment and rental solutions and a wide range of refurbished products.
Removed
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.
Added
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. 10 Approximately 64% of Gexpro Services’ revenue in 2024 was from customers under long-term agreements.
Removed
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.
Added
Canada Branch Division Canada Branch Division is a wholesale distributor providing product and service solutions for the industrial, government, commercial and residential contractor markets for the Canadian MRO market.
Removed
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.
Added
Background and Operations — Canada Branch Division combines the operations of our Bolt Supply House (“Bolt”) and Source Atlantic subsidiaries, which distribute industrial MRO supplies, safety products, fasteners, and related value-add services to the Canadian MRO market primarily through the sale of products to its walk-up customers throu gh 38 branch loc ations.
Removed
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.
Added
Strategic Focus — Canada Branch Division combines the operations of our Bolt and Source Atlantic subsidiaries, which distribute industrial MRO supplies, safety products, fasteners, power tools and related value-add services to the Canadian MRO market through the sale of products and services via warehouse shipments and to its walk-up customers through 38 branch locations. 11 Industry and Competition — The MRO market is comprised of companies that buy and stock products in bulk and supply these products to customers on an as needed basis.
Removed
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.
Added
The customer benefits from our knowledge and the convenience of purchasing smaller quantities from stock maintained by us. There is a significant amount of competition within the Canadian MRO industry. We encounter competition from regional and local distributors in Canada as well as international distributors and manufacturers.
Removed
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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

44 edited+14 added−16 removed82 unchanged
Biggest changeIn 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.
Biggest changeIn 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 20 Table of Contents which only independent directors participate or (2) a nominating committee comprised solely of independent directors.
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.
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 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 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.
While we instituted various price increases during 2022, 2023 and 2024 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.
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.
Failure to adequately fund our operating and working capital needs through cash generated from operations and borrowings available under our 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.
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.
If we require more liquidity than is available to us under our 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.
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.
As a result of the closing of the Mergers on April 1, 2022, and other acquisitions completed during 2024, 2023 and 2022 , we have a significant amount of goodwill and other intangible assets on our consolidated balance sheet as of December 31, 2024.
If our inventory forecasting and production planning processes result in inventory levels exceeding the levels demanded by customers or should our customers decrease their orders with us, our operating results could be adversely affected due to costs of carrying the inventory and additional inventory write-downs for excess and obsolete inventory, which could materially adversely affect our business, financial condition and results of operations.
If our inventory forecasting and production planning processes result in inventory levels exceeding the levels demanded by customers or should our customers decrease their orders with us, our operating results could be adversely affected due to costs of carrying the inventory and additional inventory write-offs for excess and obsolete inventory, which could materially adversely affect 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 2023 Amended Credit Agreement.
In addition, we may be able to incur a significant amount of additional indebtedness, subject to the terms and restrictions of our Amended Credit Agreement.
Government efforts to combat inflation, along with other interest rate pressures, could lead to higher financing costs. Inflation has risen on a global basis, the United States has been experiencing historically high levels of inflation, and government entities have taken various actions to combat inflation, such as raising interest rate benchmarks.
Government efforts to combat inflation, along with other interest rate pressures, could lead to higher financing costs. Inflation has risen on a global basis, the United States has been experiencing relatively high levels of inflation, and government entities have taken various actions to combat inflation, such as raising interest rate benchmarks.
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.
Therefore, we are exposed to market risk relating to the fluctuation of value of such foreign currencies (including the Canadian dollar, Mexican peso, British pound sterling, the Euro, Danish krone, Brazilian real, Chinese renminbi, Turkish lira, and Singapore dollar) relative to the U.S. dollar that could adversely affect our financial condition and operating results. 23 Table of Contents In addition, t he revolving credit facility under our 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.
ITEM 1A. RISK FACTORS. Our operating results depend upon many factors and are subject to various risks and uncertainties, including those discussed below. The material risks and uncertainties known to us and described below may negatively affect our business, financial condition and results of operations.
ITEM 1A. RISK FACTORS. Our operating results depend on many factors and are subject to various risks and uncertainties, including those discussed below. The material risks and uncertainties known to us and described below may negatively affect our business, financial condition and results of 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.
The Mergers involve the combination of businesses that previously operated as independent businesses. Management has devoted and will continue to devote significant attention and resources to combine certain business operations of TestEquity and Gexpro Services with our other business operations.
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.
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. 24 ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
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.
Based on a Schedule 13D filed with the SEC by LKCM and various other persons and entities (as amended through December 27, 2023 ), entities affiliated with LKCM beneficially owned in the aggregate approximately 36.4 million shares of DSG common stock as of December 26, 2023, representin g approximately 77.6% of the outstanding shares of DSG common stock as of December 31, 2024.
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.
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.
In addition, the Organization for Economic Co-operation and Development (“OECD”), which represents a coalition of member countries, has recommended fundamental tax reform affecting the taxation of multinational corporations, including the Base Erosion and Profit Shifting (“BEPS”) project, which in part aims to address international corporate tax avoidance.
In addition, the Organization for Economic Cooperation and Development (“OECD”), which represents a coalition of member countries, has recommended fundamental tax reform affecting the taxation of multinational corporations, including the Base Erosion and Profit Shifting (“BEPS”) project, which in part aims to address international corporate tax avoidance.
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.
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.
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.
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. 17 Table of Contents A portion of our revenue is derived from the United States military and other governmental and tax-supported entities.
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.
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.
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.
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.
Those vendors have typically looked to pass the higher costs along to us through price increases. If we are unable to fully pass such increased prices and costs through to our customers or to modify our activities, the impact would have an adverse effect on our operating profit margins and financial condition.
Those vendors have typically looked to pass their higher costs along to us through price increases. If we are unable to fully pass any such increased prices and costs through to our customers or to modify our activities, the impact could have an adverse effect on our operating profit margins and financial condition.
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.
In addition, geopolitical instability and military hostilities, such as the Hamas-Israel military conflict and the Russia-Ukraine military conflict, could negatively impact our business Although we have not, do not currently and do not plan to conduct business operations in Gaza, Israel, Russia, Belarus, or Ukraine, it is not possible to predict the broader consequences of these conflicts, which could include sanctions, embargoes or other geopolitical instability.
Increases in the cost of raw materials used in our products (e.g., steel, brass, copper), quotas imposed on any cross border supplies within our businesses, increases in tariffs, increases in natural gas, electricity and other energy costs and increases in freight and other costs necessary to produce and transport our products, as well as other inflationary pressures, will raise the production costs of our vendors.
Increases in the cost of raw materials used in our products (e.g., steel, brass, copper), quotas imposed on any cross border supplies within our businesses, increases in or continuation of any tariffs or imposition of any new tariffs, increases in natural gas, electricity and other energy costs and increases in freight and other costs necessary to produce and transport our products, as well as other inflationary pressures, could raise the production costs of our vendors.
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.
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.
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.
Any decrease in the levels of defense and other governmental spending or the introduction of more stringent governmental regulations and oversight could lead to reduced revenue or an increase in compliance costs which would adversely affect our business, financial condition and results of operations.
