Group 1 - The stock of Distribution Solutions Group, Inc. (DSGR) is experiencing significant attention due to high implied volatility in the options market, particularly the Nov 21, 2025 $22.50 Put option [1] - Implied volatility indicates the market's expectation of future price movement, suggesting that investors anticipate a significant change in the stock's price, potentially due to an upcoming event [2] - Distribution Solutions Group holds a Zacks Rank 2 (Buy) in the Technology Services industry, which is in the top 37% of the Zacks Industry Rank, indicating a positive outlook [3] Group 2 - Over the past 60 days, one analyst has raised the earnings estimates for Distribution Solutions Group for the current quarter from 40 cents per share to 42 cents, reflecting a positive trend in earnings expectations [3] - The high implied volatility may indicate a developing trading opportunity, as options traders often seek to sell premium on options with high implied volatility, aiming for the underlying stock to remain stable [4]

Summary of Distribution Solutions Group (DSGR) Conference Call Company Overview - **Company**: Distribution Solutions Group (DSGR) - **Industry**: Specialty distribution for maintenance, repair, operating (MRO), OEM, and industrial technologies - **Revenue**: Approximately $2 billion - **Free Cash Flow**: About $175 million - **Adjusted EBITDA Margin**: Ranges from 9% to 10% [4][41] Core Business Verticals 1. **Lawson Products**: Focused on MRO, servicing around 80,000 customers with class C fasteners and consumable items [4][25] 2. **Jexpro Services**: OEM-focused distributor serving about 2,000 customers, providing high-value services [4][27] 3. **Test Equity Group**: Accounts for about 40% of DSG's revenue, servicing the industrial technology space with test and measurement equipment [4][24] Key Points and Arguments - **High Touch Distribution**: DSG emphasizes its role as a high-touch, value-added distributor, providing not just products but also expert technical support and just-in-time delivery [5][6] - **Market Diversification**: DSG services over 200,000 customers and works with more than 10,000 suppliers, ensuring no single customer accounts for more than 3% of sales [20][19] - **Acquisition Strategy**: DSG has completed nine acquisitions in the last three and a half years, deploying about $550 million in capital [8][33] - **Revenue Growth**: Total revenues increased by over 14% year-over-year, with 3.3% attributed to organic growth, particularly from Jexpro Services [35] - **Customer Retention**: DSG boasts a revenue retention rate of approximately 92%, indicating strong customer loyalty [19] Financial Performance - **EBITDA Growth**: The company has seen EBITDA margins improve from less than 8% pre-DSG to around 10% currently, with a target of reaching 13.5% [20][41] - **Cash Flow Generation**: DSG operates with an asset-light model, with only about 1% of revenues allocated to capital expenditures, allowing for significant free cash flow generation [13][31] - **Share Buybacks**: DSG has repurchased approximately $20 million in shares in the first half of the year, indicating a commitment to returning capital to shareholders [31][38] Market Position and Future Outlook - **Onshoring Trend**: DSG is well-positioned to benefit from the trend of onshoring and near-shoring manufacturing back to the U.S. [22] - **Labor Challenges**: The company provides skilled sales support to help customers address labor shortages, enhancing its value proposition [22][23] - **Technological Advancements**: The Test Equity Group is positioned to capitalize on advancements in technology, particularly in IoT and electronic production [24] Additional Insights - **Vendor Managed Inventory (VMI)**: DSG employs VMI strategies, placing bins and cabinets at customer locations to streamline inventory management [14][15] - **Competitive Moat**: The extensive service offerings and technical expertise create a competitive advantage, making DSG a preferred partner for many customers [12][10] - **Vertical-Specific Strategies**: Each vertical operates with distinct sales strategies and customer bases, ensuring tailored approaches to market demands [18][19] This summary encapsulates the key points discussed during the conference call, highlighting the strengths, strategies, and financial performance of Distribution Solutions Group.

Company Overview - DSG is a leading specialty industrial distribution platform with a focus on MRO, OEM, and Industrial Technologies [12] - The company's TTM Adjusted Revenue as of June 30, 2025, was $1.96 billion [13] - Adjusted EBITDA margin was approximately 9.6% [13] - The company has over 200,000 customers and offers over 740,000 unique SKUs [13] Financial Performance - Q2 2025 revenue reached $502 million, a $63 million or 14.3% increase year-over-year, with organic average sales growing 3.3% [51] - Q2 2025 adjusted EBITDA was $48.6 million, representing 9.7% of sales [51] - The company has authorized a $37.5 million share repurchase program, with $20 million repurchased YTD 2025 and $6.3 million still available under prior authorizations [53] Strategic Focus - The company has a dual-pronged growth strategy, focusing on end markets with long-term strong tailwinds and strategic acquisitions [23] - Since 2022, DSG has completed 11 strategic acquisitions with purchase price range from 4.6x – 9.4x (weighted 8.3x) [23] - The company serves a broad and diverse set of end markets, catering to over 200,000 customers [24]

Summary of Distribution Solutions Group (DSGR) FY Conference Call Company Overview - **Company Name**: Distribution Solutions Group (DSGR) - **Ticker**: DSGR - **CFO**: Ron Knudson - **Key Shareholder**: LKCM, owning 78% of shares - **Formation**: Merged from Lawson Products, Gexpro Services, and TestEquity Financial Performance - **Revenue**: Approximately $2 billion, up from less than $1 billion three and a half years ago [5] - **EBITDA**: Adjusted EBITDA running around 10%, with a trailing 12-month EBITDA of about $195 million [5][13] - **Customer Base**: Servicing over 200,000 customers, with 85% of revenue from North America [6] - **Revenue Retention**: Upwards of 92%, with 98% retention on Jexpro services [19][20] Business Model and Value Proposition - **Specialty Distribution**: DSG positions itself as a high-touch, high-value distributor, providing not just products but also labor and services [4][5] - **Product Sourcing**: Works with over 10,000 suppliers and offers more than 500,000 SKUs [7] - **Labor Support**: Addresses labor shortages by providing on-site labor solutions [9][10] - **IoT Integration**: Emphasizes technology integration in all services [11] Growth Strategy - **Acquisition Strategy**: Completed nine acquisitions since formation, deploying about $550 million in capital [12][36] - **Market Positioning**: Focused on GDP plus growth, leveraging macro changes for expansion [23][24] - **Diversification**: No significant customer or end-market concentration, providing resilience through business cycles [6][15] Segment Performance 1. **Lawson Products**: - Revenue includes Canadian operations, with a focus on vendor-managed inventory (VMI) [25][29] - High gross margin of around 70% due to service value [8] 2. **Jexpro Services**: - Accounts for about 25% of DSG's revenue, focusing on Class C parts for manufacturing [29] - Strong performance across diverse end markets, including renewables and aerospace [31][32] 3. **Test Equity Group**: - Represents about 40% of DSG's revenue, with a recent acquisition doubling its size [33] - Offers test and measurement equipment alongside electronic production supplies [34] Financial Health and Capital Allocation - **Free Cash Flow**: CapEx is only about 1% of revenue, allowing for strong free cash flow generation [13] - **Leverage**: Maintains a leverage ratio of about 3.5, comfortable within a range of 3 to 4 times [41] - **Share Buybacks**: Approximately $20 million worth of shares repurchased in the first half of the year [35] Market Challenges and Opportunities - **Tariffs and Inflation**: DSG has strong pricing capabilities and does not see tariffs as a significant margin compression issue [48][50] - **Private Label Products**: 40% of Lawson's sales are private label, providing a competitive edge in response to tariffs [50] Conclusion - DSG is well-positioned for growth through its diversified business model, strong customer relationships, and strategic acquisitions, while effectively managing market challenges and leveraging opportunities in the industrial distribution space.

