DSG(DSGR) - 2025 Q2 - Quarterly Report

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) 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 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) 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 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 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 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 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] - 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][29][30] - 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][32][33][34] Note 2 – Summary of Significant Accounting Policies 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] - 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][39][40] Note 3 – Business and Asset Acquisitions 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][44][48][52][55] 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 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] 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 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] 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 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 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] Note 8 – Earnout Liabilities 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] - 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] Note 9 – Debt 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] - 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][79] - The Company was in compliance with all financial covenants under the Amended Credit Agreement as of June 30, 2025[88] Note 10 – Stock-Based Compensation 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] Note 11 – Stockholders' Equity 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] - As of June 30, 2025, $6.3 million remained available for stock repurchases under the program[91] Note 12 – Earnings Per Share 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] Note 13 – Income Taxes 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][96] - 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] Note 14 – Segment Information 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][101] 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 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] - 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][113] Note 16 – Related Party Transactions 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] - The Company utilizes office space in a building leased by LKCM for its Fort Worth headquarters without incurring rent or other charges[117] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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][122] - The Company pursues both organic growth (collaborative selling, digital expansion) and acquisition opportunities complementary to its businesses[128][129] - 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] - 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] Results of Operations - Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 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] - 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] 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][184] Results of Operations - Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 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] - 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][188] 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][215] Liquidity and Capital Resources 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] - 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] 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] - 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][232] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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] ITEM 4. CONTROLS AND PROCEDURES 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] - There were no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025[240] 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 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] ITEM 1A. RISK FACTORS 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][246] - 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] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 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] 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] ITEM 5. OTHER INFORMATION 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] ITEM 6. EXHIBITS 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] 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][257]