Government entities may continue their efforts, or implement additional efforts, to combat inflation, which could include among other things continuing to raise interest rate benchmarks and/or maintaining interest rate benchmarks at elevated levels.
Government entities may continue their efforts, or implement additional efforts, to combat inflation, which could include among other things raising interest rate benchmarks, maintaining interest rate benchmarks at elevated levels and/or failing to lower interest rate benchmarks.
From time to time, our businesses have experienced overall changes in the product mix demand of customers. When customers or product mix changes, there can be no assurance that we will be able to maintain our gross profit margins.
Changes in our customers, product mix and pricing strategy could cause our gross profit margin percentage to decline in the future. From time to time, our businesses have experienced overall changes in the product mix demand of customers. When customers or product mix changes, there can be no assurance that we will be able to maintain our gross profit margins.
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.
Failure to successfully manage the implementation of these changes could lead to disruptions in our operations. Any pursuit or completion by DSG of additional acquisition opportunities would involve risks that could adversely affect our business, financial condition and results of operations. One of our growth strategies is to actively pursue additional acquisition opportunities which complement our business model.
We 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.
We expect to fund these investments from cash generated from operations and borrowings available under our Amended Credit Agreement. Failure to generate sufficient cash flow from operations or from our Amended Credit Agreement could cause us to have insufficient funds to operate our business. Adequate funds may not be available when needed or may not be available on favorable terms.
Changes in trade policies could affect our sourcing of product and ability to secure sufficient product and/or impact the cost or price of our products, with potentially negative impacts on our reported gross profits and results of operations.
Changes in trade policies, increases in or continuation of any tariffs or imposition of any new tariffs, and other inflationary pressures could also affect our sourcing of product and ability to secure sufficient product and/or impact the cost or price of our products, with potentially negative impacts on our reported gross profits and results of operations.
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.
In connection with the Mergers, 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.
We may fail to successfully identify the right opportunities and/or to successfully integrate the acquired businesses, operations, technologies, systems and/or personnel with those of DSG, which could adversely affect our business, financial condition and results of operations. See also the section entitled “Item 1A.
We may fail to successfully identify the right opportunities and/or to successfully integrate the acquired businesses, operations, technologies, systems and/or personnel with those of DSG, which could adversely affect our business, financial condition and results of operations. We operate in highly competitive markets. The marketplaces in which we operate are highly competitive.
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.
TestEquity has business operations and/or sales in a number of foreign countries, including Canada, Mexico, Germany and the United Kingdom. Gexpro Services has business operations and/or sales in a number of foreign countries, including Hungary, China and Singapore. Lawson and Canada Branch Division have business operations and/or sales in Canada.
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.
At December 31, 2024 , the Company had $21.4 million of U.S. federal net operating loss carryforwards which were generated after 2017 and are not subject to expiration and $50.6 million of various state net operating loss carryforwards which expire at varying dates between 2025 and 2036.
For example, the COVID-19 pandemic resulted in lost revenue to our Company, limited our ability to source high demand product, limited our sales force to perform certain functions due to state or federal stay-at-home orders, resulted in a slow-down of customer demand for our products and limited the ability of some customers to pay us on a timely basis.
For example, the COVID-19 pandemic resulted in lost revenue to our Company and adversely affected our financial condition and results of operations by, among other things, limiting our ability to source high demand product, limiting our sales force to perform certain functions due to state or federal stay-at-home orders, causing a slow-down of customer demand for our products and limiting the ability of some customers to pay us on a timely basis. 22 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.
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.
Our business, financial condition and operating results could be materially adversely affected if we failed to meet the covenant requirements of our Amended Credit Agreement. 19 Table of Contents Our Amended Credit Agreement contains financial and other restrictive covenants.
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.
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. 18 Table of Contents The changes made in the third quarter of 2024 to our segment reporting structure could be confusing to investors and may not have the desired effects.
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.
The loss of certain key executives and managers or the failure to attract and develop talented employees could have a material adverse effect on our business, financial condition and results of operations. 16 Table of Contents There may be difficulties in integrating certain operations of TestEquity’s and Gexpro Services’ respective businesses with our other operations, and the failure to successfully combine those operations within our expected timetable could adversely affect our future results and the market price of our common stock.
The implementation of changes to our current operations involves a risk that the changes may not work as intended, may disrupt related processes, may not be properly applied or may not result in accomplishing the intended efficiencies. Failure to successfully manage the implementation of these changes could lead to disruptions in our operations.
We strive to improve operational efficiencies throughout our organization and to identify and initiate changes intended to improve our internal operations. The implementation of changes to our current operations involves a risk that the changes may not work as intended, may disrupt related processes, may not be properly applied or may not result in accomplishing the intended efficiencies.
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.
If there are limitations in the acquired businesses’ financial organization, reporting and controls, or if we are unable to effectively integrate their financial reporting processes with our financial reporting processes, we could, among other things, have material weaknesses in our internal controls, violate our indebtedness covenants, miss an SEC reporting deadline or otherwise fail to comply with an applicable law or regulation.
Our technologies, systems, networks and data and information processes (and those of our business partners) have been, and may in the future be, the target of cyber-attacks and/or information security incidents that may have resulted in, or may in the future result in, the unauthorized release, misuse, loss or destruction of proprietary, personal and other information, or other disruption of our business operations, including compromise of our email systems.
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. 15 Table of Contents Our technologies, systems, networks and data and information processes (and those of our business partners) have been, and may in the future be, the target of cyber-attacks and/or information security incidents that may have resulted in, or may in the future result in, the unauthorized release, misuse, loss or destruction of proprietary, personal and other information, or other disruption of our business operations, including compromise of our email systems.
The failure to fully or timely realize the anticipated benefits could have a negative effect on the market price of DSG common stock. Failure to retain talented employees, managers and executives could negatively impact our business and operating results.
The failure to fully or timely realize the anticipated benefits could have a negative effect on the market price of DSG common stock. The inability of management to successfully implement changes in operating processes could lead to disruptions in our operations.
Our success depends on, among other things, our ability to attract, develop and retain talented employees, including executives and other key managers. The loss of certain key executives and managers or the failure to attract and develop talented employees could have a material adverse effect on our business, financial condition and results of operations.
Our success depends on, among other things, our ability to attract, develop and retain talented employees, including executives and other key managers.
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).
We have $739.9 million of indebtedness as of December 31, 2024, which includes a significant amount of indebtedness under our Amended Credit Agreement (as defined in Note 9 – Debt in Item 8. Financial Statements and Supplementary Data ).
Removed
TestEquity relies on a single supplier for a significant amount of its product inventory, and any disruptions in such supplier’s business, operations or financial condition, or TestEquity’s relationship with such supplier, could have a material adverse effect on our business, financial condition and results of operations.
Added
Failure to retain a sufficient number of talented, experienced and productive sales representatives could adversely affect our business, financial condition and results of operations. Failure to retain talented employees, managers and executives could negatively impact our business and operating results.