Core Insights - Distribution Solutions Group (DSGR) reported Q2 2025 earnings with GAAP revenue of $502.4 million, exceeding the consensus estimate of $484.4 million, reflecting a 14.3% year-over-year increase [1][2] - Adjusted EPS was $0.35, surpassing forecasts, while GAAP EPS was $0.11, missing expectations by $0.10 [1][2] - The company is focusing on integrating recent acquisitions to drive sales growth, but profit margins are under pressure due to these integrations, particularly in Canada [1][5] Financial Performance - GAAP revenue for Q2 2025 was $502.4 million, a 14.3% increase from $439.5 million in Q2 2024 [2] - Adjusted operating income rose to $39.9 million, a 2.6% increase year-over-year [2] - Adjusted EBITDA increased by 7.5% year-over-year to $48.6 million, although margins declined slightly due to acquisition integration [2][5] Business Strategy - DSG has executed an aggressive acquisition strategy, completing five acquisitions in 2024, including Source Atlantic Limited and ConRes Test Equipment [4] - The company aims to leverage operational synergies and improve efficiency through effective integration of these new businesses [4][5] - Management is focused on achieving a target 10% adjusted EBITDA margin in the Canada division, with significant progress expected by 2026 [7][11] Segment Performance - Lawson Products saw a 2.6% sales increase with improved margins, while TestEquity experienced a 1.2% revenue decline compared to Q2 2024 [8] - The Canada Branch segment, now including Source Atlantic, reported GAAP revenue of $55.9 million in Q2 2025, significantly up from $14.5 million in Q2 2024, but faced margin pressures with an adjusted EBITDA margin of 6.5% [8] Market Outlook - DSG management expressed cautious optimism for the remainder of the year, citing macroeconomic uncertainties, particularly regarding tariffs and the Canadian market [10] - The company maintains significant liquidity of $314.4 million and a net leverage ratio of 3.5x, indicating potential for further acquisitions [11]

Financial Data and Key Metrics Changes - The company reported consolidated revenue of $520 million for Q2 2025, representing a 14.3% increase compared to the same quarter last year, driven by acquisitions and a 3.3% growth in organic daily sales [11][32] - Adjusted EBITDA margin increased to 9.7% in Q2, up from 9% in Q1, with all business verticals achieving sequential margin improvements [11][32] - Cash flow from operations improved to $33 million, compared to approximately $21 million in the same quarter last year [12][34] Business Line Data and Key Metrics Changes - **Lawson Products**: Q2 sales totaled $124.3 million, a 2.6% increase in average daily sales, with organic average daily sales down 1% due to lower military sales volume [34][35] - **Canadian Segment**: Q2 sales were $55.9 million, with organic sales increasing 0.7% and adjusted EBITDA at 6.5%, expanding 130 basis points from Q1 [36][37] - **Jexpro Services**: Q2 revenue was $127.8 million, up 18.2% year-over-year, with adjusted EBITDA at 13.4%, an increase from 11.9% a year ago [38][39] - **Test Equity Group**: Q2 sales were $195 million, with average daily sales down 1.2% year-over-year but up 1.7% sequentially from Q1, and adjusted EBITDA at 6.9% [27][39] Market Data and Key Metrics Changes - The company noted strong demand in end markets such as aerospace, defense, technology, and renewables, while production supplies in Test and Measurement remained soft [12][22] - The Canadian division's revenues increased 2% on a constant currency basis, with EBITDA margins expanding sequentially [22][36] Company Strategy and Development Direction - The company aims to transform its business units into a more profitable and resilient platform for growth, focusing on world-class global supply chain capabilities and services [6][11] - A significant investment in sales transformation is underway, with a focus on talent acquisition and territory planning to enhance productivity [13][17] - The company is committed to a disciplined capital allocation strategy, including share repurchases and investments in organic growth [41][43] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate uncertain macroeconomic conditions and highlighted the importance of accountability in achieving growth objectives [4][12] - The outlook for the second half of the year remains positive, with expectations for year-over-year sales increases despite tougher comparisons [54][56] Other Important Information - The company has completed five acquisitions in 2024, contributing to revenue growth and operational scale [32][41] - The average compensation for sales representatives has increased by 25% over the past couple of years, reflecting the company's investment in its sales team [17][18] Q&A Session Summary Question: Can you frame third quarter expectations and any insights on July pacing? - Management indicated that July trends are consistent with Q2, with no major movements expected [51][52] Question: Any updates on the Canadian branch consolidation? - The company is on track with consolidating four locations in 2025, with no major disruptions reported [56][58] Question: What are the longer-term margin goals for Lawson and TestEquity? - Management aims for Lawson to achieve mid to high teen EBITDA margins over time, while TestEquity is expected to reach double-digit margins [68][71]

Core Viewpoint - Distribution Solutions Group (DSGR) reported quarterly earnings of $0.35 per share, missing the Zacks Consensus Estimate of $0.36 per share, and showing a decline from $0.40 per share a year ago [1] Earnings Performance - The company experienced an earnings surprise of -2.78% for the quarter, and previously, it had an earnings surprise of -13.89% when it reported $0.31 per share against an expectation of $0.36 [1][2] - Over the last four quarters, the company has surpassed consensus EPS estimates only once [2] Revenue Insights - Distribution Solutions posted revenues of $502.44 million for the quarter ended June 2025, exceeding the Zacks Consensus Estimate by 1.77%, and up from $439.54 million year-over-year [2] - The company has topped consensus revenue estimates two times over the last four quarters [2] Stock Performance - Shares of Distribution Solutions have declined approximately 16.2% since the beginning of the year, contrasting with the S&P 500's gain of 8.2% [3] Future Outlook - The company's earnings outlook will be crucial for assessing future stock performance, including current consensus earnings expectations for upcoming quarters [4] - The current consensus EPS estimate for the next quarter is $0.40 on revenues of $502.1 million, and for the current fiscal year, it is $1.40 on revenues of $1.96 billion [7] Industry Context - The Technology Services industry, to which Distribution Solutions belongs, is currently ranked in the top 38% of over 250 Zacks industries, indicating a favorable industry outlook [8]

Financial Performance - Q2 2025 revenue reached $502 million, a 14.3% increase year-over-year, primarily driven by acquisitions, with organic sales growing 3.3%[22] - Adjusted EBITDA for Q2 2025 was $48.6 million, representing 9.7% of sales, compared to $45.2 million in the previous year[22] - Diluted income per share was $0.11, while non-GAAP adjusted diluted earnings per share was $0.35, compared to $0.40 in the same period last year[22] Segment Highlights - Lawson Products saw Q2 2025 revenue of $124.3 million with adjusted EBITDA of $15.7 million, a 12.6% margin[25, 27] - Canada Branch Division's Q2 2025 revenue was $55.9 million with adjusted EBITDA of $3.6 million, a 6.5% margin, with Source Atlantic contributing $41.3 million in sales[30, 32, 34] - Gexpro Services experienced Q2 2025 revenue of $127.8 million with adjusted EBITDA of $17.1 million, a 13.4% margin, with organic revenue up $19.5 million or 18.2% year-over-year[36, 38, 39] - TestEquity's Q2 2025 revenue was $195 million with adjusted EBITDA of $13.5 million, a 6.9% margin[40, 41] Strategic Initiatives and Capital Allocation - The company generated $33 million in cash flow from operations in Q2 and repurchased approximately $20 million of shares year-to-date, with $9 million occurring in Q2[16] - Total liquidity at the end of the quarter was approximately $314 million[16]

