Distribution Solutions Group Inc

Previous 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.

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 in Note 3 – Business and Asset Acquisitions within Item 1. Financial Statements) 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 14 – Segment Information, within Item 1. Financial Statements.

Previous wording

Canada Branch Division combines the operations of our Bolt Supply House (“Bolt”) and Source Atlantic Limited 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 through 38 branch locations.

Current wording

Canada Branch Division combines the operations of our Bolt Supply House (“Bolt”) and Source Atlantic Limited 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.

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 48.3 in the nine months ended September 30, 2024 compared to 47.2 in thenine months ended September 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 50.1 in the three months ended March 31, 2025 compared to 49.1 in thethree months ended March 31, 2024.

Previous wording

Canada Branch Division combines the operations of our Bolt and Source Atlantic Limited 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 through 38 branch locations. Source Atlantic was acquired to expand DSG’s operating footprint in the Canadian market.

Current wording

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

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 where possible 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 2024 and 2025 in response to rising supplier costs, as well as increased transportation and labor costs in order to manage our gross profit margins.

Previous wording

Management believes Adjusted EBITDA is an important measure of the Company’s operating performanceand 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 and other non-recurring items. Management uses operating income and Adjusted EBITDA to evaluate the performance of its reportable segments.

Current wording

Management believes Adjusted EBITDA is an important measure of the Company’s operating performanceand 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 within Item 1. Financial Statements for additional information about our reportable segments.

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 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.

Current wording

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 thethree months ended March 31, 2025 and 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.

Previous wording

(2) Includes severance expense from actions taken in 2024 and 2023 not related to a formal restructuring plan and acquisition related retention expenses for the Hisco Transaction and the S&S Automotive Transaction.

Current wording

(2) Includes severance expense from actions taken not related to a formal restructuring plan and acquisition related retention expenses.

Previous wording

(5)Other non-recurring costs consist of certain non-recurring strategic projects and other non-recurring items.

Current wording

(4)Other non-recurring costs consist of certain non-recurring strategic projects and other non-recurring items.

Previous 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.

Current wording

Our consolidated revenue increased$61.9 million in the first quarter of 2025 compared to thefirst quarter of 2024 primarily driven by $50.8 million from acquisitions completed in 2024 and an increase in organic revenue of $11.1 million or 2.7%. Consolidated gross profit and Selling, general and administrative expenses also increased in thefirst quarter of 2025 compared to theprior year quarter, primarily driven by the inclusion of the ESS, S&S Automotive, Source Atlantic, TCR and ConRes TE acquisitions completed in 2024.

Previous 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.

Current wording

Gross profit increased $3.2 million, or 4.9%, to$68.2 million in the first quarter of 2025 compared to gross profit of $65.1 million in the prior year quarter primarily as a result of the inclusion of $4.5 million from the acquisitions completed in 2024. This was partially offset by a decrease in gross profit on lower legacy Lawson revenue. Lawson gross profit as a percent of revenue was 56.6% in the first quarter of 2025 compared to 55.1% in the prior year quarter. The gross profit margin percentage increase was primarily due to lower write-offs of obsolete and excess inventory and higher vendor rebates partially offset by a sales mix shift and a lower gross profit margin profile on revenue generated by the 2024 acquisitions compared to its organic profile.

Previous wording

During the three months ended September 30, 2024, Lawson generated Adjusted EBITDA of$15.5 million, a decrease of$1.2 million from the same period a year agoprimarily driven by lower organic revenue and gross profit margin partially offset by contributions ofapproximately $2.6 million generated by the acquisitions completed in 2024.

Current wording

During the three months ended March 31, 2025, Lawson generated Adjusted EBITDA of$14.3 million, an increase of$0.9 million from the same period a year agoprimarily driven by contributions ofapproximately $1.6 million generated by the acquisitions completed in 2024 offset bylower net margins on lower organic revenue.

Previous wording

Selling, general and administrative expenses decreased$8.1 million to$40.0 million inthe third quarter of 2024 compared to $48.1 million in the prior year quarter. The decrease was primarily driven by lower severance and acquisition related retention expenses of $9.1 million and lower variable compensation of $1.4 million as a result of lower sales partially offset by higher merger and acquisition expenses of$2.4 million.

