DSGR 10-K & 10-Q changes, risk factors and insider trading

Our ability to rapidly process customer orders is an integral component of our overall business strategy. Interruptions at our company-operated facilities or disruptions at a major transportation center or shipping port, due to events such as severe weather, labor interruptions, natural disasters, acts of terrorism, trade restrictions, government-imposed quotas or other events, could adversely affect our ability to maintain core products in inventory or deliver products to our customers on a timely basis or adversely affect demand for our products, which may in turn adversely affect our business, financial condition and results of operations. Similarly, other supply chain disruptions have impacted our ability to maintain certain core products in inventory and deliver products to customers on a timely basis,basis and may continue to impact our ability to do so. Such supply chain disruptions may adversely affect our business, financial condition and results of operations.

We depend on our information and communication systems to process orders, purchase and manage inventory, maintain cost-effective operations, sell and ship products, manage accounts receivable collections and serve our customers. Disruptions in the operation of information and communication systems can occur due to a variety of factors including power outages, hardware failure, programming faultsfaults, cyber incidents and human error. Disruptions in the operation of our information and communication systems, whether over a short or an extended period of time or affecting one or multiple distribution centers, could have a material adverse effect on our business, financial condition and results of operations.

We are increasingly dependent on digital technology to process and record financial and operating data and communicate with our employeesemployees, customers, suppliers and other business partners. During the normal course of business we receive, retain and transmit certain confidential information that our customers provide to purchase products or services or to otherwise communicate with us, as well as certain potentially sensitive information about our employees and other persons and entities.

Our technologies, systems, networks and data and information processes (and those of our customers, suppliers and other business partners) have been, and may in the future be, the target of cyber-attacks and/or information security incidents that may have resulted in, or may in the future result in, the unauthorized release, misuse, loss or destruction of proprietary, personal and other information, or other disruption of our business operations, including compromise of our email systems. For example, in February 2022, Lawson became aware that its computer network was the subject of a cyber incident potentially involving unlawful access (the “Cyber Incident”). Because of the nature of the information that may have been potentially compromised, which may have included personal identifiable information and protected health information, we were required to notify the parties whose information was potentially compromised of the incident as well as various governmental agencies and have taken other actions, such as offering credit monitoring services. After this incident, we also reviewed our overall systems and processes, and implemented certain changes, including employee training, designed to improve our overall cybersecurity program, but we cannot assure you that these changes will be effective to prevent future incidents. In addition, from time to time our email systems (and those of our customers, suppliers and other business partners communicating with us) have been subjected to malicious attacks, including phishing attacks. Such attacks or incidents could have a material adverse effect on our business strategy, results of operations or financial condition and subject us to additional legal costs.

The techniques used by criminals to obtain unauthorized access to sensitive data change frequently and often are not recognizable until launched against a target or until a breach has already occurred. Accordingly, we may be unable to anticipate these techniques or implement adequate preventative measures. In addition, we are exposed to growing and evolving risks arising from the use of Artificial IntelligenceAI technologies by bad actors to commit fraud, misappropriate funds and facilitate cyberattacks. As cyber threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to investigate and fix any information security vulnerabilities.

There may be difficulties in integrating certain operations of TestEquity’sbusinesses andwe Gexpro Services’ respective businessesacquire 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.

TheOne Mergersof our growth strategies is to actively pursue additional acquisition opportunities which complement our business model. However, there are risks associated with pursuing acquisitions, which include the incurrence of significant transaction costs without the guarantee that such transactions will be completed and the risk that we may not realize the anticipated benefits of the acquisition once it is completed. Many of the businesses we acquire involve the combination of businesses that previously operated as independent businesses. Management has devoted and will continue to devote significant attention and resources to combine certainthe business operations of TestEquityacquired and Gexpro Servicesbusinesses with our other business operations. This may divert the time and attention of our management team and diminish their time to manage our businesses, service existing customers, attract new customers, develop new products, services and strategies and identify other beneficial opportunities.