Removed
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.
Added
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.
Removed
Any disruptions in that supplier’s business, operations or financial condition, or TestEquity’s relationship with this supplier, could have a material adverse effect on our business, financial condition and results of operations. Changes in our customers, product mix and pricing strategy could cause our gross profit margin percentage to decline in the future.
Added
In the third quarter of 2024 we introduced a fourth reporting segment, Canada Branch Division, which includes the results of Bolt Supply House (“Bolt”) and Source Atlantic. Prior to this change, we had three reportable segments: Lawson, TestEquity and Gexpro Services.
Removed
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.
Added
We also had an “All Other” category which included unallocated DSG holding company costs and the results of Bolt, which was previously a non-reportable segment. Managing this change has required, and may continue to require, significant expenditures and allocation of valuable management resources.
Removed
The inability of management to successfully implement changes in operating processes could lead to disruptions in our operations. We strive to improve operational efficiencies throughout our organization and to identify and initiate changes intended to improve our internal operations.
Added
We have provided disclosures about our new segment reporting structure, but there is no guarantee that investors or the market will understand this change to our financial reporting. There is also no guarantee that this change will have the desired effect.
Removed
Risk Factors – TestEquity Merger and Gexpro Services Merger Risks” for a discussion of various additional risk factors relating to our completed business combination with TestEquity and Gexpro Services. We operate in highly competitive markets. The marketplaces in which we operate are highly competitive.
Added
Failure of investors or analysts to understand our revised segment reporting structure may negatively affect their ability to understand our business and operating results which could adversely affect our stock price. Debt Financing Risks We have a significant amount of indebtedness, and our significant indebtedness could adversely affect our business, financial condition and results of operations.
Removed
As of December 31, 2023 , among the jurisdictions where the Company operates, only the U.K. has enacted legislation adopting the Pillar Two Rules, effective in fiscal 2025. 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.
Added
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. Entities affiliated with LKCM beneficially own a significant number of shares of DSG common stock.
Removed
TestEquity Merger and Gexpro Services Merger Risks We are subject to business uncertainties as a result of the Mergers that could materially and adversely affect our businesses. Uncertainty about the effect of the Mergers on employees, customers, suppliers and others having business relationships with us may have a material and adverse effect on our businesses.
Added
Among the jurisdictions where the Company operates, the U.K. has enacted legislation during 2024 that becomes effective in 2025.Canada has also enacted legislation during 2024 in accordance with the Pillar Two framework. Other countries have also enacted or are expected to enact Pillar Two legislation.
Removed
These uncertainties may impair our ability to attract, retain and motivate key personnel for a period of time after the closing of the Mergers. These uncertainties could also cause our customers, suppliers and other contractors to change or sever existing business relationships with us.
Added
The Company continues to monitor the development and implementation of these rules both in local countries and on a multi-lateral basis, making it uncertain to predict the ultimate impact in the future. For the year ended December 31, 2024 , the Company has not identified nor recorded any incremental tax as a result of Pillar Two.
Removed
Employee retention and recruitment may be challenging for the combined company as existing employees and prospective employees may experience uncertainty about their future roles with the combined company.
Added
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. 21 Table of Contents From time to time we may become subject to income tax audits, sales tax audits or similar proceedings, and as a result we may incur additional costs and expenses or owe additional taxes, interest and penalties that may negatively impact our operating results.
Removed
Furthermore, no assurance can be given that after the Mergers we will be able to attract or retain key management personnel or other key employees to the same extent that legacy Lawson, TestEquity and Gexpro Services had been able to attract or retain their own employees.
Added
The Company and its subsidiaries are subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The Company’s determination of its tax liability is subject to review by applicable domestic and foreign tax authorities.
Removed
The departure of existing key employees or the failure of potential key employees to accept employment with the combined company, despite our retention and recruiting efforts, could have a material adverse impact on our business, financial condition and operating results. Litigation relating to the Mergers could result in the payment of damages following the closing of the Mergers.
Added
As of December 31, 2024 , we were subject to U.S. federal income tax examinations for the years 2021 through 2023 and income tax examinations from various other jurisdictions for the years 2017 through 2023.
Removed
DSG and members of the DSG Board of Directors currently are, and may in the future be, parties, among others, to litigation related to the Merger Agreements and the Mergers. Among other remedies, the stockholders in the pending litigation seek, and other stockholders could seek, monetary damages.
Added
The timing and resolution of any future tax examinations are subject to significant uncertainty and could result in us having to pay amounts to the applicable tax authority in order to resolve examination of its tax positions.
Removed
The outcome of any legal proceedings are difficult to predict and any such lawsuits could result in substantial costs to us. The existence of litigation relating to the Mergers may also be costly and distracting to management.
Added
An increase or decrease of tax related to tax examination resolutions could result in a change in our income tax expense and could negatively impact our financial condition and results of operations. Our international operations subject us to additional legal and regulatory regimes.
Removed
Further, the resources and costs to defend or settle any lawsuit or claim may adversely affect our business, financial condition, results of operations and cash flows. See Note 15 – Commitments and Contingencies to our consolidated financial statements, included in Item 8.
Removed
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.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

2 edited+0 added−0 removed12 unchanged
Biggest changeWe have not experienced any cybersecurity incidents in the last two years, including as a result of the Cyber Incident, that have materially affected the business strategy, results of operations, or financial condition of the Company.
Biggest changeWe have not experienced any cybersecurity incidents in the last three years, including as a result of the Cyber Incident, that have materially affected the business strategy, results of operations, or financial condition of the Company.
Our CIOs have collectively over seventy years of service in various roles in the cybersecurity and information technology areas, including over forty years in their current roles or within the industry. 24 Table of Contents
Our CIOs have collectively over seventy years of service in various roles in the cybersecurity and information technology areas, including over forty years in their current roles or within the industry. 25 Table of Contents

Item 2. Properties

Properties — owned and leased real estate

5 edited+0 added−0 removed0 unchanged
Biggest changeNumber 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 .
Biggest changeNumber of Properties Lawson TestEquity Gexpro Services Canada Branch Division All Other (1) Offices 3 5 3 2 1 Distribution centers/warehouses 8 40 30 1 — Branch locations 5 — — 38 — Other (2) 1 — — — — Total 17 45 33 41 1 (1) Includes our principal executive office.
ITEM 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.
ITEM 2. PROPERTIES. Our principal executive office is located in Fort Worth, Texas. As of December 31, 2024, 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, 2024 are summarized below.
ITEM 3. LEGAL PROCEEDINGS. See Note 15 – Commitments and Contingencies to our consolidated financial statements, included in Item 8. Financial Statements and Supplementary Data, which is incorporated herein by reference, for a description of certain of our pending legal proceedings, which are incorporated herein by reference.
See Note 15 – Commitments and Contingencies to our consolidated financial statements, included in Item 8. Financial Statements and Supplementary Data, which is hereby incorporated herein by reference, for a description of certain of our pending legal proceedings, which are hereby incorporated herein by reference.
