Distribution Solutions Group Inc

Previous wording

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 Note 16 – Segment Information within Item 1. Financial Statements.

Current wording

We manage and report our operating results through four reportable segments: Lawson, TestEquity, Gexpro Services and Canada Branch Division. In connection with the Source Atlantic Limited acquisition (as described below) during the third quarter of 2024, the Company realigned its reportable segments. Prior period segment results have been recast to reflect our new reportable segments. A summary of our reportable segments is presented below. For additional details about our segments and the segment realignment in the third quarter of 2024, see Note 1 – Nature of Operations and Basis of Presentation and Note 16 – Segment Information, within Item 1. Financial Statements.

Previous wording

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.

Current wording

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.

Previous wording

The results ofoperations of S&SAutomotive and ESS have been included within the Lawson reportable segment subsequent to their acquisition dates. Refer to Note 3 – Business Acquisitions for additional information about these acquisitions.

Current wording

The results of operations of Source Atlantic have been included in the Canada Branch Division reportable segment subsequent to its acquisition date. The results ofoperations of S&SAutomotive and ESS have been included in the Lawson reportable segment subsequent to their acquisition dates. Refer to Note 3 – Business Acquisitions for additional information about these acquisitions.

Previous wording

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 48.9 in the six months ended June 30, 2024 compared to 46.9 in thesix months ended June 30, 2023.

Current wording

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 48.3 in the nine months ended September 30, 2024 compared to 47.2 in thenine months ended September 30, 2023.

Previous wording

We continue to be affected byrising 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.

Current wording

We continue to be affected byrising supplier costs caused by inflation and increased transportation and labor costs. We have instituted various price increases during 2023 and 2024 where possible in response to rising supplier costs, as well as increased transportation and labor costs in order to manage our gross profit margins.

Previous wording

The following tables provide a reconciliation of Net income (loss) to Adjusted EBITDA on a consolidated basis and Operating income (loss) to Adjusted EBITDA by segment for thethree and six months ended June 30, 2024 and 2023. 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. See Note 16 – Segment Information within Item 1. Financial Statements for additional information about our reportable segments.

Current wording

The following tables provide a reconciliation of Net income (loss) to Adjusted EBITDA on a consolidated basis and Operating income (loss) to Adjusted EBITDA by segment for thethree and nine months ended September 30, 2024 and 2023. 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. See Note 16 – Segment Information within Item 1. Financial Statements for additional information about our reportable segments.

Previous wording

Our consolidated revenue increased$61.6 million in the second quarter of 2024 compared to thesecond quarter of 2023 primarily driven by$81.4 million from acquisitions completed in 2023 and 2024 partially offset by a decline in organic revenue. Consolidated gross profit and Selling, general and administrative expenses also increased over the prior year primarily driven by the inclusion of the Hisco, ESS and S&S Automotive acquisitions completed in 2023 and 2024.

Current wording

Our consolidated revenue increased$29.1 million in the third quarter of 2024 compared to thethird quarter of 2023 primarily driven by $38.1 million from acquisitions completed in 2024 offset by a decline in organic revenue of $9.0 million or 2.1%. Consolidated gross profit and Selling, general and administrative expenses also increased over the prior year primarily driven by the inclusion of the ESS, S&S Automotive and Source Atlantic acquisitions completed in 2024.

Previous wording

Revenue increased $1.9 million, or 1.6%, to $121.1 million in thesecond quarter of 2024 compared to $119.1 million in thesecond quarter of 2023. The increase was primarily driven by $10.1 millionof revenue generated from the acquisitions completed in 2024 and strengthening sales to the automotive end market of $0.8 million partially offset by a decline in sales to Lawson’s core, governmental and strategic customers of$8.2 million with fewer sales representatives.

Current wording

Revenue increased $3.5 million, or 3.0%, to $118.0 million in thethird quarter of 2024 compared to $114.5 million in thethird quarter of 2023. The increase was primarily driven by $13.4 millionof revenue generated from the acquisitions completed in 2024 and strengthening sales to the automotive end market of $0.5 million partially offset by a decline in sales to Lawson’s core, governmental and strategic customers of$10.4 million with fewer sales representatives.

Previous wording

Gross profit was flat at $66.4 million in the second quarter of 2024 compared to gross profit of $66.4 million in the prior year quarter. Lawson gross profit as a percent of revenue was 54.8% in the second quarter of 2024 compared to 55.7% in the prior year quarter. The gross profit margin percentage decrease wasprimarily the result of the amortization of the fair value step-up of inventory of $0.6 million related to the S&S Automotive Transaction, a sales mix shift toward larger customers and lower gross profit margins on revenue generated by the 2024 acquisitions.