If ourwe management is not ablefail to effectivelysuccessfully manageidentify the processright followingopportunities and/or to successfully integrate the closingacquired businesses, operations, technologies, systems and/or personnel with those of the Mergers,DSG, or if any significant business activities are interrupted as a result of this process, our businessesthis could suffer.adversely affect our business, financial condition and results of operations.

Furthermore, it is possible that following an acquisition, the Mergersbusiness acquired could result in the loss oflose key employees. If we are not able to fully realize the anticipated savings and synergies from the Mergersacquisitions in a timely manner, or the cost to achieve these synergies is greater than expected, we may not fully realize the anticipated benefits (or any benefits) of the Mergers,acquisitions, or it may take longer than expected to realize any benefits. The failure to fully or timely realize the anticipated benefits could have a negative effect on the market price of DSG common stock.

As a result of theour closing of the Mergers on April 1, 2022, and other acquisitions completed during 2024, 2023 and 2022,acquisitions, we have recorded a significant amount of goodwill and other intangible assets on our consolidated balance sheet as of December 31, 2024.2025. In accordance 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. Significant negative industry or economic trends, disruptions to our business, an inability to effectively integrate acquired businesses, unexpected significant changes, planned changes in use of the assets, divestitures and market capitalization declines may impair goodwill and other intangible assets. Any charges relating to such impairments could materially and adversely affect our results of operations in the periods recognized, which could result in an adverse effect on the market price of DSG common stock.

A portion of our revenue is derived from the United States military and other governmental and tax-supported entities. These entities are largely dependent upon government budgets and require adherence to certain laws and regulations, including sanctions. Such sanctions could include restrictions on selling or importing goods, services, or technology in or from affected regions and travel bans and asset freezes impacting connected individuals and political, military, business, and financial organizations. In addition, geopolitical instability and military hostilities, such as the Hamas-IsraelRussia-Ukraine military conflict and theUnited Russia-UkraineStates military conflict,operations in Venezuela, could negatively impact our businessbusiness. Although we have not, do not currently and do not plan to conduct business operations in Gaza, Israel, Russia, Belarus, Ukraine or Ukraine,Venezuela, it is not possible to predict the broader consequences of these conflicts, which could include sanctions, embargoes or other geopolitical instability. Any decrease in the levels of defense and other governmental spending or the introduction of more stringent governmental regulations and oversight could lead to reduced revenue or an increase in compliance costs which would adversely affect our business, financial condition and results of operations.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and applicable SEC rules, we are required to include in each Annual Report on Form 10-K a report by our management on our internal control over financial reporting. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. Each year, we must prepare or update the process documentation and perform the evaluation needed to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and applicable SEC rules in providing this report. During this process, if our management identifies one or more material weaknesses in our internal control over financial reporting, we will be unable to assert such internal control is effective. For example, management’s report on our internal controls over financial reporting contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, identified a material weakness and concluded that we did not maintain effective internal controls over financial reporting as of December 31, 2022. Ensuring that we have adequate internal financial and accounting controls and procedures in place is a costly and time-consuming exercise that needs to be re-evaluated frequently. We and our independent auditors may in the future discover areas of our internal controls that need further attention and improvement, particularly with respect to any other businesses that we decide to acquire in the future.

One of our growth strategies is to actively pursue additional acquisition opportunities which complement our business model. These acquired businesses are typically private companies and may not have in place the financial organization, reporting and controls which are required for a U.S. public company. The cost of implementing this type of financial organization, reporting and controls in respect of the acquired business and integrating their financial reporting processes with our financial reporting processes may be significant. If there are limitationsLimitations in the acquired businesses’ financial organization, reporting and controls, or ifan we are unableinability to effectively integrate their financial reporting processes with our financial reporting processes, wehas could,in amongthe otherpast things,resulted havein, and may in the future lead to, material weaknesses in our internal controls,controls. violateThese limitations could also lead to a violation of our indebtedness covenants,covenants or cause us to miss an SEC reporting deadline or otherwise fail to comply with an applicable law or regulation.