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
In addition, the Company is involved in legal actions that arise in the ordinary course of business. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 26 Table of Contents PART II
(2) In connection with the sale of a discontinued business, we have agreed to lease the facility prior to the sale of the property. While we believe that our facilities are adequate to meet our current needs, we will continue to assess the location and operation of our facilities to determine whether they meet the strategic needs of our business.
(2) Unoccupied facility related to a discontinued business in a prior year. While we believe that our facilities are adequate to meet our current needs, we will continue to assess the location and operation of our facilities to determine whether they meet the strategic needs of our business. ITEM 3. LEGAL PROCEEDINGS.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

5 edited+4 added−0 removed1 unchanged
Biggest changePeriod 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
Biggest changePeriod 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, 2024 — $ — — $ — November 1 through November 30, 2024 — — — — December 1 through December 31, 2024 — — — — Total — — Stock Price Performance Graph The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent we specifically incorporate it by reference into such filing.
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.
We did not declare or pay dividends in 2024, 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 Amended Credit Agreement. Information about our equity compensation plans may be found in Item 12.
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.
The following table summarizes repurchases of DSG common stock for the three months ended December 31, 2024 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.
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.
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 $26.4 million of remaining availability under the stock repurchase program as of December 31, 2024. T he stock repurchase program does not have an expiration date.
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.
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 28, 2025, the closing sales price of our common stock was $29.48 and the number of stockholders of record was 256.
Added
For additional information about our repurchases of DSG common stock, see Note 2 – Summary of Significant Accounting Policies and Note 11 – Stockholders’ Equity .
Added
The following stock performance graph compares the cumulative total stockholder return of DSG common stock against the Russell 2000 Index and a peer group (the “Peer Group”). The Peer Group is composed of W.W. Grainger, Inc., Fastenal Company, MSC Industrial Direct Co., Inc., Applied Industrial Technologies, Inc., DXP Enterprises, Inc. and Global Industrial Company.
Added
The graph assumes the value of the investment in our DSG common stock and each index was $100 at December 31, 2019 and all dividends paid by those companies included in the indices were reinvested.
Added
The graph is based on historical data and is not necessarily indicative of future performance. 27 December 31, 2019 2020 2021 2022 2023 2024 DSG $ 100.00 $ 97.70 $ 105.11 $ 70.75 $ 121.15 $ 132.05 Russell 2000 Index 100.00 119.96 137.74 109.58 128.14 142.92 Peer Group 100.00 135.35 179.74 174.64 258.21 320.60 ITEM 6. [RESERVED] 28

Item 7. Management's Discussion & Analysis

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

80 edited+84 added−21 removed52 unchanged
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.
Biggest changeReconciliation of Net Income (Loss) to Non-GAAP Adjusted EBITDA (Unaudited) Year Ended December 31, 2024 (in thousands) Lawson TestEquity Gexpro Services Canada Branch Division All Other Consolidated Net income (loss) $ (7,332) Income tax expense (benefit) 6,796 Other income (expense), net 358 Change in fair value of earnout liabilities 988 Interest expense 55,145 Operating income (loss) $ 14,555 $ 3,967 $ 36,533 $ 6,024 $ (5,124) $ 55,955 Depreciation and amortization 24,349 30,799 15,489 3,739 — 74,376 Stock-based compensation (1) 4,132 433 — — 668 5,233 Severance and acquisition related retention expenses (2) 4,937 17,791 460 49 (1) 23,236 Acquisition related costs (3) 7,023 2,251 1,501 23 (656) 10,142 Inventory net realizable value adjustment (4) — — — — — — Inventory step-up (5) 1,066 — — 1,816 — 2,882 Other non-recurring (6) 337 1,047 1,792 — 257 3,433 Adjusted EBITDA $ 56,399 $ 56,288 $ 55,775 $ 11,651 $ (4,856) $ 175,257 33 Year Ended December 31, 2023 (in thousands) Lawson TestEquity Gexpro Services Canada Branch Division All Other Consolidated Net income (loss) $ (8,967) Income tax expense (benefit) 6,960 Other income (expense), net 2,982 Change in fair value of earnout liabilities (758) Interest expense 42,774 Operating income (loss) $ 32,498 $ (16,465) $ 27,000 $ 5,731 $ (5,773) $ 42,991 Depreciation and amortization 19,532 26,002 15,986 2,068 — 63,588 Stock-based compensation (1) 7,940 — — — — 7,940 Severance and acquisition related retention expenses (2) 476 23,949 238 3 — 24,666 Acquisition related costs (3) 3,015 6,215 1,081 — 1,250 11,561 Inventory net realizable value adjustment (4) — — — — — — Inventory step-up (5) — 3,582 — — — 3,582 Other non-recurring (6) 202 — 886 — 1,620 2,708 Adjusted EBITDA $ 63,663 $ 43,283 $ 45,191 $ 7,802 $ (2,903) $ 157,036 Year Ended December 31, 2022 (in thousands) Lawson (7) TestEquity Gexpro Services Canada Branch Division (7) 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 $ 4,614 $ (2,030) $ 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 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 $ 7,318 $ (1,986) $ 113,858 (1) Expense (benefit) primarily for stock-based compensation, of which a portion varies with the Company’s stock price.
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.
Non-GAAP Adjusted EBITDA Management believes Adjusted EBITDA is an important measure of the Company's operating performance and may provide investors with additional meaningful comparisons between current results and results in prior operating periods because Adjusted EBITDA excludes certain non-operational or non-cash items whose fluctuations from period to period do not necessarily correspond to changes in the operating performance of our business and consequently may impact the overall 29 comparability from period to period.
Non-GAAP Adjusted EBITDA Management believes Adjusted EBITDA is an important measure of the Company’s operating performance and may provide investors with additional meaningful comparisons between current results and results in prior operating periods because Adjusted EBITDA excludes certain non-operational or non-cash items whose fluctuations from period to period do not necessarily correspond to changes in the operating performance of our business and consequently may impact the overall comparability from period to period.
The increase was primarily driven by additional depreciation and amortization of $9.2 million as a result of the fair value step-up adjustments related to the reverse merger acquisition accounting and higher stock-based compensation of $12.2 million due to expense of $7.9 million in 2023 and a benefit of $4.2 million realized in 2022, partially offset by lower acquisition related costs of $4.7 million in 2023 compared to the same period of 2022.
The increase was primarily driven by additional depreciation and amortization of $9.2 million as a result of the fair value step-up adjustments related to the reverse merger acquisition accounting and higher stock-based compensation of $12.2 million due to expense of $7.9 million 45 in 2023 and a benefit of $4.2 million realized in 2022, partially offset by lower acquisition related costs of $4.7 million in 2023 compared to the same period of 2022.
At December 31, 2023, DSG had not incurred material costs as a result of the Cyber Incident. On April 4, 2023, a putative class action lawsuit was filed against DSG related to the Cyber Incident (the “Cyber Incident Suit”). For more information about the Cyber Incident Suit, refer to Note 15 – Commitments and Contingencies within Item 8.