Current wording

Gross profit was relatively flat at $65.3 million in the third quarter of 2024 compared to gross profit of $66.1 million in the prior year quarter. Lawson gross profit as a percent of revenue was 55.4% in the third quarter of 2024 compared to 57.7% in the prior year quarter. The gross profit margin percentage decrease wasprimarily the result of the amortization of the fair value step-up of inventory of $0.4 million related to the S&S Automotive Transaction, a sales mix shift toward larger customers and a lower gross profit margin profile on revenue generated by the 2024 acquisitions compared to its organic profile.

Previous wording

Selling, general and administrative expenses increased $2.4 million to $60.3 million in the second quarter of 2024 compared to $57.9 million in the prior year quarter. Approximately$3.6 million of the increased expenses was driven by the acquisitions completed in 2024 and higher severance and merger and acquisition expenses of $1.5 million and $1.7 million, respectively. These costs were partially offset by a decrease in stock-based compensation expense of $2.8 million due to a benefit realized in the second quarter of 2024 and a decrease in variable compensation as a result of lower sales.

Current wording

Selling, general and administrative expenses increased $9.2 million to $64.6 million in the third quarter of 2024 compared to $55.4 million in the prior year quarter. Approximately$2.5 million of the increased expenses was driven by the acquisitions completed in 2024 and higher depreciation and amortization, severance expense, stock-based compensation expense and merger and acquisition expenses of $2.5 million, $2.2 million,$1.2 million and $2.0 million, respectively. These costs were partially offset bya decrease in variable compensation as a result of lower sales.

Previous wording

Gross profit increased$14.5 million to $45.8 million in the second quarter of 2024 compared to gross profit of $31.2 million in the prior year quarter primarily as a result ofthe inclusion of the acquisition completed in 2023, which generated $15.8 million of additional gross profitin thesecond quarter of 2024. TestEquity gross profit as a percent of revenue increased to 23.2% in thesecond quarter of 2024 compared to 23.0% in the prior year quarter primarily due to ashift in sales mix and better performance across web channels.

Current wording

Gross profit increased$1.2 million to $44.3 million in the third quarter of 2024 compared to gross profit of $43.1 million in the prior year quarter. The third quarter of 2023 included expense of $2.2 million for the amortization of the fair value step-up of inventory related to the acquisition completed in 2023. TestEquity gross profit as a percent of revenue increased to 22.7% in thethird quarter of 2024 compared to 20.7% in the prior year quarter primarily due to ashift in sales mix and better performance across web channels.

Previous wording

During the three months ended June 30, 2024, TestEquity generated Adjusted EBITDA of $15.4 million, an increase of $6.0 million, or 62.7% from the same period a year ago with approximately $8.6 million driven by the acquisition completed in 2023, offset by a reduction of $2.6 million in legacy TestEquity due to lower organic revenue.

Current wording

During the three months ended September 30, 2024, TestEquity generated Adjusted EBITDA of $14.4 million, an increase of $0.1 million from the same period a year ago primarily due to managing its cost structure on lower revenue.

Previous wording

Gross profit increased$0.8 million to $33.2 millionin thesecond quarter of 2024 compared to gross profit of$32.3 million in the prior year quarter. Gexpro Services gross profit as a percent of revenue was 31.0% in thesecond quarter of 2024 compared to 29.9% in the prior year quarter primarily driven byenhanced strategic sourcing, supply chain improvements and end market sales mix.

Current wording

Gross profit increased$6.4 million to $36.6 millionin thethird quarter of 2024 compared to gross profit of$30.2 million in the prior year quarter. Gexpro Services gross profit as a percent of revenue was 31.6% in thethird quarter of 2024 compared to 29.3% in the prior year quarter primarily driven by the impact of margin synergies within the renewable energy vertical market, enhanced strategic sourcing, supply chain improvements and end market sales mix.

Previous wording

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.

Current wording

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.

Previous wording

Selling, general, and administrative expenses increased$1.5 million to $25.1 million inthe second quarter of 2024 compared to $23.6 million in the prior year quarter. The increase was primarily driven by additional non-recurring legal and consulting costs of $0.8 million.

Current wording

Selling, general, and administrative expenses increased$2.2 million to $25.1 million inthe third quarter of 2024 compared to $22.9 million in the prior year quarter. The increase was primarily driven by non-recurring legal costs, higher merger and acquisition expenses of $0.4 million and consulting costs of $0.5 million.