PART I - FINANCIAL INFORMATION This section provides the unaudited financial statements and management's discussion and analysis for the company [ITEM 1 - FINANCIAL STATEMENTS (Unaudited)](index=6&type=section&id=ITEM%201%20-%20FINANCIAL%20STATEMENTS%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements for Distribution Solutions Group, Inc. (DSG), including balance sheets, statements of operations and comprehensive income (loss), statements of changes in stockholders' equity, statements of cash flows, and detailed notes to these financial statements [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement presents the company's financial position, including assets, liabilities, and equity, at specific reporting dates Condensed Consolidated Balance Sheets (in thousands) | ASSETS (in thousands) | June 30, 2025 | December 31, 2024 | Change | % Change | | :--------------------------------------- | :------------ | :---------------- | :----- | :------- | | Cash and cash equivalents | $47,430 | $66,479 | $(19,049) | -28.65% | | Accounts receivable, net | $283,467 | $250,717 | $32,750 | 13.06% | | Inventories | $350,303 | $348,226 | $2,077 | 0.60% | | Total current assets | $740,906 | $712,174 | $28,732 | 4.03% | | Goodwill | $468,573 | $462,789 | $5,784 | 1.25% | | Intangible assets, net | $249,562 | $269,763 | $(20,201) | -7.49% | | Total assets | $1,751,983 | $1,727,255 | $24,728 | 1.43% | | **LIABILITIES AND EQUITY** | | | | | | Accounts payable | $143,262 | $125,575 | $17,687 | 14.09% | | Current portion of long-term debt | $41,378 | $40,476 | $902 | 2.23% | | Total current liabilities | $286,300 | $266,261 | $20,039 | 7.53% | | Long-term debt, less current portion, net | $674,994 | $693,903 | $(18,909) | -2.72% | | Total liabilities | $1,102,608 | $1,086,712 | $15,896 | 1.46% | | Total stockholders' equity | $649,375 | $640,543 | $8,832 | 1.38% | | Total liabilities and stockholders' equity | $1,751,983 | $1,727,255 | $24,728 | 1.43% | [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20(Loss)) This statement details the company's financial performance, including revenues, expenses, and net income or loss, over specific periods Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands, except per share data) | (in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (3M) | % Change (3M) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (6M) | % Change (6M) | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------ | :-------------- | :----------------------------- | :----------------------------- | :------------ | :-------------- | | Revenue | $502,437 | $439,536 | $62,901 | 14.31% | $980,466 | $855,622 | $124,844 | 14.59% | | Gross profit | $170,084 | $151,527 | $18,557 | 12.25% | $334,064 | $294,936 | $39,128 | 13.27% | | Operating income (loss) | $26,826 | $14,158 | $12,668 | 89.48% | $46,923 | $16,941 | $29,982 | 177.09% | | Net income (loss) | $5,003 | $1,896 | $3,107 | 163.98% | $8,264 | $(3,328) | $11,592 | N/M | | Basic income (loss) per share | $0.11 | $0.04 | $0.07 | 175.00% | $0.18 | $(0.07) | $0.25 | N/M | | Diluted income (loss) per share | $0.11 | $0.04 | $0.07 | 175.00% | $0.17 | $(0.07) | $0.24 | N/M | | Comprehensive income (loss) | $20,454 | $(662) | $21,116 | N/M | $25,379 | $(9,024) | $34,403 | N/M | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) This statement outlines the changes in the company's equity components, such as common stock, retained earnings, and accumulated other comprehensive income, over time Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands, except share data) | (in thousands, except share data) | Balance at Jan 1, 2025 | Net Income (Loss) | Foreign Currency Translation | Stock-Based Compensation | Shares Issued | Repurchases of Common Stock | Tax Withholdings | Other | Balance at Jun 30, 2025 | | :-------------------------------- | :--------------------- | :---------------- | :--------------------------- | :----------------------- | :------------ | :-------------------------- | :--------------- | :---- | :---------------------- | | Common Stock ($1 Par Value) | $46,856 | — | — | — | $73 | $(654) | $(2) | $2 | $46,275 | | Capital in Excess of Par Value | $677,473 | — | — | $2,877 | $804 | $654 | $2 | $(2) | $681,808 | | Retained Deficit | $(42,039) | $8,264 | — | — | — | — | — | — | $(33,775) | | Treasury Stock | $(19,631) | — | — | — | — | $(20,256) | $(45) | — | $(39,932) | | Accumulated Other Comprehensive Income (Loss) | $(22,116) | — | $17,115 | — | — | — | — | — | $(5,001) | | **Total Stockholders' Equity** | **$640,543** | **$8,264** | **$17,115** | **$2,877** | **$877** | **$(20,256)** | **$(45)** | **—** | **$649,375** | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement reports the cash inflows and outflows categorized into operating, investing, and financing activities for specific periods Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | % Change | | :--------------------------------------- | :----------------------------- | :----------------------------- | :----- | :------- | | Net cash provided by operating activities | $28,536 | $28,009 | $527 | 1.88% | | Net cash used in investing activities | $(11,989) | $(102,370) | $90,381 | -88.29% | | Net cash provided by (used in) financing activities | $(39,058) | $33,208 | $(72,266) | N/M | | Effect of exchange rate changes on cash | $2,548 | $(1,562) | $4,110 | N/M | | Increase (decrease) in cash, cash equivalents and restricted cash | $(19,963) | $(42,715) | $22,752 | -53.26% | | Cash, cash equivalents and restricted cash at end of period | $61,763 | $56,911 | $4,852 | 8.52% | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures that are integral to understanding the condensed consolidated financial statements [Note 1 – Nature of Operations and Basis of Presentation](index=12&type=section&id=Note%201%20%E2%80%93%20Nature%20of%20Operations%20and%20Basis%20of%20Presentation) This note describes the company's business activities and the foundational principles used in preparing the financial statements - DSG is a global specialty distribution company providing value-added distribution solutions to the MRO, OEM, and industrial technology markets[26](index=26&type=chunk) - The Company realigned its reportable segments in Q3 2024 due to the Source Atlantic Transaction, creating a new 'Canada Branch Division' segment which includes Bolt and Source Atlantic. No changes were made to Lawson, TestEquity, and Gexpro Services segments[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - Segment operations: Lawson distributes MRO products; TestEquity distributes test and measurement equipment and industrial supplies; Gexpro Services provides global supply chain solutions; Canada Branch Division distributes industrial MRO supplies, safety products, fasteners, and power tools in Canada[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk) [Note 2 – Summary of Significant Accounting Policies](index=13&type=section&id=Note%202%20%E2%80%93%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods applied in the preparation of the financial statements - No significant changes to the Company's accounting policies from those disclosed in the 2024 Annual Report on Form 10-K[37](index=37&type=chunk) - Recent accounting pronouncements not yet adopted include ASU 2023-09 (Income Taxes, effective after Dec 15, 2024), ASU 2024-03 (Income Statement, effective after Dec 15, 2026), and ASU 2025-03 (Business Combinations, effective after Dec 15, 2026). The Company is evaluating their impact[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) [Note 3 – Business and Asset Acquisitions](index=13&type=section&id=Note%203%20%E2%80%93%20Business%20and%20Asset%20Acquisitions) This note details the company's business and asset acquisition activities, including their financial impact - DSG completed several acquisitions in 2024, including ConRes Test Equipment (**$17.0 million**, TestEquity segment), Tech-Component Resources Pte Ltd (**$6.0 million**, Gexpro Services segment), Source Atlantic (**$103.5 million**, Canada Branch Division segment), S&S Automotive Inc. (**$80.1 million**, Lawson segment), and Emergent Safety Supply (**$9.9 million**, Lawson segment)[42](index=42&type=chunk)[44](index=44&type=chunk)[48](index=48&type=chunk)[52](index=52&type=chunk)[55](index=55&type=chunk) Actual Results Attributable to 2024 Acquisitions (in thousands) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $56,070 | $10,112 | $106,865 | $12,401 | | Net income (loss) | $2,840 | $(467) | $4,897 | $(411) | Unaudited Pro Forma