On April 4, 2023, a putative class action lawsuit was filed against DSG related to the Cyber Incident (the “Cyber Incident Suit”). At December 31, 2024, DSG had not incurred material costs as a result of the Cyber Incident. For more information about the Cyber Incident Suit, refer to Note 15 – Commitments and Contingencies within Item 8.
P ro forma gross profit margin for 2022 was also impacted by an inventory charge of $1.7 million to reduce inventory related to discontinued products where 35 the anticipated net realizable value was lower than the cost reflected in our records and the amortization of the fair value step-up of inventory of $1.9 million related to the Mergers.
P ro forma gross profit margin for 2022 was also impacted by an inventory charge of $1.7 million to reduce inventory related to discontinued products where the anticipated net realizable value was lower than the cost reflected in our records and the amortization of the fair value step-up of inventory of $1.9 million related to the Mergers.
Selling, general and administrative expenses increased $68.7 million to $233.0 million in 2023 compared to Selling, general and administrative expenses of $164.2 million in the same period of 2022 primarily due to $62.7 million of Selling, general and administrative expenses 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 . 34 Adjusted EBITDA During 2023 , Lawson generated Adjusted EBITDA of $63.7 million , an increase of 108.2% or $33.1 million from the same period a year ago p rimarily due to $18.5 million of Adjusted EBITDA 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 and increased revenue and gross profit margin partially offset by an increase in Selling, general and administrative expenses .
Selling, general and administrative expenses increased $68.7 million to $233.0 million in 2023 compared to Selling, general and administrative expenses of $164.2 million in the same period of 2022 primarily due to $62.7 million of Selling, general and administrative expenses 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 . 43 Adjusted EBITDA During 2023 , Lawson generated Adjusted EBITDA of $63.7 million , an increase of 108.2% or $33.1 million from the same period a year ago p rimarily due to $18.5 million of Adjusted EBITDA 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 and increased revenue and gross profit margin partially offset by an increase in Selling, general and administrative expenses .
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.
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; • 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.
The following table provides a reconciliation of Net income to Adjusted EBITDA on a consolidated basis and Operating income to Adjusted EBITDA by segment for the years ended December 31, 2023 and 2022 .
The following table provides a reconciliation of Net income to Adjusted EBITDA on a consolidated basis and Operating income to Adjusted EBITDA by segment for the years ended December 31, 2024, 2023 and 2022 .
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.
While we were in compliance with our financial covenants as of December 31, 2024, failure to meet the covenant requirements of the 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.
Through the Hisco Transaction, TestEquity expanded its product offerings, including adhesives, chemicals and tapes as well as specialty materials such as electrostatic discharge, thermal management materials and static shielding bags. Hisco operates in 38 locations across North America, including its Precision Converting facilities that provide value-added fabrication and its Adhesive Materials Group that provides an array of custom repackaging solutions.
Through the Hisco Transaction, TestEquity expanded its product offerings, including adhesives, chemicals and tapes as well as specialty materials such as electrostatic discharge, thermal management materials and static shielding bags. Hisco operates in 32 locations across North America, including its Precision Converting facilities that provide value-added fabrication and its Adhesive Materials Group that provides an array of custom repackaging solutions.
These non-GAAP financial measures should be viewed in addition to, and not as an alternative for, the Company's reported results prepared in accordance with GAAP.
These non-GAAP financial measures 32 should be viewed in addition to, and not as an alternative for, the Company’s reported results prepared in accordance with GAAP.
(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).
(4) 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).
(4) Pro-forma adjustments include the incremental expense related to the fair value adjustment of share-based compensation awards of $1.9 million and the net impact of $2.2 million from the elimination of historical depreciation and amortization expense and recognition of new depreciation expense on the fair value of property, plant and equipment and amortization expense related to identifiable intangible assets.
(3) Pro-forma adjustments include the incremental expense related to the fair value adjustment of share-based compensation awards of $1.9 million and the net impact of $2.2 million from the elimination of historical depreciation and amortization expense and recognition of new depreciation expense on the fair value of property, plant and equipment and amortization expense related to identifiable intangible assets.
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.
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 2023 and 2024 in response to rising supplier costs, as well as increased transportation and labor costs in order to manage our gross profit margins.
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.
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 manufacturers.
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 .
Revenue and Gross Profit Revenue increased $143.9 million , or 44.3%, 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, 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.
(5) Refer to the Non-GAAP Adjusted EBITDA section above for a reconciliation of operating income to Adjusted EBITDA. 44 Lawson - 2023 as Compared to Pro Forma 2022 (Unaudited) 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.
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.
Our current debt obligations under the Amended Credit Agreement mature in April 2027. Required principal payments on the Amended Credit Agreement for the next twelve months are $40.3 million . Refer to Note 9 – Debt within Item 8. Financial Statements and Supplementary Data for additional information related to our debt obligations.
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’s and Canada Branch Division’s historical operating results prior to the Mergers were obtained from the unaudited condensed consolidated financial statements included in the Lawson Products, Inc. Quarterly Report on Form 10-Q filed for the quarterly period ended March 31, 2022.
As of December 31, 2023, we were in compliance with all financial covenants under our 2023 Amended Credit Agreement.
As of December 31, 2024, we were in compliance with all financial covenants under our Amended Credit Agreement.
The following discussion and analysis of DSG's financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes included in this Annual Report on Form 10-K, the audited consolidated financial statements and accompanying notes included in DSG's Annual Report on Form 10-K filed for the year ended December 31, 2022 and the Lawson Products, Inc. unaudited condensed consolidated financial statements and accompanying notes included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.
The following discussion and analysis of DSG’s financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and related notes included in this Annual Report on Form 10-K, the audited consolidated financial statements and accompanying notes included in DSG’s Annual Report on Form 10-K for the year ended December 31, 2023, filed on March 7, 2024, the audited consolidated financial statements and accompanying notes included in DSG’s Annual Report on Form 10-K for the year ended December 31, 2022, filed on March 14, 2023 and the Lawson Products, Inc. unaudited condensed consolidated financial statements and accompanying notes included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, filed on April 28, 2022.
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.
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 $66.5 million on December 31, 2024 compared to $83.9 million on December 31, 2023.
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.
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.
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.
The disproportionate effective tax rates were caused by limitations on the deductibility of interest expense and other permanent items on a small pre-tax loss amount. 41 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 % Canada Branch Division (1) 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 % Canada Branch Division (1) 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 % Canada Branch Division (1) 17,763 1.1 % 13,289 1.2 % All Other 5,773 0.4 % 2,030 0.2 % Total Selling, general and administrative expenses 508,884 32.4 % 349,112 30.3 % 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, Canada Branch Division and All Other subsequent, but not prior, to the April 1, 2022 Merger Date.
The Company expects to spend appro ximately $16 million to $20 million for capital expenditures during 2024 to support ongoing operations. 40 Stock Repurchase Program The Company's Board of Directors previously authorized a stock repurchase program that permits the Company to repurchase its common stock.