Previous wording

During the three months ended June 30, 2024, Gexpro Services generated Adjusted EBITDA of $12.7 million, a decrease of$0.4 million from the same period a year ago primarily driven by lower organic revenue and an increase in Selling, general, and administrative expenses partially offset by an increase in gross profit margin.

Current wording

During the three months ended September 30, 2024, Gexpro Services generated Adjusted EBITDA of $16.4 million, an increase of$4.8 million from the same period a year ago primarily driven by higher organic revenue, gross profit margin management and leveraging its Selling, general, and administrative expenses.

Previous wording

Interest expense increased$3.3 million in thesecond quarter of 2024 compared tothe prior year quarter primarily due to an increase in interest rates and higher outstanding borrowings related to the purchase of Hisco, ESS and S&S Automotive.

Current wording

Interest expense increased$2.3 million in thethird quarter of 2024 compared tothe prior year quarter primarily due to higher outstanding borrowings related to the purchase of S&S Automotive and Source Atlantic.

Previous wording

Other income (expense), net consists of effects of changes in foreign currency exchange rates, interest income, net and other non-operating income and expenditures. The $1.1 million change in the second quarter of 2024 compared to the same period of 2023 was primarily due to favorable increases in interest income partially offset by unfavorable changes in foreign currency exchange rates.

Current wording

Other income (expense), net consists of effects of changes in foreign currency exchange rates, interest income, net and other non-operating income and expenditures. The $1.1 million change in the third quarter of 2024 compared to the same period of 2023 was primarily due to favorable changes in foreign currency exchange rates.

Previous wording

Income tax benefit was $0.2 million, a (10.5)% effective tax rate for the three months ended June 30, 2024 compared to income tax expense of $0.5 million and a 15.0% effective tax rate for the three months ended June 30, 2023. The change in the year-over-year effective tax rate was primarily due to a change in valuation allowances related to interest expense limitation deferred tax assets, state taxes, foreign income and other permanent items.

Current wording

Income tax benefit was $19.0 million, a (652.3)% effective tax rate for the three months ended September 30, 2024 compared to income tax expense of $1.0 million and a (171.3)% effective tax rate for the three months ended September 30, 2023. The change in the year-over-year effective tax rate was primarily due to a change in valuation allowances related to interest expense limitation on deferred tax assets, foreign income and other permanent items. The income tax benefit recorded in thethird quarter of 2024 is based on the estimated year-end effective tax rate. Limitations on the deductibility of interest expense and other permanent items on a nominal pre-tax income amount is driving the high effective tax rate.

Previous wording

Our consolidated revenue increased $129.4 million inthe firstsix months of 2024 compared to the firstsix months of 2023 primarily driven by $180.6 million from acquisitions completed in 2023 and 2024 partially offset by a decline in organic revenue. Consolidated Gross profit and Selling, general and administrative expenses also increased over the prior year primarily driven by the inclusion of the Hisco, ESS and S&S acquisitions completed in 2023 and 2024.

Current wording

Our consolidated revenue increased $158.5 million inthe first nine months of 2024 compared to the first nine months of 2023 primarily driven by an increase of $211.7 million from acquisitions completed in 2023 and 2024 partially offset by a decline in organic revenue. Consolidated Gross profit and Selling, general and administrative expenses also increased over the prior year primarily driven by the inclusion of the Hisco, ESS, S&S and Source Atlantic acquisitions completed in 2023 and 2024.

Previous wording

Revenue decreased$5.1 million, or 2.1%, to$239.3 million in the firstsix months of 2024 compared to revenue of$244.4 million in the same period of 2023. The decrease was primarily driven by adecline in sales to Lawson’s core, governmental and strategic customers of$18.6 million with fewer sales representatives partially offset by $12.4 million of revenue generated from the acquisitions completed in 2024 and strengthening sales within the automotive end market of $2.6 million.

Current wording

Revenue decreased$1.6 million, or 0.5%, to$357.3 million in the first nine months of 2024 compared to revenue of$358.9 million in the same period of 2023. The decrease was primarily driven by adecline in sales to Lawson’s core, governmental and strategic customers of$30.5 million with fewer sales representatives partially offset by $25.8 million of revenue generated from the acquisitions completed in 2024 and strengthening sales within the automotive end market of $3.1 million.