We havehad $739.9$704.4 million of indebtedness as of December 31, 2024,2025, which includes a significant amount of indebtedness under our Amended Credit Agreement (as defined in Note 9 – Debt in Item 8. Financial Statements and Supplementary Data). 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. Our indebtedness could have significant consequences on our future operations, including:

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

InflationThe global macroeconomic environment has risenexperienced onchallenges ain globalrecent basis,years, the United States has been experiencing relativelyincluding high levelsrates of inflation,inflation. andIn response, government entities have taken various actions to combat inflation, such as raising interest rate benchmarks. GovernmentIf there is an increase in inflation, government entities may continue their efforts, or implement additional efforts,efforts to combat such increase in inflation, which could includeinclude, among other thingsthings, raising interest rate benchmarks, maintaining interest rate benchmarks at elevated levels and/or failing to lower interest rate benchmarks. Such government efforts, along withor other interest rate pressures, could lead to higher financing costs and have material adverse effect on our business, financial condition and results of operations.

Based on a Schedule 13D filed with the SEC by LKCM and various other persons and entities (as amended through DecemberFebruary 27,12, 20232025), entities affiliated with LKCM beneficially owned in the aggregate approximately 36.4 million shares of DSG common stock as of DecemberFebruary 26,12, 2023,2025, representing approximately 77.6%78.7% of the outstanding shares of DSG common stock as of December 31, 2024.2025. J. Bryan King, Chairman and Chief Executive Officer of the Company, is a Principal of LKCM. In addition, M. Bradley Wallace, who became a director of the Company upon his election at the Company’s 2023 annual stockholders meeting on May 19, 2023,Company, is a Founding Partner of LKCM Headwater Investments, the private capital investment group of LKCMLKCM. As a result, LKCM has significant influence over the outcome of matters requiring a stockholder vote, including the election of directors and the approval of other significant matters, and LKCM’s interests may not align with the interests of other stockholders. This concentration of ownership could also have the effect of delaying or preventing a change of control or other business combination that might be beneficial to our stockholders.

We are subject to income taxation at federal and state levels in the United States and to income taxation in numerous non-U.S. jurisdictions. Our results of operations could be adversely affected by changes in the Company’s effective tax rate as a result of changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets, audits by taxing authorities or changes in tax laws, regulations and their interpretation. From time-to-time changes in tax laws or regulations may be proposed or enacted that could adversely affect our overall tax liability. In addition, the Organization for Economic Cooperation and Development (“OECD”), which represents a coalition of member countries, has recommended fundamental tax reform affecting the taxation of multinational corporations, including the Base Erosion and Profit Shifting (“BEPS”) project, which in part aims to address international corporate tax avoidance. On December 20, 2021, the OECD released Pillar Two Model Rules defining the global minimum tax rules, which contemplate a 15% minimum tax rate. The OECD continuesreached agreement among over 140 countries to releaseimplement additionala guidanceminimum 15% tax rate on thesecertain rulesmultinational andenterprises, commonly referred to as Pillar Two. Although the framework calls for law enactment by OECD and G20 members to take effect in 2024 or 2025. However, the detail of the proposals is subject to change and the impact on the Company will need to be determined by reference to the final rules. The Company is continuing to monitor the potential impact of the Pillar Two proposals and developments on our consolidated financial statements and related disclosures, including eligibility for any transitional safe harbor rules. Among the jurisdictions where the Company operates, the U.K.U.S. has not yet enacted legislation duringto 2024adopt thatPillar becomesTwo, effectivecertain countries in 2025.Canadawhich haswe also enacted legislation during 2024 in accordance with the Pillar Two framework. Other countriesoperate have alsoalready enactedadopted, or are expected to enact Pillar Two legislation. The Company continues to monitor the development and implementation of these rules both in local countries and on a multi-lateral basis, making it uncertain to predict the ultimate impact in the future.process of adopting, legislation to implement Pillar Two. For the year ended December 31, 2024,2025, the Company hasdetermined notthat identifiedthere norwas recordedno anymaterial incrementalimpact on our tax provision as a result of Pillar Two. ChangesThe Company continues to monitor U.S. and global legislative action related to Pillar Two for potential impacts. In addition, changes in applicable tax laws and regulations could affect our ability to realize our deferred tax assets, which could adversely affect our results of operations.