The Company expects to spend appro ximately $20 million to $25 million for capital expenditures during 2025 to support ongoing operations. Stock Repurchase Program The Company’s Board of Directors previously authorized a stock repurchase program that permits the Company to repurchase its common stock.
Financial Statements and Supplementary Data for further information. Retention Bonuses As part of the Purchase Agreement, DSG will also pay $37.5 million in cash or DSG common stock in retention bonuses to certain Hisco employees that remain employed with Hisco or its affiliates for at least twelve months after the closing of the Hisco Transaction.
Financial Statements and Supplementary Data for further information. Retention Bonuses Under the Hisco Purchase Agreement, DSG became obligated to pay $37.5 million in cash or DSG common stock in retention bonuses to certain Hisco employees that remain employed with Hisco or its affiliates for at least twelve months after the closing of the Hisco Transaction.
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.
Supplemental Information For management to discuss Canada Branch Division’s operating results on a comparable basis, Canada Branch Division’s GAAP results of operations were adjusted to include Canada Branch Division’s historical pre-merger components of operating income, prior to the April 1, 2022 Merger Date, along with pre-merger pro forma adjustments prepared under SEC Regulation S-X Article 11, in order to reflect the total operating activities attributable to Canada Branch Division for each period presented.
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.
We define Adjusted EBITDA as operating income plus depreciation and amortization, stock-based compensation, severance and acquisition related retention costs, costs related to the execution and integration of acquisitions, inventory net realizable value adjustments, amortization of fair value step-up resulting from acquisitions and other non-recurring items. Management uses operating income and Adjusted EBITDA to evaluate the performance of its reportable segments.
Purchase Commitments As of December 31, 2023, we had contractual commitments to purchase approximately $146 million of products from our suppliers and contractors over the next twelve months. Capital Expenditures During the year ended December 31, 2023, t otal capital expenditures for property, plant and equipment and rental equipment were $24.7 million excluding proceeds from the sale of rental equipment.
Purchase Commitments As of December 31, 2024, we had contractual commitments to purchase approximately $173 million of products from our suppliers and contractors over the next twelve months. Capital Expenditures During the year ended December 31, 2024, t otal capital expenditures for property, plant and equipment and rental equipment were $23.2 million excluding proceeds from the sale of rental equipment.
(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.
See Note 1 – Nature of Operations and Basis of Presentation. (2) Lawson’s results of operations for the three months ended March 31, 2022, which occurred prior to the April 1, 2022 Merger Date and were not included in the Company’s GAAP operating results under reverse merger acquisition accounting.
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.
The increase in gross profit for 2023 compared to 2022 was primarily due to the inclusion of Lawson and Canada Branch Division operations only subsequent, and not prior, to the Merger Date and to the Hisco and other acquisitions completed in 2023 and 2 022. Expenses for 2023 were impacted by the other 42 acquisitions completed in 2023 and 2022.
Lawson's revenue is also influenced by the number of sales representatives and their productivity. Lawson plans to continue concentrating its efforts on increasing the productivity and size of its sales team. Additionally, Lawson drives revenue through the expansion of products sold to existing customers as well as attracting new customers and additional ship-to locations.
Lawson plans to continue concentrating its efforts on increasing the productivity and size of its sales team. Additionally, Lawson drives revenue through the expansion of products sold to existing customers as well as attracting new customers and additional ship- 30 to locations.
The 2023 Amended Credit Agreement includes a $200 million senior secured revolving credit facility, a $250 million senior secured initial term loan facility, a $305 million incremental term loan and a $50 million senior secured delayed draw term loan facility. Refer to Note 9 – Debt within Item 8.
As amended, the Amended Credit Agreement includes a $255 million senior secured revolving credit facility, a $250 million senior secured initial term loan facility, $505 million of incremental term loans, and a $50 million senior secured delayed draw term loan facility. Refer to Note 9 – Debt within Item 8.
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.
Financial Statements and Supplementary Data for a description of the Amended Credit Agreement. On December 31, 2024, we had $739.9 million in outstanding borrowings under the Amended Credit Agreement and $253.0 million of bo rrowing availability remaining, net of outstanding letters of credit, under the senior secured revolving credit facility component.
In December 2023, the Board of Directors increased the existing repurchase program by $25.0 million bringing the total authorized to $37.5 million. During 2023, the Company repurchased 138,725 shares of DSG common stock at an average cost of $26.09 per share for a total cost of $3.6 million.
In December 2023, the Board of Directors increased the existing repurchase program by $25.0 million bringing the total authorized to $37.5 million. During 2024, the Company repurchased 85,644 shares of DSG common stock at an average cost of $30.13 per share for a total cost of $2.6 million.
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.
This was partially offset by the sale of property, plant and equipment and rental equipment. Net cash used in investing activities for the year ended December 31, 2023 was $278.5 million, primarily due to the Hisco Transaction, as well as purchases of property, plant and equipment and rental equipment which was partially offset by the sale of rental equipment.
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.
Adjusted EBITDA During 2023 , Canada Branch Division generated Adjusted EBITDA of $7.8 million, a decrease of 7.6% or $0.6 million from the same period a year ago primarily driven by a decrease in Canada Branch Division revenue partially offset by an increase in gross profit margin and Selling, general and administrative expenses. 50 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.
Adjusted EBITDA During 2023 , TestEquity generated Adjusted EBITDA of $43.3 million , an increase of $8.5 million from the same period a year ago with approximately $19.7 million driven by the acquisitions completed in 2023 and 2022 partially offset by $7.3 million due to lower gross profit margin on lower legacy TestEquity revenue and $3.9 million primarily due to higher expenses for health insurance, allowance for doubtful accounts and other professional services.
The remaining increase in Selling, general and administrative expenses of $11.5 million is primarily due to $4.6 million of additional amortization of intangible assets acquired through the Hisco acquisition, $1.4 million of higher acquisition related expenses and $5.5 million of higher expenses for health insurance, allowance for doubtful accounts and other professional services. 46 Adjusted EBITDA During 2023 , TestEquity generated Adjusted EBITDA of $43.3 million , an increase of $8.5 million from the same period a year ago with approximately $19.7 million driven by the acquisitions completed in 2023 and 2022 partially offset by $7.3 million due to lower gross profit margin on lower legacy TestEquity revenue and $3.9 million primarily due to higher expenses for health insurance, allowance for doubtful accounts and other professional services.
TestEquity gross profit as a percent of revenue decreased to 22.1% in 2023 compared to 22.8% in the prior year primarily due to the amortization of the fair value step-up of inventory of $3.6 million related to the Hisco Transaction and a shift in sales mix from the lower gross margin rates from the 2022 and 2023 acquisitions. 36 Selling, General and Administrative Expenses Selling, general and administrative expenses consist of compensation and support for TestEquity's sales representatives and expenses to operate TestEquity's distribution network and overhead expenses.