Previous wording

Gross profit decreased $5.8 million to $131.5 million in the first six months of 2024 compared to gross profit of $137.3 million in the same period of 2023 primarily as a result of decreased sales andthe amortization of the fair value step-up of inventory of$0.6 million related to the S&S Automotive Transaction partially offset by price increases, lower net freight expense and spreading operating expenses over a higher sales level. Lawson gross profit as a percent of revenue was 54.9% in the first six months of 2024 compared to 56.2% in the prior year period. The gross profit margin percentage decrease was primarily the result of the amortization of the fair value step-up of inventory of $0.6 million related to the S&SAutomotive Transaction, a sales mix shift and lower gross profit margins on revenue generated by the 2024 acquisitions with lower margins.

Current wording

Gross profit decreased $6.6 million to $196.8 million in the first nine months of 2024 compared to gross profit of $203.4 million in the same period of 2023 primarily due to a shift in sales toward lower margin profile customers andthe amortization of the fair value step-up of inventory of$1.1 million related to the S&S Automotive Transaction. Lawson gross profit as a percent of revenue was 55.1% in the first nine months of 2024 compared to 56.7% in the prior year period. The gross profit margin percentage decrease was primarily the result of the amortization of the fair value step-up of inventory of $1.1 million related to the S&SAutomotive 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.

Previous wording

Selling, general and administrative expenses increased $0.7 million to $121.2 million in the first six months of 2024 compared to $120.6 million in the same period of 2023. Approximately$4.3 million of the increased expenses was driven by the acquisitions completed in 2024 and higher severance and merger and acquisition expenses of $2.0 million and $2.0 million, respectively. These costs were partially offset by a decrease in stock-based compensation expense of $3.0 million due to a benefit realized in the second quarter of 2024 and a decrease in variable compensation as a result of lower sales.

Current wording

Selling, general and administrative expenses increased $9.8 million to $185.8 million in the first nine months of 2024 compared to $176.0 million in the same period of 2023. Approximately$6.8 million of the increased expenses was driven by the acquisitions completed in 2024 and higher severance and merger and acquisition expenses of $4.2 million and $4.0 million, respectively. These costs were partially offset by a decrease in stock-based compensation expense of $1.9 million and a decrease in variable compensation as a result of lower sales.

Previous wording

During thesix months ended June 30, 2024, Lawson generated Adjusted EBITDA of $29.9 million, a decrease of $4.6 million from the same period a year ago primarily driven by lower organic revenue and gross profit margin partially offset by the 2024 acquisitions.

Current wording

During thenine months ended September 30, 2024, Lawson generated Adjusted EBITDA of $45.4 million, a decrease of $5.8 million from the same period a year ago primarily driven by lower organic revenue and gross profit margin partially offset by contributions of approximately $4.0 million generated by the acquisitions completed in 2024.

Previous wording

Revenue increased$61.4 million, or 45.1%, to$197.5 million in thesecond quarter of 2024 compared to$136.1 million in thesecond quarter of 2023. The increase was driven by$71.3 million of additional revenue generated from an acquisition completed in 2023 offset by a $9.9 million decline in legacy TestEquity revenue primarily due to a slowdown in the test and measurement market, primarily caused by tightening of capital budgets in TestEquity’s customer base and softening in the electronic production supplies end markets.

Current wording

Revenue increased$128.8 million, or 28.6%, to$579.9 million in the first nine months of 2024 compared to $451.1 million in the same period in 2023. The increase was primarily driven by an additional$161.2 million of revenue generated from the Hisco acquisition completed in 2023 partially offset by a $32.4 million decline in legacy TestEquity revenue due to a slowdown in the electronics assembly market causing softening in the electronic production supplies end markets.

Previous wording

Gross profit increased$31.4 million to$88.0 million in the firstsix months of 2024 compared to$56.6 million in the same period of 2023 primarily as a result ofthe inclusion of the acquisition completed in 2023, which generated$38.2 million of additional gross profit during the firstsix months of 2024. TestEquity gross profit as a percent of revenue decreased to 22.9% in the firstsix months of 2024 compared to 23.3% in the prior year primarily due to a shift in sales mix from the lower gross margin rates from the 2023 acquisition.

Current wording

Gross profit increased$32.6 million to$132.3 million in the first nine months of 2024 compared to$99.7 million in the same period of 2023 primarily as a result ofthe inclusion of the acquisition completed in 2023, which generated$40.5 million of additional gross profit during the first nine months of 2024, partially offset by a decrease in gross profit on the decline in legacy TestEquity revenue. TestEquity gross profit as a percent of revenue increased to 22.8% in the first nine months of 2024 compared to 22.1% in the prior year. The first nine months of 2023 included expense of $2.9 million for the amortization of the fair value step-up of inventory related to the acquisition completed in 2023.