Consolidated Financial Information (as if acquisitions occurred Jan 1, 2023) (in thousands) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $502,437 | $497,453 | $980,466 | $967,452 | | Net income (loss) | $5,003 | $(839) | $8,264 | $(10,164) | [Note 4 – Revenue Recognition](index=19&type=section&id=Note%204%20%E2%80%93%20Revenue%20Recognition) This note explains the company's policies and methods for recognizing revenue from various sources - Company revenue is primarily from product sales, disaggregated by geographic area and segment[62](index=62&type=chunk) Disaggregated Consolidated Revenue by Geographic Area (in thousands) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $371,138 | $355,252 | $728,270 | $683,895 | | Canada | $74,337 | $30,978 | $141,967 | $60,366 | | Europe | $16,121 | $11,753 | $29,952 | $30,847 | | Pacific Rim | $7,621 | $4,266 | $15,393 | $8,489 | | Latin America | $29,842 | $35,071 | $58,479 | $67,180 | | Other | $3,959 | $2,884 | $7,640 | $5,908 | | Intersegment revenue elimination | $(581) | $(668) | $(1,235) | $(1,063) | | **Total revenue** | **$502,437** | **$439,536** | **$980,466** | **$855,622** | Revenue from Operating Leases (in thousands) | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue from operating leases | $6,636 | $4,125 | $13,230 | $8,410 | [Note 5 – Supplemental Financial Statement Information](index=20&type=section&id=Note%205%20%E2%80%93%20Supplemental%20Financial%20Statement%20Information) This note provides additional details on specific financial statement line items, including restricted cash and property, plant, and equipment - Restricted cash totaled **$14.3 million** at June 30, 2025, including **$5.8 million** for acquisition escrow accounts and **$8.5 million** as collateral for borrowings under the Amended Credit Agreement[65](index=65&type=chunk) Property, Plant and Equipment, net (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Land | $16,621 | $16,187 | | Buildings and improvements | $65,909 | $63,935 | | Machinery and equipment | $60,505 | $55,889 | | Capitalized software | $19,784 | $12,295 | | Furniture and fixtures | $12,422 | $13,252 | | Vehicles | $6,423 | $5,716 | | Construction in progress | $5,142 | $6,284 | | Total | $186,806 | $173,558 | | Accumulated depreciation and amortization | $(59,711) | $(48,034) | | **Property, plant and equipment, net** | **$127,095** | **$125,524** | Accrued Expenses and Other Current Liabilities (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :---------------- | | Accrued compensation | $23,350 | $23,800 | | Accrued and withheld taxes, other than income taxes | $11,261 | $10,178 | | Deferred revenue | $6,742 | $3,727 | | Accrued customer rebates | $5,916 | $6,366 | | Deferred acquisition payments and accrued earnout liabilities | $5,823 | $6,384 | | Accrued severance and acquisition related retention bonus | $2,508 | $2,864 | | Accrued income taxes | $2,485 | $1,703 | | Accrued health benefits | $1,797 | $2,234 | | Accrued interest | $1,756 | $2,030 | | Accrued stock-based compensation | $1,308 | $1,960 | | Other | $19,583 | $20,013 | | **Total accrued expenses and other current liabilities** | **$82,529** | **$81,259** | [Note 6 – Goodwill and Intangible Assets](index=21&type=section&id=Note%206%20%E2%80%93%20Goodwill%20and%20Intangible%20Assets) This note details the company's goodwill and intangible assets, including changes and amortization expenses Changes in Goodwill by Segment (in thousands) | Segment | Balance at December 31, 2024 | Acquisitions | Impact of Foreign Exchange Rates | Balance at June 30, 2025 | | :--------------------- | :--------------------------- | :----------- | :------------------------------- | :----------------------- | | Lawson | $192,598 | — | $327 | $192,925 | | TestEquity | $164,880 | — | — | $164,880 | | Gexpro Services | $56,342 | $168 | $1,649 | $58,159 | | Canada Branch Division | $48,969 | $849 | $2,791 | $52,609 | | **Total** | **$462,789** | **$1,017** | **$4,767** | **$468,573** | Intangible Assets, Net (in thousands) | Category | Gross Carrying Amount (Jun 30, 2025) | Accumulated Amortization (Jun 30, 2025) | Net Carrying Value (Jun 30, 2025) | Net Carrying Value (Dec 31, 2024) | | :------------------ | :----------------------------------- | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Trade names | $141,756 | $(52,401) | $89,355 | $96,268 | | Customer relationships | $275,030 | $(116,750) | $158,280 | $171,184 | | Other | $7,849 | $(5,922) | $1,927 | $2,311 | | **Total** | **$424,635** | **$(175,073)** | **$249,562** | **$269,763** | Amortization Expense for Intangible Assets (in thousands) | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Amortization expense | $11,650 | $12,206 | $23,235 | $22,954 | [Note 7 – Leases](index=22&type=section&id=Note%207%20%E2%80%93%20Leases) This note provides information on the company's lease arrangements, including lease costs, assets, and liabilities Components of Net Lease Cost (in thousands) | Lease Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease expense | $6,991 | $6,086 | $13,818 | $11,816 | | Financing lease expense | $175 | $162 | $351 | $314 | | Sublease income | $(160) | $(106) | $(319) | $(106) | | **Net lease cost** | **$7,006** | **$6,142** | **$13,850** | **$12,024** | Lease Assets and Liabilities (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Total right of use operating lease assets | $103,268 | $91,962 | | Total right of use financing lease assets | $1,714 | $1,702 | | **Total lease assets** | **$104,982** | **$93,664** | | Total current operating lease obligation | $18,543 | $18,413 | | Total current financing lease obligation | $588 | $538 | | **Total current lease obligation** | **$19,131** | **$18,951** | | Total long-term operating lease obligation | $90,711 | $76,759 | | Total long-term financing lease obligation | $993 | $999 | | **Total long-term lease obligation** | **$91,704** | **$77,758** | - As of June 30, 2025, the weighted average remaining lease term for operating leases was **6.3 years** with a weighted average interest rate of **7.5%**. For finance leases, it was **3.5 years** with a **7.1%** interest rate[75](index=75&type=chunk) [Note 8 – Earnout Liabilities](index=24&type=section&id=Note%208%20%E2%80%93%20Earnout%20Liabilities) This note describes the company's earnout liabilities related to acquisitions and changes in their fair value - A **$2.0 million** earn-out payment was made in Q1 2025 for the Frontier acquisition (March 31, 2022). The fair value of the earn-out liability was **$0.0 million** at June 30, 2025, down from **$1.0 million** at December 31, 2024[76](index=76&type=chunk) - The Company recorded an expense of **$1.0 million** for changes in the fair value of the earn-out liability for the six months ended June 30, 2025, compared to **$0.0 million** for the same period in 2024[76](index=76&type=chunk) [Note 9 – Debt](index=24&type=section&id=Note%209%20%E2%80%93%20Debt) This note details the company's outstanding debt obligations, credit facilities, and compliance with financial covenants Outstanding Long-Term Debt (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Senior secured term loan | $209,375 | $215,625 | | Senior secured delayed draw term loan | $43,125 | $44,375 | | Incremental term loans | $467,000 | $479,625 | | Other revolving line of credit | $1,128 | $226 | | **Total debt** | **$720,628** | **$739,851** | | Less: current portion of long-term debt | $(41,378) | $(40,476) | | Less: deferred financing costs | $(4,256) | $(5,472) | | **Total long-term debt** | **$674,994** | **$693,903** | - The Fourth Amendment to the Amended Credit Agreement, effective March 31, 2025, increased permitted restricted payments from **$10 million** to **$25 million** annually[77](index=77&type=chunk) - As of June 30, 2025, DSG had **$252.7 million** of borrowing availability under its **$255 million** senior secured revolving credit facility, net of **$2.3 million** in outstanding letters of credit[78](index=78&type=chunk)[79](index=79&type=chunk) - The Company was in compliance with all financial covenants under the Amended Credit Agreement as of June 30, 2025[88](index=88&type=chunk) [Note 10 – Stock-Based Compensation](index=25&type=section&id=Note%2010%20%E2%80%93%20Stock-Based%20Compensation) This note outlines the company's stock-based compensation plans and the associated expenses Stock-Based Compensation Expense (in