Current wording

Selling, general and administrative expenses decreased $10.7 million to$37.6 million inthe first quarter of 2025 compared to $48.3 million in the prior year quarter. The decrease was primarily driven by lower severance and acquisition related retention expenses of $9.2 million, lower merger and acquisition expenses of$0.7 million and a higher gain on the sale of rental equipment of $0.4 million.

Previous 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.

Current wording

During the three months ended March 31, 2025, TestEquity generated Adjusted EBITDA of $12.8 million, an increase of $1.2 million from the same period a year ago, which was primarily driven by increased revenue and a higher gain on sale of rental equipment.

Previous 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.

Current wording

Revenue increased $20.3 million, or 20.5%, to$118.9 millionin thefirst quarter of 2025 compared to $98.7 million in the first quarter of 2024. The increase in revenue was primarily driven by increased sales in the renewable energy, technology, aerospace and defense and transportation vertical markets of $14.7 million, $5.1 million, $4.1 million and $1.5 million, respectively, and was partially offset by softness within the consumer and industrial and industrial power vertical markets of $1.6 million and $4.0 million, respectively.

Previous 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.

Current wording

During the three months ended March 31, 2025, Gexpro Services generated Adjusted EBITDA of $15.0 million, an increase of$4.2 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 over a higher sales base.

Previous wording

Gross profit increased$6.7 million to $12.6 million in the third quarter of 2024 compared to gross profit of $5.9 million in the prior year quarter primarily as a result of additional gross profit of$6.4 million generated by the acquisition of Source Atlantic. Gross profit as a percent of revenue decreased to 32.1% in thethird quarter of 2024 compared to 43.6% in the prior year quarter primarily due to the lower gross profit margin profile of Source Atlantic as compared to Bolt.

Current wording

Gross profit increased $11.5 million to $16.9 million in the first quarter of 2025 compared to gross profit of $5.4 million in the prior year quarter primarily from the inclusion ofgross profit of$11.3 million from the 2024 acquisition of Source Atlantic. Gross profit as a percent of revenue decreased to 33.4% in thefirst quarter of 2025 compared to 43.1% in the prior year quarter primarily due to the lower gross profit margin profile of Source Atlantic as compared to Bolt.

Previous wording

During the first nine months of 2024, Canada Branch Division generated Adjusted EBITDA of$7.4 million, an increase of $1.3 million from the same period a year ago with an increase of approximately $1.9 million driven by the acquisition of Source Atlantic.

Current wording

During the three months ended March 31, 2025, Canada Branch Division generated Adjusted EBITDA of$2.6 million, an increase of $1.2 million from the same period a year ago, primarily driven by contributions of approximately$0.9 million generated by the 2024 acquisition of Source Atlantic.

Previous 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.

Current wording

Interest expense increased$2.4 million in thefirst quarter of 2025 compared tothe prior year quarter primarily due to higher outstanding borrowings related to the 2024 acquisitions of S&S Automotive, Source Atlantic, TCR and ConRes TE.

Previous wording

The $0.9 million expense in the first nine months of 2024 and the$0.6 million benefit in the first nine months of 2023 related to the change in fair value of the earnout liabilities associated with the Frontier acquisition.

Current wording

The $1.0 million expense in thefirst quarter of 2025 related to the change in fair value of the earnout liabilities associated with the Frontier acquisition.

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 third quarter of 2024 compared to the same period of 2023 was primarily due to favorable 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 $0.9 million change in the first quarter of 2025 compared to the same period of 2024 is primarily due to the gain on the sale of property, plant and equipment.

Previous 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.

Current wording

Income tax expense was $2.3 million, a 40.9% effective tax rate for the three months ended March 31, 2025 compared to an income tax benefit of $4.1 million and a 43.8% effective tax rate for the three months ended March 31, 2024. 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, state taxes and foreign income. The income tax expense recorded in the first quarter of 2025 is based on the estimated year-end effective tax rate.

Previous wording

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

Current wording

Cash and cash equivalents were $65.4 million on March 31, 2025 compared to $66.5 million on December 31, 2024.

Previous 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.

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. As of March 31, 2025, the Company had $65.4 million of cash and cash equivalents and $224.7 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 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.

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 currently 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, including in response to the implementations of new tariffs as part of the U.S. trade policy and any reciprocal or retaliatory tariffs thereto) will not have a material adverse impact on our liquidity.

Previous 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.