TestEquityWe hashave 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.countries. Compliance with diverse legal and regulatory requirements, including in connection with the movement or repatriation of cash, may be costly and time-consuming and require significant resources. Violations could result in significant fines or monetary damages, sanctions, prohibitions or restrictions on doing business and damage to our reputation. 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. Foreign Corrupt Practices Act (the “FCPA”) and the UK Bribery Act 2010 (the “UKBA”). The U.S., U.K. and other foreign agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against companies for violations of export controls, the FCPA, the UKBA, and other laws, rules, sanctions, embargoes and regulations, including those established by the Office of Foreign Assets Control. Any violation of these legal requirements, even if prohibited by our policies, procedures and controls, could subject us to criminal or civil enforcement actions or penalties for non-compliance or otherwise have an adverse effect on our business and reputation.

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

At December 31, 2024,2025, the Company had $21.4 million of U.S. federal net operating loss carryforwards which were generated after 2017 and are not subject to expiration and $50.6$85.2 million of various state net operating loss carryforwards which expire at varying dates between 20252026 and 2036.2037. As a result of the Mergers, DSG’sOur ability to use itsour net operating losses and certain other tax attributes generated prior to the Mergers may be subject to limitations, which may adversely impact on our future tax liability and cash flows.

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. Those vendors have typically looked to pass their higher costs along to us through price increases. If we are unable to fully pass along any such increased prices and costs through to our customers or to modify our activities, the impact could have an adverse effect on our operating profit margins and financial condition. On the other hand, a decrease in oil prices may result in weaker demand from oil and gas customers in the future, resulting in lower net sales. Changes in trade policies, increases in or continuation of any tariffs or imposition of any new tariffs, and other inflationary pressures could also affect our sourcing of productproducts and ability to secure sufficient productproducts and/or impact the cost or price of our products, with potentially negative impacts on our reported gross profits and results of operations.

A number of our subsidiaries are located and operate outside the United States, and each uses the currency in such foreign country as its functional currency. Operating results denominated in foreign currencies are translated into U.S. dollars when consolidated into our financial statements. Therefore, we are exposed to market risk relating to the fluctuation of value of such foreign currencies (including the Canadian dollar, Mexican peso, British pound sterling, the Euro, Danish krone, Brazilian real, Chinese renminbi,yuan, Turkish lira, Indian rupee, Malaysian ringgit, Indonesian rupiah and Singapore dollar) relative to the U.S. dollar that could adversely affect our financial condition and operating results.

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

2025 Debt Amendment

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 also isutilizes expanding itsan inside sales team to help drive field sales representative productivity and also utilizes an e-commerce site to generate sales.

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 3835 branch locations. Source Atlantic was acquired in 2024 to expand DSG’s operating footprint in the Canadian market.

Supply Chain Disruptions and Tariffs

We continue to be affected by rising supplier costs caused by inflationinflation, and increased tariffs, transportation and labor costs. We have instituted various price increases during 20232023, 2024 and 20242025 in response to rising supplier costs, asincreased well as increasedtariffs, transportation and labor costs in order to attempt to manage our gross profit margins.

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. Refer to Note 3 – Business combinationsand Asset Acquisitions within Item 8. Financial Statements and Supplementary Data for a description of each acquisition completed in 2024 and the reportable segment that affectedeach theacquisition’s year-over-yearrespective comparabilityresults of ouroperations financialis resultsincluded were as follows:in.

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. 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. See Note 14 – Segment Information of our consolidated financial statements within Item 8. Financial Statements and Supplementary Data for additional information about our reportable segments.

The following table provides a reconciliation of Net income (loss) to Adjusted EBITDA on a consolidated basis and Operating income (loss) to Adjusted EBITDA by segment for the years ended December 31, 2024, 20232025 and 2022.2024. A reconciliation of Net income (loss) to Adjusted EBITDA by segment is not provided because management does not determine or review net income at the segment level and does not allocate non-operating costs and expenses to its segments, such as income taxes, interest expense, and various other non-operating income and expense.