thousands) | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Expense (Benefit) | $1,300 | $(300) | $2,200 | $1,900 | - A stock-based compensation liability of **$1.3 million** was included in Accrued expenses and other current liabilities as of June 30, 2025, down from **$2.0 million** at December 31, 2024[90](index=90&type=chunk) [Note 11 – Stockholders' Equity](index=26&type=section&id=Note%2011%20%E2%80%93%20Stockholders'%20Equity) This note provides information on changes in stockholders' equity, including common stock repurchases - During the first six months of 2025, the Company repurchased **653,213 shares** of common stock at an average cost of **$30.69 per share**, totaling **$20.0 million**[91](index=91&type=chunk) - As of June 30, 2025, **$6.3 million** remained available for stock repurchases under the program[91](index=91&type=chunk) [Note 12 – Earnings Per Share](index=26&type=section&id=Note%2012%20%E2%80%93%20Earnings%20Per%20Share) This note presents the calculation of basic and diluted earnings per share for the company Basic and Diluted Earnings Per Share (in thousands, except share and per share data) | (in thousands, except share and per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $5,003 | $1,896 | $8,264 | $(3,328) | | Basic weighted average shares outstanding | 46,381,194 | 46,818,932 | 46,490,702 | 46,798,055 | | Basic income (loss) per share | $0.11 | $0.04 | $0.18 | $(0.07) | | Diluted weighted average shares outstanding | 46,562,690 | 47,623,712 | 47,295,547 | 46,798,055 | | Diluted income (loss) per share | $0.11 | $0.04 | $0.17 | $(0.07) | - Securities excluded from diluted EPS calculation due to anti-dilutive effect for the six months ended June 30, 2024, included **985,873 stock options** and **844,374 other stock-based awards**[92](index=92&type=chunk) [Note 13 – Income Taxes](index=26&type=section&id=Note%2013%20%E2%80%93%20Income%20Taxes) This note details the company's income tax expense, effective tax rates, and factors influencing tax variations Income Tax Expense (Benefit) and Effective Tax Rate (in thousands) | Period | Income Tax Expense (Benefit) (in thousands) | Effective Tax Rate | | :------------------------------- | :---------------------------------------- | :----------------- | | Three Months Ended June 30, 2025 | $6,859 | 57.8% | | Three Months Ended June 30, 2024 | $(180) | (10.5)% | | Six Months Ended June 30, 2025 | $9,112 | 52.4% | | Six Months Ended June 30, 2024 | $(4,257) | 56.1% | - The effective tax rate for Q2 and YTD 2025 differed from the U.S. statutory rate primarily due to state taxes, foreign income, and changes in valuation allowances related to interest expense limitation deferred tax assets[93](index=93&type=chunk)[96](index=96&type=chunk) - The Company is evaluating the future impact of the 'One Big Beautiful Bill Act' enacted on July 4, 2025, on its consolidated financial statements[99](index=99&type=chunk) [Note 14 – Segment Information](index=27&type=section&id=Note%2014%20%E2%80%93%20Segment%20Information) This note provides financial data disaggregated by the company's operating segments, including revenue and operating income - DSG realigned its reportable segments in Q3 2024, creating four segments: Lawson, TestEquity, Gexpro Services, and Canada Branch Division (including Bolt and Source Atlantic). Prior period results were recast[100](index=100&type=chunk)[101](index=101&type=chunk) Segment Revenue (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Lawson | $124,313 | $121,118 | $244,775 | $239,304 | | TestEquity | $195,046 | $197,481 | $383,819 | $384,630 | | Gexpro Services | $127,807 | $107,134 | $246,712 | $205,785 | | Canada Branch Division | $55,852 | $14,471 | $106,395 | $26,966 | | Intersegment elimination | $(581) | $(668) | $(1,235) | $(1,063) | | **Total revenue** | **$502,437** | **$439,536** | **$980,466** | **$855,622** | Segment Operating Income (Loss) (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Lawson | $7,975 | $6,129 | $14,291 | $10,236 | | TestEquity | $4,813 | $703 | $8,943 | $(5,391) | | Gexpro Services | $13,902 | $8,091 | $25,143 | $13,553 | | Canada Branch Division | $1,751 | $1,463 | $2,402 | $2,323 | | All Other | $(1,615) | $(2,228) | $(3,856) | $(3,780) | | **Total operating income (loss)** | **$26,826** | **$14,158** | **$46,923** | **$16,941** | [Note 15 – Commitments and Contingencies](index=30&type=section&id=Note%2015%20%E2%80%93%20Commitments%20and%20Contingencies) This note discloses the company's various commitments and potential liabilities, including legal and environmental matters - The Cyber Incident lawsuit (Lardone Davis v. Lawson Products, Inc.) was settled on April 10, 2025, with the settlement payment being immaterial and fully covered by insurance[111](index=111&type=chunk) - For an environmental matter at a Decatur, Alabama site, the Company had accrued approximately **$0.1 million** for potential monitoring costs at June 30, 2025, with future costs not expected to be significant and fully accrued[112](index=112&type=chunk)[113](index=113&type=chunk) [Note 16 – Related Party Transactions](index=30&type=section&id=Note%2016%20%E2%80%93%20Related%20Party%20Transactions) This note describes transactions and relationships between the company and its related parties, including significant shareholders Consulting Services Expense from LKCM Headwater Operations, LLC (in thousands) | Period | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Expense | $400 | $300 | $600 | $700 | - LKCM and its affiliates, including J. Bryan King (CEO and Chairman), beneficially owned approximately **78.6%** of DSG's outstanding common stock as of June 30, 2025[116](index=116&type=chunk) - The Company utilizes office space in a building leased by LKCM for its Fort Worth headquarters without incurring rent or other charges[117](index=117&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=33&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on DSG's financial condition and results of operations, covering business overview, segment performance for the three and six months ended June 30, 2025, and an analysis of liquidity and capital resources [Overview](index=33&type=section&id=Overview) This section provides a general description of the company's business, market conditions, and strategic initiatives - DSG is a multi-platform specialty distribution company serving MRO, OEM, and industrial technologies markets through four reportable segments: Lawson, TestEquity, Gexpro Services, and Canada Branch Division[121](index=121&type=chunk)[122](index=122&type=chunk) - The Company pursues both organic growth (collaborative selling, digital expansion) and acquisition opportunities complementary to its businesses[128](index=128&type=chunk)[129](index=129&type=chunk) - The average monthly Purchasing Managers Index (PMI) was **49.4** for the six months ended June 30, 2025, indicating a slight contraction in the manufacturing sector, compared to **48.9** in the prior year[131](index=131&type=chunk) - Supply chain disruptions continue due to rising supplier costs, inflation, and increased tariffs, transportation, and labor costs. DSG has implemented price increases to manage gross profit margins[140](index=140&type=chunk) [Results of Operations - Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024](index=39&type=section&id=Results%20of%20Operations%20-%20Three%20Months%20Ended%20June%2030%2C%202025%20Compared%20to%20Three%20Months%20Ended%20June%2030%2C%202024) This section analyzes the company's financial performance for the three-month period, highlighting key revenue and income drivers - Consolidated revenue increased by **$62.9 million** (**14.3%**) to **$502.4 million**, driven by **$48.8 million** from 2024 acquisitions and **$14.1 million** (**3.3%**) organic growth[157](index=157&type=chunk) - Consolidated operating income increased by **$12.7 million** (**89.5%**) to **$26.8 million**, and net income increased by **$3.1 million** (**164.0%**) to **$5.0 million**[14](index=14&type=chunk) Segment Performance (Three Months Ended June 30, 2025 vs. 2024) (in thousands) | Segment | Revenue (2025) | Revenue (2024) | % Change (Revenue) | Operating Income (2025) | Operating Income (2024) | % Change (Operating Income) | Adjusted EBITDA (2025) | Adjusted EBITDA (2024) | % Change (Adjusted