Current wording

Net cash used in operating activities for the three months ended March 31, 2025 was $4.8 million primarily due to net income including non-cash items offset by investments in trade working capital and other net cash flow items.

Previous wording

Net cash provided by operating activities for the nine months ended September 30, 2023 was $74.1 million, primarily due to net income including non-cash items, partially offset by 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 three months ended March 31, 2024 was $6.6 million, primarily due to non-cash items and partially offset by a net loss and investments in trade working capital to support higher sales and other net cash flow items.

Previous wording

Net cash used in investing activities for the nine months ended September 30, 2024 was $205.4 million, primarily due to the purchase of ESS, S&SAutomotive and Source Atlantic, as well as purchases of property, plant and equipment and rental equipment which was partially offset by the sale of rental equipment.

Current wording

Net cash used in investing activities for the three months ended March 31, 2025 was $5.1 million, primarily due to purchases of property, plant and equipment and rental equipment which was partially offset by the sale of property, plant and equipment and rental equipment.

Previous wording

Net cash used in investing activities for thenine months ended September 30, 2023 was $266.7 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.

Current wording

Net cash used in investing activities for thethree months ended March 31, 2024 was $16.0 million, primarily due to the ESS Transaction as well as purchases of property, plant and equipment and rental equipment, and was partially offset by the sale of rental equipment.

Previous wording

Net cash provided by financing activities for the nine months ended September 30, 2024 was $171.9 million primarily due to borrowings under the Company’s credit facility partially offset by principal payments on the term loans. In conjunction with the Source Atlantic Transaction, the Company borrowed $200 million under the incremental term loan facility on August 14, 2024. During the first nine months of 2024, deferred financing costs of $2.1 million were incurred related to the Amended Credit Agreement.

Current wording

Net cash provided by financing activities for the three months ended March 31, 2025 was $7.6 million primarily due to net borrowings on the revolving credit facility partially offset by principal payments on the term loans and share repurchases.

Previous wording

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 1. Financial Statements for a description of the Amended Credit Agreement.

Current wording

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 and permits the Company to increase the commitments under the credit facility 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. Refer to Note 9 – Debt within Item 1. Financial Statements for a description of the Amended Credit Agreement.

Previous wording

On September 30, 2024, we had $752.3 million in outstanding borrowings under the Amended Credit Agreement and $252.2 million of borrowing availability remaining, net of outstanding letters of credit, under the senior secured revolving credit facility component.

Current wording

On March 31, 2025, we had $758.0 million in outstanding borrowings under the Amended Credit Agreement and $224.7 million of borrowing availability remaining, net of outstanding letters of credit, under the senior secured revolving credit facility component.

Previous wording

As of September 30, 2024, we had contractual commitments to purchase approximately $178.8 million of products from our suppliers and contractors over the next twelve months.

Current wording

As of March 31, 2025, we had contractual commitments to purchase approximately $181.1 million of products from our suppliers and contractors over the next twelve months.

Previous wording

During thenine months ended September 30, 2024, total capital expenditures for property, plant and equipment and rental equipment were$14.8 million excluding proceeds from the sale of rental equipment. The Company expects to spend appro ximately $4.0 million to $6.0 million for capital expenditures during the remainder of 2024 to support ongoing operations.

Current wording

During thethree months ended March 31, 2025, total net capital expenditures for property, plant and equipment and rental equipment were$5.1 million including proceeds from the sale of property, plant and equipment and rental equipment. The Company expects to spend appro ximately $20.0 million to $25.0 million for net capital expenditures during the full fiscal 2025 year to support ongoing operations.

Previous wording

During the first nine months of 2024, the Company repurchased 85,644 shares of DSG common stock under the repurchase program at an average cost of $30.13 per share for a total cost of $2.6 million. No shares were repurchased during the first nine months of 2023. The remaining availability for stock repurchases under the program was$26.4 million as of September 30, 2024. See Note 11 – Stockholders’ Equity within Item 1. Financial Statements for further information.

Current wording

During the first three months of 2025, the Company repurchased 320,638 shares of DSG common stock under the repurchase program at an average cost of $34.94 per share for a total cost of $11.2 million. No shares were repurchased during the first three months of 2024. The remaining availability for stock repurchases under the program was$15.2 million as of March 31, 2025. See Note 11 – Stockholders’ Equity within Item 1. Financial Statements for further information.