Previous wording

Selling, general and administrative expenses increased$33.6 million to$93.4 million in the firstsix months of 2024 compared to$59.8 million in the same period of 2023. Approximately $37.8 million of the increased expenses was driven by the acquisitions completed in 2023 of which $14.0 million was related to the Hisco employee retention bonuses. These costs were partially offset by lower merger and acquisition expenses of$6.2 million in the first six months of 2024 comparedto the same period a year ago.

Current wording

Selling, general and administrative expenses increased$25.5 million to$133.3 million in the first nine months of 2024 compared to$107.8 million in the same period of 2023. Approximately $28.5 million of the increased expenses was driven by the acquisition completed in 2023 of which $3.8 million was related to the Hisco employee retention bonuses. These costs were partially offset by lower merger and acquisition expenses of$3.7 million in the first nine months of 2024 comparedto the same period a year ago.

Previous wording

During thesix months ended June 30, 2024, TestEquity generated Adjusted EBITDA of$27.1 million, an increase of$9.9 million, or 57.8% from the same period a year ago with approximately$17.1 million driven by the acquisitions completed in 2023, offset by a reduction of $7.2 million in legacy TestEquity primarily on lower organic revenue.

Current wording

During thenine months ended September 30, 2024, TestEquity generated Adjusted EBITDA of$41.4 million, an increase of$10.0 million, or 31.8% from the same period a year ago with approximately$16.6 million driven by the acquisition completed in 2023, offset by a reduction of $6.6 million in legacy TestEquity primarily on lower organic revenue.

Previous wording

Revenue decreased$1.1 million, or 1.1%, to$107.1 millionin thesecond quarter of 2024 compared to $108.3 million in the second quarter of 2023. The decrease was primarily driven by the timing of project work in the renewable energy vertical market of $1.7 million and a decline in year over year comparable revenue within the industrial vertical market of $1.7 million, partially offset by strengthening sales within the aerospace and defense vertical market of $0.6 million and automotive sector growth of $1.0 million.

Current wording

Revenue increased$9.4 million, or 3.0%, to$321.9 million in the first nine months of 2024 compared to$312.5 million in the same period of 2023. The increase was primarily driven by increased sales in the renewable energy vertical market of $5.1 million, aerospace and defense vertical market of $3.3 million and strengthening sales within the technology vertical market of $1.7 million partially offset by softness within the consumer and industrial vertical market.

Previous wording

Gross profit increased$1.1 million to$63.9 million in the firstsix months of 2024 compared to$62.9 million inthe same period of 2023. Gexpro Services’ gross profit as a percent of revenue was 31.1% in the firstsix months of 2024 compared to 30.0% in the prior year period driven byenhanced strategic sourcing, supply chain improvements and end market sales mix.

Current wording

Gross profit increased$7.5 million to$100.6 million in the first nine months of 2024 compared to$93.1 million inthe same period of 2023. Gexpro Services’ gross profit as a percent of revenue was 31.2% in the first nine months of 2024 compared to 29.8% in the prior year period driven bystrategic sourcing initiatives, supply chain improvements and end market sales mix.

Previous wording

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.

Current wording

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.

Previous wording

Selling, general, and administrative expenses increased$3.7 million to$50.4 million in the firstsix months of 2024 compared to$46.7 million in the same period of 2023. The increase was primarily driven by additional consulting costs of $1.6 million to support non-recurring strategic projects, non-recurring legal fees of $0.5 million and investments to support future growth andadditional compensation.

Current wording

Selling, general, and administrative expenses increased$5.9 million to$75.5 million in the first nine months of 2024 compared to$69.6 million in the same period of 2023. The increase was primarily driven by additional consulting costs of $2.1 million to support non-recurring strategic projects, non-recurring legal fees of $0.9 million and investments to support future growth andadditional compensation.

Previous wording

During thesix months ended June 30, 2024, Gexpro Services generated Adjusted EBITDA of$23.6 million, a decrease of $1.3 million, or 5.1% from the same period a year agoprimarily driven bylower organic revenue and an increase in Selling, general, and administrative expenses partially offset by an increase in gross profit margin.

