PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents unaudited condensed consolidated financial statements, including balance sheets, income statements, cash flows, and detailed accounting notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | September 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :-------------------------------- | :------------------------------- | | Total Assets | $1,232,715 | $493,294 | | Total Liabilities | $685,968 | $327,525 | | Total Stockholders' Equity | $546,747 | $165,769 | | Goodwill | $351,147 | $106,145 | | Intangible assets, net | $236,869 | $96,608 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands) | Metric | Three Months Ended Sep 30, 2022 (in thousands) | Three Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Revenue | $347,151 | $132,090 | $822,572 | $391,069 | | Gross Profit | $119,167 | $34,838 | $274,606 | $98,826 | | Operating Income (Loss) | $22,027 | $5,491 | $29,128 | $13,212 | | Net Income (Loss) | $16,541 | $1,225 | $9,289 | $(204) | | Basic EPS | $0.85 | $0.12 | $0.54 | $(0.02) | | Diluted EPS | $0.84 | $0.12 | $0.53 | $(0.02) | Condensed Consolidated Statements of Changes in Stockholders' Equity Total stockholders' equity increased from $165,769 thousand at December 31, 2021, to $546,747 thousand at September 30, 2022, primarily due to deemed consideration for reverse acquisition and net income, partially offset by foreign currency translation adjustments and treasury stock repurchases2326 Condensed Consolidated Statements of Cash Flows Summary of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2022 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | | :----------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by (used in) operating activities | $(19,280) | $17,137 | | Net cash provided by (used in) investing activities | $(120,550) | $(26,975) | | Net cash provided by (used in) financing activities | $151,820 | $11,212 | | Cash, cash equivalents and restricted cash at end of period | $25,352 | $11,961 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of the company's accounting policies, business combinations, revenue recognition, and other financial details - Distribution Solutions Group, Inc. (DSG), formerly Lawson Products, Inc., changed its name on May 5, 2022, and operates as a global specialty distribution company through three principal operating companies: Lawson, TestEquity, and Gexpro Services37 - The Mergers of TestEquity and Gexpro Services into DSG were consummated on April 1, 2022, with TestEquity and Gexpro Services treated as accounting acquirers and Lawson's results included post-Merger Date41454853 Key Acquisition Details (Nine Months Ended September 30, 2022) (in thousands) | Item | Value (in thousands) | | :--- | :--- | | Fair value of shares exchanged for reverse acquisition | $351,491 | | Goodwill from Mergers (after adjustments) | $187,780 | | Total purchase consideration for other 2022 acquisitions | $119,415 | | Total purchase consideration for other 2021 acquisitions | $50,639 | | Gain on bargain purchase (NEF acquisition) | $1,363 | - The earnout derivative liability, initially $43.9 million for 1,162,000 shares, saw 700,000 shares reclassified to equity on April 29, 2022, with the remaining liability at $12.7 million at September 30, 2022, and a $9.6 million benefit recorded in Q3 2022 due to fair value changes155157158 Debt Overview (in thousands) | Metric | September 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :----- | :-------------------------------- | :------------------------------- | | Total Debt | $418,796 | $229,044 | | Senior secured revolving credit facility | $123,925 | $0 | | Senior secured term loan | $243,750 | $0 | | Senior secured delayed draw term loan | $50,000 | $0 | | Borrowing availability (revolving credit) | $75,100 | N/A | | Weighted average interest rate (Apr 1 - Sep 30, 2022) | 4.3% | N/A | - The company repurchased 54,089 shares of common stock for $1.9 million in Q3 2022, and the Board increased the stock repurchase program from $7.5 million to $12.5 million on November 2, 2022, leaving $7.6 million available193366457458 - A shareholder derivative action was filed on October 3, 2022, alleging breach of fiduciary duty related to the Mergers, which the company intends to vigorously defend against without estimating potential loss201202 - Related party management agreements with LKCM were novated on April 1, 2022, with a $5.3 million prior obligation settled as a deemed equity contribution, and LKCM affiliates owned approximately 75% of DSG common stock post-Mergers207212 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, operational results, merger impacts, segment performance, critical accounting policies, liquidity, and non-GAAP measures Overview - Distribution Solutions Group, Inc. (DSG), formerly Lawson Products, Inc., changed its name on May 5, 2022, and is structured with three principal operating companies: Lawson, TestEquity, and Gexpro Services224225 - Lawson distributes MRO products with VMI, TestEquity distributes test equipment and electronic supplies, and Gexpro Services provides global supply chain solutions with VMI and kitting227228233243 Key Factors Affecting our Results of Operations and Financial Condition - The company is affected by rising supplier, transportation, and labor costs, leading to supply chain disruptions, inventory acquisition challenges, and negative impacts on gross margins248 - A cyber incident in February 2022 led to potential unlawful access, prompting DSG to engage a cybersecurity firm, notify affected parties, and record a $0.4 million receivable from its cyber insurance provider250251 [Critical Accounting Policies and Use of Estimates](index=
DSG(DSGR) - 2022 Q3 - Quarterly Report