Our consolidated revenue increased $233.7$175.9 million for 20242025 compared to 20232024 primarily driven by $268.2$121.5 million of revenue from acquisitions completed in 20232024 and 2024an offset by a declineincrease in organic revenue of $34.5$54.4 million. Consolidated Gross profit and Selling, general and administrative expenses also increased over the prior year primarily driven by the inclusion2024 acquisitions of the Hisco, ESS, S&S,S Automotive, Source Atlantic, TCR and ConRes TE acquisitions(each completedas defined in 2023Note 3 – Business and 2024.Asset Acquisitions in Item 8. Financial Statements and Supplementary Data).

Revenue increased $0.3$12.0 million, or 0.1%,2.6%, to $469.0$481.1 million in 20242025 compared to revenue of $468.7$469.0 million in 2023.2024. The increase was primarily driven by $39.8$17.0 million of additional revenue generated from the acquisitions completed in 20242024, and strengthening sales within the automotive end market of $2.9 million,partially offset by a decline in military customer sales to Lawson’s core, governmental and strategic customers of $42.4$5.2 million primarily as a result of fewer sales representatives.million.

Gross profit decreasedincreased $8.2$6.8 million, or 3.1%,2.6%, to $257.3$264.0 million in 20242025 compared to gross profit of $265.5$257.3 million in 20232024 primarily due toas a shift in sales toward larger lower margin profile customers and the amortizationresult of the fair value step-upinclusion of inventory$9.2 million of $1.1additional milliongross relatedprofit tofrom the S&Sacquisitions Automotivecompleted Transaction.in 2024 partially offset by lower revenue for legacy Lawson. Lawson gross profit as a percentpercentage of revenue was 54.8%54.9% in 20242025 compared to gross profit as a percentpercentage of revenue of 56.6%54.8% in the prior year. The gross profit margin percentage decrease for 2024 was primarily the result of the amortization of the fair value step-up of inventory of $1.1 million related to the S&S Automotive Transaction, a shift in sales toward larger lower margin profile customers and a lower margin profile from the 2024 acquisitions than its organic margin profile.

Selling, general and administrative expenses increased $9.7$2.6 million to $245.3 million in 2025 compared to $242.7 million in 20242024. comparedThe to $233.0 million in 2023. Approximately $10.3 million of the increased expensesincrease was driven primarily by additional selling, general and administrative expenses of approximately $3.8 million due to the acquisitions completed in 2024 in addition to2024, higher severanceemployee andrelated merger and acquisition expensescosts of $4.5$5.8 million and $4.0higher million,depreciation respectively.and Theseamortization costsexpense wereof $2.7 million partially offset by a decrease in stock-basedseverance expense, merger and acquisition expenses and stock based compensation expense of $3.8$2.3 million, $6.9 million and a$1.2 decreasemillion, in variable compensation as a result of lower sales.respectively.

During 2024,2025, Lawson generated Adjusted EBITDA of $56.4$51.6 million, a decrease of 11.4%8.4% or $7.3$4.8 million from the prior year primarily driven by lower organic revenue and grosshigher profitselling, margingeneral and administrative expenses primarily from higher employee related costs, partially offset by additional contributions of approximately $6.2$4.4 million generated by the acquisitions completed in 2024.

Revenue increased $129.4$12.1 million, or 20.2%,1.6%, to $783.2 million in 2025 compared to $771.2 million in 2024 compared to $641.8 million in 2023.2024. The increase was primarily driven by $157.4$7.2 million of revenue generated from acquisitionsthe acquisition completed in 20242024, and 2023,an increase of $19.0 million in the test and measurement, rentals, chambers, fabrication value added and calibration business, partially offset by a $28.0$14.1 million declinedecrease in legacy TestEquity revenue due to a slowdown in the electronics assembly market causing softening in the electronic production supplies endand markets.printing value added services.