EBITDA) | | :--------------------- | :------------- | :------------- | :----------------- | :---------------------- | :---------------------- | :-------------------------- | :--------------------- | :--------------------- | :------------------------- | | Lawson | $124,313 | $121,118 | 2.6% | $7,975 | $6,129 | 30.1% | $15,709 | $16,503 | -4.8% | | TestEquity | $195,046 | $197,481 | -1.2% | $4,813 | $703 | 584.6% | $13,477 | $15,448 | -12.8% | | Gexpro Services | $127,807 | $107,134 | 19.3% | $13,902 | $8,091 | 71.8% | $17,082 | $12,740 | 34.1% | | Canada Branch Division | $55,852 | $14,471 | 286.0% | $1,751 | $1,463 | 19.7% | $3,620 | $2,018 | 79.4% | - Interest expense increased by **$1.4 million** (**11.3%**) due to higher outstanding borrowings from 2024 acquisitions. Other income (expense), net, decreased by **$1.1 million** due to unfavorable foreign currency exchange rates and lower interest income[183](index=183&type=chunk)[184](index=184&type=chunk) [Results of Operations - Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024](index=45&type=section&id=Results%20of%20Operations%20-%20Six%20Months%20Ended%20June%2030%2C%202025%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202024) This section analyzes the company's financial performance for the six-month period, detailing revenue and income trends - Consolidated revenue increased by **$124.8 million** (**14.6%**) to **$980.5 million**, primarily from **$99.6 million** generated by 2024 acquisitions and organic revenue growth[188](index=188&type=chunk) - Consolidated operating income increased by **$29.9 million** (**177.1%**) to **$46.9 million**, and net income improved by **$11.6 million** to **$8.3 million** from a net loss of **$3.3 million** in the prior year[14](index=14&type=chunk)[188](index=188&type=chunk) Segment Performance (Six Months Ended June 30, 2025 vs. 2024) (in thousands) | Segment | Revenue (2025) | Revenue (2024) | % Change (Revenue) | Operating Income (2025) | Operating Income (2024) | % Change (Operating Income) | Adjusted EBITDA (2025) | Adjusted EBITDA (2024) | % Change (Adjusted EBITDA) | | :--------------------- | :------------- | :------------- | :----------------- | :---------------------- | :---------------------- | :-------------------------- | :--------------------- | :--------------------- | :------------------------- | | Lawson | $244,775 | $239,304 | 2.3% | $14,291 | $10,236 | 39.6% | $30,016 | $29,929 | 0.3% | | TestEquity | $383,819 | $384,630 | -0.2% | $8,943 | $(5,391) | -265.9% | $26,288 | $27,059 | -2.8% | | Gexpro Services | $246,712 | $205,785 | 19.9% | $25,143 | $13,553 | 85.5% | $32,057 | $23,551 | 36.1% | | Canada Branch Division | $106,395 | $26,966 | 294.6% | $2,402 | $2,323 | 3.4% | $6,236 | $3,390 | 84.0% | - Interest expense increased by **$3.8 million** (**15.6%**) due to higher outstanding borrowings from 2024 acquisitions. A **$1.0 million** expense was recorded for changes in earnout liabilities related to the Frontier acquisition[214](index=214&type=chunk)[215](index=215&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's ability to meet its short-term and long-term financial obligations and its sources of funding - Cash and cash equivalents were **$47.4 million** at June 30, 2025, down from **$66.5 million** at December 31, 2024[218](index=218&type=chunk) - The Company believes its current cash, **$252.7 million** borrowing availability under its Amended Credit Agreement, and cash flows from operations are sufficient for liquidity needs over the next twelve months[219](index=219&type=chunk) Summary of Cash Flows (Six Months Ended June 30, in thousands) | Activity | 2025 | 2024 | Change | | :--------------------------------------- | :----------- | :----------- | :----- | | Net cash provided by operating activities | $28,536 | $28,009 | $527 | | Net cash used in investing activities | $(11,989) | $(102,370) | $90,381 | | Net cash provided by (used in) financing activities | $(39,058) | $33,208 | $(72,266) | - Net cash used in financing activities for H1 2025 was **$39.1 million**, primarily due to term loan principal payments and common stock repurchases, partially offset by net borrowings on the revolving credit facility[226](index=226&type=chunk) - The Company expects **$20.0 million** to **$25.0 million** in net capital expenditures for fiscal year 2025. Contractual commitments to purchase products totaled **$181.0 million** over the next twelve months[231](index=231&type=chunk)[232](index=232&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=53&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section discusses the company's exposure to market risks, primarily interest rate risk related to its floating-rate long-term debt obligations - As of June 30, 2025, **100%** of the Company's debt was floating rate. A hypothetical **100 basis point** increase/decrease in interest rates would impact annual interest expense by approximately **$7.2 million**[238](index=238&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=53&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section details the evaluation of disclosure controls and procedures and reports on changes in internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[239](index=239&type=chunk) - There were no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025[240](index=240&type=chunk) PART II - OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal matters, risk factors, and equity transactions [ITEM 1. LEGAL PROCEEDINGS](index=53&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section refers to Note 15 for a description of certain legal proceedings, including a cyber incident lawsuit and an environmental matter, and notes that the Company is involved in other legal actions arising in the ordinary course of business - Legal proceedings are described in Note 15, including a cyber incident lawsuit and an environmental matter[243](index=243&type=chunk) [ITEM 1A. RISK FACTORS](index=53&type=section&id=ITEM%201A.%20RISK%20FACTORS) This section highlights a new risk factor concerning enhanced tariffs, changes in trade policies, and import/export regulations, which could negatively impact global economic conditions, financial markets, and the company's cost of goods and operating margins - A new risk factor has been identified regarding enhanced tariffs, changes in trade policies, and import and export regulations of the U.S. and foreign governments[244](index=244&type=chunk)[246](index=246&type=chunk) - These actions could negatively affect global economic conditions, financial markets, and the Company's cost of goods, potentially resulting in lower operating margins if increased costs cannot be fully passed through to customers[246](index=246&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=55&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section reports on the absence of unregistered sales of equity securities and details the company's common stock repurchases under its authorized program during the second quarter of 2025 - The Company did not make any unregistered sales of its equity securities during the second quarter of 2025[247](index=247&type=chunk) Issuer Purchases of Equity Securities (Three Months Ended June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs | | :----------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | :--------------------------------------------------------------------- | | April 1 through April 30, 2025 | 132,002 | $26.01 | 132,002 | $11,737,000 | | May 1 through May 31, 2025 | 190,068 | $26.97 | 190,068 | $6,611,000 | | June 1 through June 30, 2025 | 10,505 | $26.94 | 10,505 | $6,328,000 | | **Total** | **332,575** | | **332,575** | | - As of June 30, 2025, **$6.3 million** remained available under the stock repurchase program, which does not have an expiration date[248](index=248&type=chunk) [ITEM 5. OTHER INFORMATION](index=55&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section states that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the second quarter of 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2025[251](index=251&type=chunk) [ITEM 6. EXHIBITS](index=56&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including corporate organizational documents, certifications from the CEO and CFO, and Inline XBRL financial statements - Exhibits include the Third Amended and Restated Certificate of Incorporation, Amended and Restated By-Laws, an Employment Agreement, CEO and CFO certifications (Sarbanes-Oxley Act), and Inline XBRL formatted financial statements[252](index=252&type=chunk) [SIGNATURES](index=57&type=section&id=SIGNATURES) This section contains the signatures of the registrant's authorized officers, including the Chairman, President and Chief Executive Officer, Executive Vice President, Chief Financial Officer and Treasurer, and Vice President, Controller and Chief Accounting Officer, certifying the report - The report is signed by J. Bryan King (Chairman, President and Chief Executive Officer), Ronald J. Knutson (Executive Vice President, Chief Financial Officer and Treasurer), and David S. Lambert (Vice President, Controller and Chief Accounting Officer)[256](index=256&type=chunk)[257](index=257&type=chunk)