TestEquity gross profit as a percent of revenue decreased to 22.1% in 2023 compared to 22.8% in the prior year primarily due to the amortization of the fair value step-up of inventory of $3.6 million related to the Hisco Transaction and a shift in sales mix from the lower gross margin rates from the 2022 and 2023 acquisitions.
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.
In addition to these four reportable segments, we have an “All Other” category which includes unallocated DSG holding company costs that are not directly attributable to the ongoing operating activities of our reportable segments.
Under this guidance, TestEquity and Gexpro Services were treated as a combined entity as the accounting acquirer for financial reporting purposes, and DSG was identified as the accounting acquiree.
The Mergers were accounted for as a reverse merger under the accounting guidance for reverse acquisitions as provided in ASC 805. Under this guidance, TestEquity and Gexpro Services were treated as a combined entity as the accounting acquirer for financial reporting purposes, and DSG was identified as the accounting acquiree.
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.
The Company believes its current balances of cash and cash equivalents, availability under its Amended Credit Agreement and cash flows from operations will be sufficient to meet its liquidity needs for the next twelve months. On August 14, 2024, the Company borrowed $200 million under the incremental term loan of the Amended Credit Agreement.
The Company 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.
Goodwill Impairment - Goodwill represents the cost of business acquisitions in excess of the fair value of identifiable net tangible and intangible assets acquired. The Company reviews goodwill for potential impairment annually on October 1st, or when an event or other circumstances change that would more likely than not reduce the fair value of the asset below its carrying value.
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.
Refer to the section Factors Affecting Comparability to Prior Periods and the section 2022 Supplemental Information - Lawson and Canada Branch Division Pro Forma Operating Income and Non-GAAP Adjusted EBITDA and the section Lawson Pro Forma Results - Calculation of Supplemental Information (Unaudited) for more information related to the calculation of adjusted amounts.
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.
Net cash provided by financing activities for the year ended December 31, 2023 was $250.4 million, due to borrowings under the Company’s credit facility and proceeds from a rights offering that we completed during the second quarter of 2023, partially offset by repayment of previous indebtedness and principal payments on the term loans.
Selling, general and administrative expenses increased $80.3 million to $158.3 million in 2023 compared to $78.0 million in the same period of 2022 . Approximately $68.8 million of the increased expenses, including depreciation, was driven by the acquisitions completed in 2023 and 2022 of which $22.8 million was related to the Hisco retention bonuses.
Approximately $68.8 million of the increased expenses, including depreciation, was driven by the acquisitions completed in 2023 and 2022 of which $22.8 million was related to the Hisco retention bonuses.
Lawson Sales Drivers The North American MRO market is highly fragmented. Lawson competes for business with several national distributors as well as a large number of regional and local distributors. The MRO business is impacted by the overall strength of the manufacturing sector of the U.S. economy.
Lawson competes for business with several national distributors as well as a large number of regional and local distributors. The MRO business is impacted by the overall strength of the manufacturing sector of the U.S. economy. Lawson’s revenue is also influenced by the number of sales representatives and their productivity.
During 2022, the Company repurchased 108,178 shares of DSG common stock at an average cost of $17.93 per share for a total cost of $1.9 million . T he remaining availability for stock repurchases under the program was $29.0 million at December 31, 2023. See Note 11 – Stockholders' Equity within Item 8.
During 2023, the Company repurchased 138,725 shares of DSG common stock at an average cost of $26.09 per share for a total cost of $3.6 million . T he remaining availability for stock repurchases under the program was $26.4 million at December 31, 2024. See Note 11 – Stockholders’ Equity within Item 8.
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.
Lawson Pro Forma Results - Calculation of Supplemental Information (Unaudited) (in thousands) Year Ended December 31, 2022 Lawson Operating Income GAAP Results (1) Pre-Merger Results (2) Pro-Forma Adjustments (3) Pro Forma Results (4) Revenue from external customers $ 324,783 $ 104,902 $ — $ 429,685 Intersegment revenue — — — — Revenue 324,783 104,902 — 429,685 Cost of goods sold 154,030 49,371 — 203,401 Gross profit 170,753 55,531 — 226,284 Selling, general and administrative expenses 164,217 44,435 4,086 212,738 Operating income (loss) $ 6,536 $ 11,096 $ (4,086) $ 13,546 Lawson Adjusted EBITDA (5) $ 30,584 $ 8,042 $ 38,626 (1) Operating income prepared in accordance with GAAP, which includes Lawson’s results of operations subsequent, but not prior, to the April 1, 2022 Merger Date.
(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.
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.
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.
Management believes this supplemental information provides the most meaningful basis of comparison for Lawson’s and Canada Branch Division’s operations, is more useful in identifying current business trends, and is important for the users of our financial statements in understanding Lawson’s and Canada Branch Division’s businesses.
See Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business Acquisitions within Item 8. Financial Statements and Supplementary Data .
Refer to Note 1 – Nature of Operations and Basis of Presentation and Note 3 – Business and Asset Acquisitions within Item 8. Financial Statements and Supplementary Data for information about the Mergers.
In conjunction with the Hisco Transaction, the Company borrowed $305.0 million under the incremental term loan facility on June 8, 2023 and raised approximately $98.5 million, net of offering costs, through the Rights Offering which closed during the second quarter of 2023. During 2023, deferred financing costs of $3.4 million were incurred related to the 2023 Amended Credit Agreement.
In conjunction with the Hisco Transaction, the Company borrowed $305.0 million under the incremental term loan facility on June 8, 2023 and raised approximately $98.5 million, net of offering costs, through the rights offering.
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 .
(2) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA. Revenue and Gross Profit Revenue 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 .
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.
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.
Adjusted EBITDA During 2023 , Gexpro Services generated Adjusted EBITDA of $45.2 million , an increase of $2.0 million, or 4.6% from the same period a year ago primarily driven by increased revenue and gross profit margin, partially offset by an increase in Selling, general, and administrative expenses.
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. 47 Adjusted EBITDA During 2023 , Gexpro Services generated Adjusted EBITDA of $45.2 million , an increase of $2.0 million, or 4.6% from the same period a year ago primarily driven by increased revenue and gross profit margin, partially offset by an increase in Selling, general, and administrative expenses.
The 2023 Amended Credit Agreement also provides for the Company to increase the commitments from time to time by up to $200 million in the aggregate, subject to, among other things, receipt of additional commitments from existing and/or new lenders and pro forma compliance with certain financial covenants.
The Third Amendment provided for an additional $200 million incremental term loan and a $55 million increase in the senior secured revolving credit facility to $255 million, and permits the Company to increase the commitments under the agreement from time to time by up to $300 million in the aggregate, subject to, among other things, receipt of additional commitments from existing and/or new lenders and pro forma compliance with certain financial covenants.
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.