During 2024,2025, TestEquity generated Adjusted EBITDA of $56.3$51.0 million, ana increasedecrease of $13.0$5.3 millionmillion, or 9.5%, from the same period a year ago with an increase of approximately $16.2 millionprimarily driven by thelower acquisitionsgross completed in 2024margins and 2023,higher employee compensation expenses partially offset by aadditional reductionnet margins of $3.2$7.7 million ingenerated legacyfrom TestEquitythe primarily2024 dueacquisition toof aConRes decline in organic revenue.TE.

Revenue increased $35.0$55.9 million, or 8.6%,12.7%, to $496.7 million in 2025 compared to $440.7 million in 2024 compared to $405.7 million in 2023.2024. There werewas twoone moreless selling daysday in the year ended December 31, 2024,2025, compared to the same period a year ago. A selling day generally represents a business day in which Gexpro Services ships products to its customers. Average daily sales increased 7.8%13.1% over the same period a year ago. The increase in revenue was primarily driven by increased sales in the renewable energy vertical market of $21.8 million, increased sales in theenergy, aerospace and defense vertical market of $6.4 million, strengthening sales within theand technology vertical marketmarkets of $6.7$25.3 millionmillion, $15.8 million, and $0.6$8.0 millionmillion, ofrespectively, and additional revenue generated from the 2024 acquisition completedof inTCR 2024,of $3.9 million. This was partially offset by softness within the consumer and industrial vertical market. Tariff costs passed through in the form of product price increases accounted for approximately 1.6% or $7.1 million of the 2025 revenue growth.

Gross profit increased $17.4$16.5 million to $155.0 million in 2025 compared to $138.5 million in 2024 comparedprimarily due to $121.1higher million in 2023.revenue. Gexpro Services’ gross profit as a percentpercentage of revenue was 31.4%31.2% in 20242025 compared to 29.8%31.4% in the prior year period. The gross profit margin percentage improvementdecrease for 20242025 was primarily the result of strategica sourcingsales initiatives,mix supply chain improvementsshift and endtariff marketcosts salesnot mix.recovered through price increases to customers.

During 2024,2025, Gexpro Services generated Adjusted EBITDA of $55.8$63.7 million, an increase of $10.6$8.0 million, or 23.4%14.3% from 20232024 primarily driven by higher organic revenue andrevenue, managing gross profit margins,margins partiallyand offset by an increase inleveraging Selling, general, and administrative expenses.expenses over a higher sales base.

Revenue increased $69.2$96.3 million, or 123.8%,77.0%, to $221.4 million in 2025 compared to $125.1 million in 2024 compared to $55.9 million in 2023.2024. The increase was primarily driven by $70.3$93.4 million of additional revenue generated from the acquisition of Source Atlantic completed in 2024, partially offset by a decline in organic Canada Branch Division revenue of $1.1 million.2024.

We manage and report our operating results through four reportable segments: Lawson, TestEquity, Gexpro Services and Canada Branch Division. A summary of our reportable segments is presented below. For additional details about our segments see Note 1 – Nature of Operations and Basis of Presentation and Note 13 – Segment Information, withinin Part I, Item 1. Financial Statements.

In addition to organic growth, we plan to actively pursue acquisition opportunities complementary to our businesses and that we believe will be financially accretive to our organization. During the pendency of the Merger, our ability to pursue acquisitions and other strategic transactions is subject to the interim operating covenants contained in the Merger Agreement.

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. 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 was 52.653.0 in the threesix months ended MarchJune 31,30, 2026, compared to 50.149.4 in the threesix months ended MarchJune 31,30, 2025.

Our results of operations are not directly comparable on a year-over-year basis due to acquisition activity. 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. Refer to Note 3 – Business Acquisitions withinin Part I, Item 1. Financial Statements for a description of the acquisition completed in 2026 and the reportable segment in which the acquisition’s results of operations are included.

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. 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, 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. See Note 13 – Segment Information withinin Part I, Item 1. Financial Statements for additional information about our reportable segments.

The following table provides a reconciliation of Net income (loss) to Adjusted EBITDA on a consolidated basis and Operating income (loss) to Adjusted EBITDA by segment for the three and six months ended MarchJune 31,30, 2026 and 2025. A reconciliation of Net income (loss) to Adjusted EBITDA by segment is not provided because management does not determine or review net income at the segment level and does not allocate non-operating costs and expenses to its segments, such as income taxes, interest expense, and various other non-operating income and expense.