[Executive Summary & Business Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Business%20Highlights) [Q2 2025 Performance Overview](index=1&type=section&id=Q2%202025%20Performance%20Overview) Distribution Solutions Group (DSG) reported strong second-quarter 2025 results, with significant revenue growth driven by acquisitions and organic sales, alongside substantial improvements in operating income, cash flows, and Adjusted EBITDA **Q2 2025 Key Financial Highlights:** | Metric | Q2 2025 (in thousands) | Q2 2024 (in thousands) | % Change YoY | Q1 2025 (in thousands) | % Change QoQ | | :-------------------------------- | :--------------------- | :--------------------- | :----------- | :--------------------- | :----------- | | Revenue | $502,437 | $439,536 | 14.3% | $478,029 | 5.1% | | Operating income | $26,826 | $14,158 | 89.5% | $20,097 | 33.5% | | Non-GAAP adjusted operating income | $39,873 | $38,852 | 2.6% | $34,392 | 15.9% | | Non-GAAP adjusted EBITDA | $48,561 | $45,181 | 7.5% | $42,786 | 13.5% | | Operating income as % of revenue | 5.3% | 3.2% | +210bps | 4.2% | +110bps | | Adjusted EBITDA as % of revenue | 9.7% | 10.3% | -60bps | 9.0% | +70bps | | Diluted net income per share | $0.11 | $0.04 | 175.0% | N/A | N/A | | Cash flow from operations | $33,300 | N/A | N/A | N/A | N/A | | Total liquidity | $314,400 | N/A | N/A | N/A | N/A | - Revenue growth of **14.3%** was primarily driven by **$48.8 million** from five acquisitions closed in 2024, complemented by **3.3%** organic sales growth year-over-year and **5.1%** sequentially[4](index=4&type=chunk)[9](index=9&type=chunk) - Adjusted EBITDA margin was slightly compressed by approximately **60bps** year-over-year due to the Source Atlantic acquisition, but saw a sequential lift of **70bps**[4](index=4&type=chunk)[9](index=9&type=chunk) [CEO Commentary](index=1&type=section&id=CEO%20Commentary) CEO Bryan King highlighted strong top and bottom-line results, attributing sales growth to acquisitions and organic expansion, noting sequential adjusted margin expansion, progress on margin improvement initiatives, and effective working capital management - Organic sales grew **3.3%** year-over-year and **2.4%** sequentially (seasonal daily sales)[4](index=4&type=chunk) - All operational teams (Lawson, Gexpro Services, TestEquity, Canada Branch Division) delivered sequential expansion of adjusted margins, with ongoing initiatives to improve margins in 2024 acquisitions[5](index=5&type=chunk) - Improved working capital management generated **$33.3 million** from cash flows from operations, ending the quarter with no outstanding revolver debt and **$314.4 million** in total liquidity[5](index=5&type=chunk)[9](index=9&type=chunk) - The company repurchased **$20.0 million** of DSGR stock in the first half of 2025, with **$8.8 million** in Q2, demonstrating alignment with shareholders[6](index=6&type=chunk)[9](index=9&type=chunk) [Company Profile](index=2&type=section&id=Company%20Profile) Distribution Solutions Group (DSG) is a multi-platform specialty distribution company serving MRO, OEM, and industrial technologies markets, formed by combining Lawson Products, Gexpro Services, and TestEquity to reduce customer operating costs - DSG is a premier multi-platform specialty distribution company providing high-touch, value-added distribution solutions[8](index=8&type=chunk) - Serves maintenance, repair & operations (MRO), original equipment manufacturer (OEM), and industrial technologies markets[8](index=8&type=chunk) - Comprises Lawson Products (MRO distribution), Gexpro Services (global supply chain services), and TestEquity (electronic test & measurement solutions)[8](index=8&type=chunk) - Serves approximately **200,000 customers** across diverse end markets, supported by **4,400 employees** and strong vendor partnerships, with global distribution capabilities[10](index=10&type=chunk) [Financial Statements](index=4&type=section&id=Financial%20Statements) [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheet shows an increase in total assets and stockholders' equity from December 31, 2024, to June 30, 2025, primarily driven by growth in accounts receivable and prepaid expenses, while cash and cash equivalents decreased **Condensed Consolidated Balance Sheet Highlights (in thousands):** | Item | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $47,430 | $66,479 | | Accounts receivable, less allowances | $283,467 | $250,717 | | Inventories | $350,303 | $348,226 | | Total current assets | $740,906 | $712,174 | | Total assets | $1,751,983 | $1,727,255 | | Total current liabilities | $286,300 | $266,261 | | Long-term debt, less current portion, net | $674,994 | $693,903 | | Total liabilities | $1,102,608 | $1,086,712 | | Total stockholders' equity | $649,375 | $640,543 | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) DSG reported substantial improvements in profitability for Q2 2025 and the first six months of 2025 compared to the prior year, with net income and diluted EPS turning positive and growing significantly **Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data):** | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $502,437 | $439,536 | $980,466 | $855,622 | | Gross profit | $170,084 | $151,527 | $334,064 | $294,936 | | Operating income (loss) | $26,826 | $14,158 | $46,923 | $16,941 | | Net income (loss) | $5,003 | $1,896 | $8,264 | $(3,328) | | Diluted income (loss) per share | $0.11 | $0.04 | $0.17 | $(0.07) | - Revenue increased by **14.3%** for the three months ended June 30, 2025, and **14.6%** for the six months ended June 30, 2025, compared to the prior year periods[18](index=18&type=chunk) - Net income for the six months ended June 30, 2025, was **$8.264 million**, a significant improvement from a net loss of **$(3.328) million** in the prior year period[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2025, DSG generated positive cash flow from operations, while investing activities resulted in a net outflow, significantly less than the prior year due to fewer business acquisitions, and financing activities resulted in a net cash outflow **Condensed Consolidated Statements of Cash Flows Highlights (in thousands):** | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $28,536 | $28,009 | | Net cash used in investing activities | $(11,989) | $(102,370) | | Net cash used in financing activities | $(39,058) | $33,208 | | Increase (decrease) in cash, cash equivalents and restricted cash | $(19,963) | $(42,715) | | Cash, cash equivalents and restricted cash at end of period | $61,763 | $56,911 | - Business acquisitions, net of cash acquired, decreased significantly from **$(95.437) million** in 2024 to **$(1.426) million** in 2025[21](index=21&type=chunk) - Repurchase of common stock amounted to **$(20.256) million** in the first six months of 2025, compared to **$(1.683) million** in the prior year[21](index=21&type=chunk) [Segment Performance](index=7&type=section&id=Segment%20Performance) [Segment Realignment](index=7&type=section&id=Segment%20Realignment) In Q3 2024, DSG realigned its reportable segments by adding a new 'Canada Branch Division' segment, which includes Source Atlantic and Bolt Supply House, to focus on the Canadian MRO market, with prior period segment results recast - A new 'Canada Branch Division' segment was added in Q3 2024, incorporating Source Atlantic and Bolt Supply House, focusing on the Canadian MRO market[23](index=23&type=chunk) - The results of Bolt Supply House were previously included in the 'All Other' non-reportable segment[23](index=23&type=chunk) - The realignment had no impact on financial condition or results of operations, and prior period segment results were recast[23](index=23&type=chunk) [Selected Segment