Current wording

During thenine months ended September 30, 2024, Gexpro Services generated Adjusted EBITDA of$39.9 million, an increase of $3.6 million, or 9.8% from the same period a year agoprimarily driven byhigher organic revenue and managing gross profit margins partially offset by an increase in Selling, general, and administrative expenses.

Previous wording

Interest expense increased $7.5 million in thefirst six months of 2024 compared to the same period of 2023 primarily due to an increase in interest rates and higher outstanding borrowings related to the purchase of Hisco, ESS and S&S Automotive.

Current wording

Interest expense increased $9.7 million in thefirst nine months of 2024 compared to the same period of 2023 primarily due to an increase in interest rates and higher outstanding borrowings related to the purchases of Hisco, S&S Automotive and Source Atlantic.

Previous wording

Other income (expense), net consists of effects of changes in foreign currency exchange rates, interest income, net and other non-operating income and expenditures. The $1.8 million change in the first six months of 2024 compared to the same period of 2023 was partly due to favorable increases in interest income partially offset by unfavorable changes in foreign currency exchange rates.

Current wording

Other income (expense), net consists of effects of changes in foreign currency exchange rates, interest income, net and other non-operating income and expenditures. The $3.0 million change in the first nine months of 2024 compared to the same period of 2023 was partly due to favorable increases in interest income and favorable changes in foreign currency exchange rates.

Previous wording

Income tax benefit was $4.3 million, a 56.1% effective tax rate for the first six months of 2024 compared to an income tax expense of $2.6 million and a 22.9% effective tax rate for the first six months of 2023. The change in the year-over-year effective tax rate was primarily due to a change in valuation allowances related to interest expense limitation deferred tax assets.

Current wording

Income tax benefit was $23.3 million, a 498.1% effective tax rate for the first nine months of 2024 compared to an income tax expense of $3.6 million and a 33.1% effective tax rate for the first nine months of 2023. The change in the year-over-year effective tax rate was primarily due to a change in valuation allowances related to interest expense limitation deferred tax assets. The income tax benefit recorded in the third quarter of 2024 is based on the estimated year-end effective tax rate. Limitations on the deductibility of interest expense and other permanent items on a nominal pre-tax income amount is driving the high effective tax rate.

Previous wording

Cash and cash equivalents were $46.8 million on June 30, 2024 compared to $83.9 million on December 31, 2023.

Current wording

Cash and cash equivalents were $61.3 million on September 30, 2024 compared to $83.9 million on December 31, 2023.

Previous wording

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. As of June 30, 2024, the Company had $46.8 million of cash and cash equivalents and $153.0 million of borrowing availability remaining, net of outstanding letters of credit, under the 2023 Amended Credit Agreement.

Current wording

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 used a portion of these proceeds to fund the Source Atlantic Transaction. As of September 30, 2024, the Company had $61.3 million of cash and cash equivalents and $252.2 million of borrowing availability remaining, net of outstanding letters of credit, under the Amended Credit Agreement.

Previous wording

Our primary short-term and long-term liquidity and capital resource needs are to finance operating expenses, working capital, capital expenditures, potential business acquisitions, strategic initiatives and general corporate purposes. Our current debt obligations under the 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 1. Financial Statements for additional information related to our debt obligations. Access to debt capital markets has historically provided the Company with sources of liquidity, beyond normal operating cash flows. We do not anticipate having difficulty in obtaining financing from those markets in the future, however, we cannot provide assurance that unforeseen events or events beyond our control (such as a potential tightening of debt capital markets) will not have a material adverse impact on our liquidity.

Current wording

Our primary short-term and long-term liquidity and capital resource needs are to finance operating expenses, working capital, capital expenditures, potential business acquisitions, strategic initiatives and general corporate purposes. Our current debt obligations under the Amended 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 1. Financial Statements for additional information related to our debt obligations. Access to debt capital markets has historically provided the Company with sources of liquidity, beyond normal operating cash flows. We do not anticipate having difficulty in obtaining financing from those markets in the future, however, we cannot provide assurance that unforeseen events or events beyond our control (such as a potential tightening of debt capital markets) will not have a material adverse impact on our liquidity.

Previous wording

Net cash provided by operating activities for the six months ended June 30, 2024 was $28.0 million primarily due to non-cash items, partially offset by a net loss and investments in trade working capital to support higher sales and other net cash flow items.

Current wording

Net cash provided by operating activities for the nine months ended September 30, 2024 was $10.7 million primarily due to net income including non-cash items partially offset by payments of $34.6 million related to the Hisco retention bonuses and investments in trade working capital and other net cash flow items.