(5) Other non-recurring costs consist of certain non-recurring strategic projectsprojects, costs related to the proposed Merger (as described in Note 16 – Subsequent Events in Part I, Item 1. Financial Statements) and other non-recurring items.

Segment revenue and Operating income (loss) by reportable segment includes sales to external customers and sales transactions between our segments, referred to as intersegment revenue, and the impact of those intersegment revenue transactions on operating activities. Reconciliations of segment revenue and Operating income (loss) to our consolidated results of operations in the unaudited condensed consolidated financial statements are provided in Note 13 – Segment Information withinin Part I, Item 1. Financial Statements.

Three Months Ended MarchJune 31,30, 2026 Compared to Three Months Ended MarchJune 31,30, 2025

Our consolidatedConsolidated revenue increased $18.0$55.3 million in the firstsecond quarter of 2026 compared to the firstsecond quarter of 2025 primarily driven by an increase in organic revenue of $17.2$51.2 million or 3.6%.10.2% and $4.1 million of additional revenue generated by the 2026 acquisition of Eastern Valve. Consolidated gross profit decreasedincreased and Selling, general and administrative expenses increased in the firstsecond quarter of 2026 compared to the prior year quarter, primarily to support the increase in revenue.

Revenue increased approximately $3.3$1.2 million, or 2.7%,1.0%, to $123.7$125.5 million in the firstsecond quarter of 2026 compared to $120.5$124.3 million in the firstsecond quarter of 2025. The increase was primarily driven by increased sales to Lawson’s strategic and government customers, partially offset by a decline in sales to Lawson’s core customers.

Gross profit decreased $3.2$4.2 million, or 4.8%,6.1%, to $65.0$64.4 million in the firstsecond quarter of 2026 compared to gross profit of $68.2$68.6 million in the prior year quarter primarily as a result of a sales mix shift toward lower margin customers, increased vendor costs and higher tariff rates on inbound freight partially offset by customer price increases. Lawson gross profit as a percentage of revenue was 52.5%51.3% in the firstsecond quarter of 2026 compared to 56.6%55.2% in the prior year quarter. The gross profit margin percentage decrease was primarily due to a sales mix shift toward lower margin customers, increased vendor costs and higher tariff rates on inbound freight partially offset by customer price increases.

Selling, general and administrative expenses remainedincreased flat$1.3 atmillion to $61.9 million in the firstsecond quarter of 2026 compared to $60.6 million in the prior year quarter. The increase was primarily driven by higher severance expense of $1.3 million and higher medical claims costs.

During the three months ended MarchJune 31,30, 2026, Lawson generated Adjusted EBITDA of $11.6$11.9 million, or 9.3%9.5% of sales. This is a decrease of $2.7$3.8 million from the same period a year ago primarily driven by the lower gross profit margin percentage partially offset by increased revenue.

Revenue increased $15.4$33.9 million, or 8.2%,17.4%, to $204.2$229.0 million in the firstsecond quarter of 2026 compared to $188.8$195.0 million in the firstsecond quarter of 2025. The increase was primarily driven by a $19.0$15.0 million increase in revenue from test and measurement, rentals,a chambers,$16.8 refurbished,million increase in revenue from direct and indirect electronics production suppliessupplies, and a $3.8 million increase in revenue from rentals, chambers and refurbished, along with an increase in revenue from the European region, partially offset by a $3.6$1.7 million decrease in revenue from fabrication and value added services along with a decrease in revenue from the Europe region.services.

Gross profit increased $3.8$8.4 million to $45.6$50.9 million in the firstsecond quarter of 2026 compared to gross profit of $41.8$42.6 million in the prior year quarter. The increase was primarily driven by higherthe sales.increase in revenue. TestEquity gross profit as a percentage of revenue increased to 22.3%22.2% in the firstsecond quarter of 2026 compared to 22.1%21.8% in the prior year quarter primarily due to lowerhigher inventorysupplier write-offs.rebates.