(7) Includes the operating results of Lawson, Canada Branch Division and All Other subsequent, but not prior, to the April 1, 2022 Merger Date in accordance with GAAP accounting guidance for reverse acquisitions. 34 Composition of Results of Operations The following results of operations for the years ended December 31, 2024 and 2023 include the combined operations of DSG, while the following results of operations for the year ended December 31, 2022 include the accounts of the TestEquity and Gexpro Services combined entity, as the accounting acquirer, for the full year, and the results of DSG’s legacy Lawson, Canada Branch Division and All Other businesses have only been included for activity subsequent, and not prior, to the April 1, 2022 Merger Date.
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.
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.
Gexpro Services gross profit as a percent of revenue was 29.8% in 2023 compared to 29.3% in the prior year period.
Gross profit increased $17.4 million to $138.5 million in 2024 compared to $121.1 million in 2023. Gexpro Services’ gross profit as a percent of revenue was 31.4% in 2024 compared to 29.8% in the prior year period.
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.
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. Lawson is a distributor of specialty products and services to the industrial, commercial, institutional and government MRO market.
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.
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.
A measure of the PMI index above 50 is generally viewed as indicating an expansion of the manufacturing sector while a measure below 50 is generally viewed as representing a contraction. The average monthly PMI wa s 47.1 in the year ended December 31, 2023 compared to 53.5 in the year ended December 31, 2022 .
The PMI is a composite index of economic activity in the U.S. manufacturing sector. 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.
Sources and Uses of Cash The following table presents a summary of our cash flows: (in thousands) December 31, 2023 December 31, 2022 Change Net cash provided by (used in) operating activities $ 102,286 $ (11,029) $ 113,315 Net cash provided by (used in) investing activities $ (278,523) $ (126,688) $ (151,835) Net cash provided by (used in) financing activities $ 250,406 $ 148,461 $ 101,945 Cash Provided by (Used in) Operating Activities Net cash provided by operations for the year ended December 31, 2023 was $102.3 million primarily due to non-cash items, partially offset by a net loss and improvements in working capital.
Sources and Uses of Cash The following table presents a summary of our cash flows: (in thousands) December 31, 2024 December 31, 2023 Change Net cash provided by (used in) operating activities $ 56,453 $ 102,286 $ (45,833) Net cash provided by (used in) investing activities $ (229,683) $ (278,523) $ 48,840 Net cash provided by (used in) financing activities $ 159,301 $ 250,406 $ (91,105) Cash Provided by (Used in) Operating Activities Net cash provided by operations for the year ended December 31, 2024 was $56.5 million primarily due to non-cash items, partially offset by a net loss, payments of $34.6 million related to the Hisco retention bonuses and other net cash flow items.
Expenses for 2023 were impacted by the other acquisitions completed in 2023 and 2022. 33 Refer to Results by Reportable Segment below for a complete discussion of our results of operations.
Refer to Results by Reportable Segment below for a complete discussion of our results of operations.
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.
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. We manage and report our operating results through four reportable segments: Lawson, TestEquity, Gexpro Services and Canada Branch Division.
Pursuant to the Purchase Agreement, the Company paid $1.8 million of the retention bonuses during 2023 and will pay $34.6 million during 2024, with the remaining balance of $1.1 million to be paid in 2025.
Pursuant to the Hisco Purchase Agreement, the Company paid $1.8 million of the retention bonuses in 2023 and $34.6 million in 2024, with the remaining balance of $1.1 million to be paid in 2025. 53 Table of Contents 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.
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.
Refer to Note 9 – Debt in Item 8. Financial Statements and Supplementary Data for additional information about DSG’s credit agreement. 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 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.
The pro forma adjustments were obtained from the unaudited pro forma condensed combined financial information included in DSG’s Current Report on Form 8-K/A filed on August 24, 2023. Non-GAAP Financial Measures 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.
(2) Includes severance expense from actions taken in 2023 and 2022 not related to a formal restructuring plan and acquisition related retention expenses for the Hisco Transaction. (3) Transaction and integration costs related to the Mergers and other acquisitions.
(2) Includes severance expense from actions taken not related to a formal restructuring plan and acquisition related retention expenses. (3) Transaction and integration costs related to acquisitions. (4) Inventory net realizable value adjustment recorded to reduce inventory related to discontinued products where the anticipated net realizable value was lower than the cost reflected in our records.
Income Taxes - Deferred tax assets or liabilities reflect temporary differences between amounts of assets and liabilities for financial and tax reporting. Such amounts are adjusted, as appropriate, to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse.
Such amounts are adjusted, as appropriate, to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse. Significant judgment is required in determining income tax provisions as well as deferred tax asset and liability balances, including the estimation of valuation allowances and the evaluation of uncertain tax positions.
(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.
(2) Refer to the Non-GAAP Adjusted EBITDA section in Overview for a reconciliation of operating income to Adjusted EBITDA.
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.
As of December 31, 2024, the Company had $66.5 million of cash and cash equivalents and $253.0 million of bo rrowing availability remaining, net of outstanding letters of credit, under the Amended Credit Agreement. 51 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.
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.
Financial Statements and Supplementary Data. 31 Factors Affecting Comparability to Prior Periods Our results of operations are not directly comparable on a year-over-year basis due to various business combinations. We account for acquisitions under Accounting Standards Codification 805, Business Combinations (“ASC 805”). Accordingly, the results of acquisitions are only included subsequent to their respective acquisition dates.
These pro forma results presented in the table below are referred to within this supplemental results of operations discussion as "pro forma".
These pro forma results presented in the tables below are referred to within this supplemental results of operations discussion concerning Lawson as “pro forma”. Refer to the section titled 2022 Supplemental Information - Lawson and Canada Branch Division Pro Forma Operating Income and Non-GAAP Adjusted EBITDA above for further explanation of the calculation of this supplemental information.
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.
Net cash provided by operations for the year ended December 31, 2023 was $102.3 million, primarily due to non-cash items, partially offset by a net loss and improvements in working capital.
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.
Accordingly, the results of operations for the year ended December 31, 2022 include the results of operations of TestEquity and Gexpro Services on a consolidated basis for the full year, and the results of operations of DSG’s legacy Lawson, Canada Branch Division and All Other have only been included subsequent to the April 1, 2022 Merger Date. 2022 Supplemental Information - Lawson and Canada Branch Division Pro Forma Operating Income and Non-GAAP Adjusted EBITDA For management to discuss Lawson’s and Canada Branch Division’s operating results on a comparable basis, Lawson’s and Canada Branch Division’s GAAP results of operations were adjusted to include Lawson’s and Canada Branch Division’s historical pre-merger components of operating income, prior to the April 1, 2022 Merger Date, along with pre-merger pro forma adjustments prepared under SEC Regulation S-X Article 11, in order to reflect the total operating activities attributable to Lawson and Canada Branch Division for each period presented.
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.
Financial Statements and Supplementary Data. The following provides information on the accounts requiring more significant estimates. Income Taxes - Deferred tax assets or liabilities reflect temporary differences between amounts of assets and liabilities for financial and tax reporting.
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.
Cash Provided by (Used in) Financing Activities Net cash provided by financing activities for the year ended December 31, 2024 was $159.3 million primarily due to borrowings under the Company’s credit facility partially offset by principal payments on the term loans.

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