Financial Data](index=7&type=section&id=Selected%20Segment%20Financial%20Data) All reportable segments showed year-over-year revenue growth in Q2 2025, with the Canada Branch Division experiencing the most significant increase due to acquisitions, and operating income also improved across all segments **Selected Segment Financial Data (Three Months Ended June 30, in thousands):** | Segment | Revenue Q2 2025 | Revenue Q2 2024 | Operating Income Q2 2025 | Operating Income Q2 2024 | | :------------------ | :-------------- | :-------------- | :----------------------- | :----------------------- | | Lawson Products | $124,313 | $121,118 | $7,975 | $6,129 | | Canada Branch Division | $55,852 | $14,471 | $1,751 | $1,463 | | Gexpro Services | $127,807 | $107,134 | $13,902 | $8,091 | | TestEquity | $195,046 | $197,481 | $4,813 | $703 | | Total | $502,437 | $439,536 | $26,826 | $14,158 | - Canada Branch Division revenue grew significantly from **$14.471 million** in Q2 2024 to **$55.852 million** in Q2 2025, largely due to the Source Atlantic acquisition[25](index=25&type=chunk) - Gexpro Services' operating income nearly doubled from **$8.091 million** to **$13.902 million** year-over-year[25](index=25&type=chunk) [Non-GAAP Reconciliations](index=8&type=section&id=Non-GAAP%20Reconciliations) [GAAP to Non-GAAP Adjusted EBITDA Reconciliation](index=8&type=section&id=GAAP%20to%20Non-GAAP%20Adjusted%20EBITDA%20Reconciliation) DSG provides a reconciliation of GAAP Net Income and Operating Income to Non-GAAP Adjusted EBITDA, which excludes non-cash and non-recurring items to offer a clearer view of underlying business trends **GAAP to Non-GAAP Adjusted EBITDA Reconciliation (Three Months Ended, in thousands):** | Item | June 30, 2025 | June 30, 2024 | March 31, 2025 | | :-------------------------------- | :------------ | :------------ | :------------- | | Net income (loss) | $5,003 | $1,896 | $3,261 | | Operating income (loss) | $26,826 | $14,158 | $20,097 | | Depreciation and amortization | $20,338 | $18,535 | $19,979 | | Stock-based compensation | $1,250 | $(307) | $974 | | Severance and acquisition related retention expenses | $355 | $8,313 | $1,628 | | Acquisition related costs | $(208) | $3,598 | $108 | | Non-GAAP adjusted EBITDA | $48,561 | $45,181 | $42,786 | | Adjusted EBITDA as a percent of revenue | 9.7% | 10.3% | 9.0% | - Adjusted EBITDA increased by **7.5%** year-over-year and **13.5%** sequentially[4](index=4&type=chunk)[29](index=29&type=chunk) - Adjusted EBITDA margin was **9.7%** in Q2 2025, down **60bps** YoY but up **70bps** QoQ[4](index=4&type=chunk)[29](index=29&type=chunk) [GAAP to Non-GAAP Adjusted Net Income & EPS Reconciliation](index=9&type=section&id=GAAP%20to%20Non-GAAP%20Adjusted%20Net%20Income%20%26%20EPS%20Reconciliation) This section reconciles GAAP Net Income and Diluted EPS to their Non-GAAP adjusted counterparts by excluding specific non-recurring and non-cash items to provide a normalized view of profitability **GAAP to Non-GAAP Adjusted Net Income & EPS Reconciliation (Three Months Ended, in thousands, except per share data):** | Item | June 30, 2025 Amount | June 30, 2025 Diluted EPS | June 30, 2024 Amount | June 30, 2024 Diluted EPS | March 31, 2025 Amount | March 31, 2025 Diluted EPS | | :-------------------------------- | :------------------- | :---------------------- | :------------------- | :---------------------- | :-------------------- | :--------------------- | | Net income (loss) | $5,003 | $0.11 | $1,896 | $0.04 | $3,261 | $0.07 | | Total pretax adjustments | $13,047 | $0.29 | $24,702 | $0.52 | $15,295 | $0.31 | | Tax effect on adjustments | $(3,135) | $(0.08) | $(7,238) | $(0.15) | $(4,044) | $(0.07) | | Deferred tax asset valuation allowance | $1,536 | $0.03 | $(410) | $(0.01) | $190 | $0.00 | | Non-GAAP adjusted net income | $16,451 | $0.35 | $18,950 | $0.40 | $14,702 | $0.31 | - Adjusted diluted EPS for Q2 2025 was **$0.35**, compared to **$0.40** in Q2 2024 and **$0.31** in Q1 2025[33](index=33&type=chunk) [GAAP to Non-GAAP Adjusted Operating Income Reconciliation](index=10&type=section&id=GAAP%20to%20Non-GAAP%20Adjusted%20Operating%20Income%20Reconciliation) This reconciliation details the adjustments made to GAAP Operating Income to arrive at Non-GAAP Adjusted Operating Income, primarily by adding back non-cash items and non-recurring expenses **GAAP to Non-GAAP Adjusted Operating Income Reconciliation (Three Months Ended, in thousands):** | Item | June 30, 2025 | June 30, 2024 | March 31, 2025 | | :-------------------------------- | :------------ | :------------ | :------------- | | Operating income (loss) | $26,826 | $14,158 | $20,097 | | Inventory step-up | $0 | $634 | $0 | | Acquisition related costs | $(208) | $3,598 | $108 | | Amortization of intangible assets | $11,650 | $12,206 | $11,585 | | Stock-based compensation | $1,250 | $(307) | $974 | | Severance and acquisition related retention expenses | $355 | $8,313 | $1,628 | | Other non-recurring | $0 | $250 | $0 | | Non-GAAP adjusted operating income | $39,873 | $38,852 | $34,392 | - Non-GAAP adjusted operating income increased by **2.6%** year-over-year and **15.9%** sequentially[4](index=4&type=chunk)[39](index=39&type=chunk) [Segment-wise Non-GAAP Adjusted EBITDA Reconciliation](index=11&type=section&id=Segment-wise%20Non-GAAP%20Adjusted%20EBITDA%20Reconciliation) This reconciliation provides a detailed breakdown of Non-GAAP Adjusted EBITDA and its percentage of revenue for each segment, highlighting individual segment performance after accounting for non-cash and non-recurring items **Segment-wise Non-GAAP Adjusted EBITDA (Three Months Ended Q2, in thousands):** | Segment | Q2 2025 Adjusted EBITDA | Q2 2024 Adjusted EBITDA | Q2 2025 Adjusted EBITDA % of Revenue | Q2 2024 Adjusted EBITDA % of Revenue | | :--------------------- | :---------------------- | :---------------------- | :----------------------------------- | :----------------------------------- | | Lawson Products | $15,709 | $16,503 | 12.6% | 13.6% | | Gexpro Services | $17,082 | $12,740 | 13.4% | 11.9% | | TestEquity | $13,477 | $15,448 | 6.9% | 7.8% | | Canada Branch Division | $3,620 | $2,018 | 6.5% | 13.9% | | All Other | $(1,327) | $(1,528) | N/M | N/M | | Consolidated DSG | $48,561 | $45,181 | 9.7% | 10.3% | - Gexpro Services showed strong growth in Adjusted EBITDA, increasing from **$12.740 million** to **$17.082 million**, and its margin improved from **11.9%** to **13.4%**[43](index=43&type=chunk) - Canada Branch Division's Adjusted EBITDA increased from **$2.018 million** to **$3.620 million**, but its margin decreased from **13.9%** to **6.5%**, likely due to the integration of Source Atlantic[43](index=43&type=chunk) [Additional Information](index=2&type=section&id=Additional%20Information) [Conference Call Details](index=2&type=section&id=Conference%20Call%20Details) Distribution Solutions Group hosted a conference call on July 31, 2025, to discuss its second-quarter results, with replay options available via telephone and archived audio on its investor relations website - Conference call held on July 31, 2025, at **9:00 a.m. Eastern Time**[7](index=7&type=chunk) - Replay available by telephone through August 14, 2025, and archived on the company's investor relations website[7](index=7&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section serves as a cautionary statement regarding forward-looking statements, emphasizing that they are based on current expectations and involve inherent risks and uncertainties that could cause actual outcomes to differ materially - Forward-looking statements are identified by terms like 'aim,' 'anticipate,' 'believe,' 'expect,' 'plan,' 'will,' and variations thereof[12](index=12&type=chunk) - Such statements are based on current expectations and involve inherent risks, uncertainties, and assumptions that could cause actual outcomes to differ materially[13](index=13&type=chunk) - DSG undertakes no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events, or otherwise[13](index=13&type=chunk) [Contact Information](index=12&type=section&id=Contact%20Information) Contact details for Distribution Solutions Group's company management and investor relations team are provided for inquiries - Company contact: Ronald J. Knutson, Executive Vice President, CFO and Treasurer[46](index=46&type=chunk) - Investor Relations contact: Three Part Advisors, LLC (Steven Hooser / Sandy Martin)[46](index=46&type=chunk)