Selling, general and administrative expenses increased $3.9$2.4 million to $41.5$40.2 million in the firstsecond quarter of 2026 compared to $37.6$37.8 million in the prior year quarter. The increase was primarily driven by an increase in stock-based compensation of $0.5 million, higher acquisition expenses of $0.3 million, higher salaries, commissions and bonuses as part of strategic leadership investments in 2026 and higher incentive compensation withdriven by the increase in revenue. These were partially offset by lowera severancehigher andgain acquisitionon relatedthe retentionsale expensesof rental assets of $0.5 million and lower bad debt expense of $1.0 million.

During the three months ended MarchJune 31,30, 2026, TestEquity generated Adjusted EBITDA of $13.2$20.0 million or 6.5%8.7% of sales. This is an increase of $0.4$6.5 million from the same period a year ago, which was primarily driven by the increase in revenue and gross profit margin while leveraging Selling, general, and administrative expenses over a higher sales base.

Gross profit decreasedincreased $1.3$3.6 million to $35.8$43.5 million in the firstsecond quarter of 2026 compared to gross profit of $37.1$40.0 million in the prior year quarter, primarily due to lowerthe increase in revenue. Gexpro Services gross profit as a percentage of revenue decreased to 30.4%31.1% in the firstsecond quarter of 2026 compared to 31.2%31.3% in the prior year quarter primarily as a result of the pass through ofadditional tariff charges passed through to customers of approximately $2.8$1.7 million which negatively impacted the gross margin percentage by approximately 70 basis points.percentage.

Selling, general, and administrative expenses increased $1.5$2.9 million to $27.4$29.0 million in the firstsecond quarter of 2026 compared to $25.9$26.1 million in the prior year quarter primarily driven by higher medical claim costs and stock-based compensation of $0.4 million.

During the three months ended MarchJune 31,30, 2026, Gexpro Services generated Adjusted EBITDA of $12.0$18.3 million or 10.2%13.1% of sales.sales, Thisan is a decreaseincrease of $2.9$1.2 million from the same period a year ago primarily driven by lowerthe increase in revenue.

Revenue increased $0.5$7.9 million to $51.0$63.7 million in the firstsecond quarter of 2026 compared to $50.5$55.9 million in the firstsecond quarter of 2025 primarily driven by $0.8$4.1 million of additional revenue generated by the 2026 acquisition of Eastern Valve.Valve and an increase in organic revenue of $3.8 million primarily from increased sales volume in Eastern and Western Canada.

Gross profit increased $0.3$2.1 million to $17.2$21.0 million in the firstsecond quarter of 2026 compared to gross profit of $16.9$19.0 million in the prior year quarter primarily from the inclusion of additional gross profit of $0.3$1.3 million from the acquisition of Eastern Valve. Gross profit as a percentage of revenue increased slightlydecreased to 33.7%33.0% in the firstsecond quarter of 2026 compared to 33.4%33.9% in the prior year quarter.quarter primarily due to a sales mix shift toward lower margin customers.

Selling, general and administrative expenses increasedwere $0.6flat millionat to $16.8$17.2 million in the firstsecond quarter of 2026 compared to $16.2$17.2 million in the prior year quarter. TheThere increase was primarily driven bywere approximately $0.1$0.5 million of additional expenses fromdriven by the 2026 acquisition of Eastern Valve afterwhich itswere acquisitionoffset andby higherlower acquisitionfacility related expensescosts of $0.6$0.4 million.

During the three months ended MarchJune 31,30, 2026, Canada Branch Division generated Adjusted EBITDA of $2.8$5.7 million, or 5.5%9.0% of sales. This is an increase of $0.2$2.1 million from the same period a year ago, primarily driven by approximately $0.1$0.9 million of adjusted EBITDA generated by the 2026 acquisition of Eastern Valve.

Interest expense decreased $2.0$1.2 million in the firstsecond quarter of 2026 compared to the prior year quarter primarily due to lower average outstanding borrowings and lower average interest rates in 2026.